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5 Ways Retirement Plan Has Changed Over the Last 25 Years

The only constant factor in our lives is change. But the surprising thing is that the notion of retirement has altered pretty quickly in recent years. Just a few decades ago there was no Medicare; no Social Security and there was no health insurance. In the private sector, pension didn’t take off until 1921 due to the Internal Revenue Act. Later on, the retirement accounts like IRA and 401(k) weren’t there yet. In the last couple of decades, retirement has changed pretty quickly. And now you have to plan for your own retirement.

The Real Benefits of Social Security Have Declined

From 1975 to 1984 the SSA’s annual COLA or cost of living adjustment was averaging 7.7% which was higher than the inflation at that time. The annual increase at the highest point was 14.3%. But from 2009 and 2018 COLA was 1.36%. Out of those ten years three years so no COLA.

This has declines the purchasing power of Social Security benefits by 30% from the period starting from the year 2000 and ending the year 2017.  Why has this happened; because Social Security is going towards bankruptcy! By 2020 the SSA states that the costs will overcome the revenues. So it’s time for you to prepare yourself for retirement because the SSA will not ball you out.

Employers Are Making a Transition from Pension to Contribution Accounts

About 25 years ago, pensions were pretty common but now a transition is going on from pension accounts to contribution accounts. This is where the 401(k) and the 403(b) account come in. With these accounts, employers contribute with a certain amount only monthly basis towards the retirement of their employees rather than paying some amount monthly in their later years.

Now the pensions are increasingly looking to bail out from indefinite payments. This is a trend of de-risking and it involves a one-time payment for buyout instead of ongoing payments or the rest of their lives. More than 86% of the pension sponsors are now looking to de-risk.

Gig Economy’s Rise and Retirement Benefits’ Fall

A whopping 41% of the millennials today don’t have any access to an employer’s sponsored plan for retirement, even if they are working full time. This is mentioned in the Pew Study in 2017. The millennials who have access to the retirement plan don’t use it and only 31% of them participate in such plans.

This is due to the rise of the gig economy. The contracted workers get their 1099 form instead of the traditional; W-2 form. This goes to show that Americans have raised themselves against the challenge of saving for their retirement. But the numbers show quite the opposite.

Health Care Costs Have Skyrocketed

The true side of the picture is telling that the Americans are not able to save enough money on their own. And with the passage of time, the average life expectancy rate has increased as well. For better medical services the healthcare costs are increasing as well. If you adjust the inflation for 2017 the US healthcare spending per capita has increased from $5187 (1992) to $10739 (2017).

And this is not going to decline. The future forecasts for medical costs for a couple (65 years old) will be $537,334 and it doesn’t include long term healthcare.  These numbers are from HealthView Services according to their 2018 report.  For this reason, Americans are retiring later to meet their expenses and accelerate their savings.

Investors Have Grown More Fee-Conscious

There was a time when the managers of mutual funds could make a lot under expense ratios. After all, a couple of decades from now, money managers were managing all the accounts on behalf of their clients.

But now the investors can open their own brokerage accounts and then get to know what fees are charged against each fund. So the investors are now flocking away from the heavy management funds. According to a study from ICI between 2009 and 2016 the ETF expense ratios have dropped 32%.


Retirement is not what it was in the past because Social Securities and Pensions are declining. Therefore Americans are by and large on their own to plan for their retirement. Now it is your decision to make how much more do you want for your retirement and how can you save to get there.


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