Nadine, The pension plan is important in comparing current savings rates with rates from other years. Right now, most folks have an IRA and a 401K as their retirement package, in addition to Social Security. I would claim that these are more like buying an annuity than they are savings. But no matter the definition, they have simply replaced the former corporate pension plan.
So, at one time, you earned $50,000 and the co. contributed (or didn't in many sad cases) another 10-20% of your salary to a pension plan every year. That was your future income. The pension plans were never counted as current income because they were not taxes and they were not currently useable by the employee.
Now, instead of the corporate pension plan, the employer is allowing you to manage your own pension plan. Net, net, the amount people are putting in is not more, as a % of salary, than folks were putting in with the old plans. It is just that now, instead of your plan buying Pfeizer and that holding being "institutional," you buy Pfeizer and it is "individual." Hence the increase in individual stock holdings.
The basic point is, if you counted your IRA and 401K in your income in calculating your savings rate, to make them comparable, you would have to go back in time and add pension funds into incomes in past periods.
They are not savings, as they are not immediately available to you without you paying a penalty in taxes. The co. portion of the 401K may not be available even with a penalty. A C.D. is savings, because the penalties are shorter term in nature, always offer some positive rate of return and are not govt. mandated.
I would contend that the IRA and 401K are more like variable insurance products purchased for one use only, retirement, and are more like consumption than savings, though they have attributes of both. |
