Until the 1980s, pensions or plans with flat-rate allowance were very successful, noted Phil Maffei, head of corporate retirement solutions at TIAA: “Inflation that reached a 40-year high exposed the vulnerability of 401(k). People struggling to pay for everyday needs started dipping into their savings or cutting contributions. Aggressive interest rate hikes further increased the financial strain on households, and financial market volatility reduced 401(k) balances fueling concerns about retirement.
When the United Auto Workers (UAW) went on strike last summer, one of its demands was the return of retirement annuities and the waiver of 401(k) plans.
401(k) retirement plan is a program of pension contributions offered by US employers, it allows employees to save a portion of their paychecks for retirement. The funds contributed to 401(k) plan can be invested in a variety of financial instruments, such as stocks, bonds, and mutual funds. However, in the last three years, many employer funds have failed due to market volatility.
Retirement annuity is more reliable.
The amount a person receives when they retire depends on several factors, including their age, the sum paid for annuity, insurance company, and interest rates at the time the annuity is purchased. Annuities are usually popular when interest rates are rising or high, as you can fix a higher return. They are usually offered when someone is close to retirement.
UAW retirement annuities, for instance, are inexpensive. The union has chosen reliable insurers that offer discounts to workers.
Photo is from open sources.