Americans in their 50s face significant challenges in saving for retirement due to the shift from defined benefit to defined contribution plans, lifestyle inflation, student loan debt, high housing costs, and supporting adult children. To address these issues, individuals should maximize 401(k) contributions, manage lifestyle inflation by saving raises or bonuses, explore student loan repayment plans, consider downsizing housing, and have financial discussions with family members.
IBM is ending its 401(k) match for U.S. employees and replacing it with a "retirement benefit account" (RBA), which functions like a pension plan. The RBA will earn 6% interest through 2026 and then a rate equivalent to the 10-year U.S. Treasury Yield with a 3% per year minimum through 2033. Experts believe that other companies may struggle to implement a similar change, as it requires having an overfunded traditional defined benefit pension plan in place and not being affiliated with a union. IBM's move makes use of its $3.5 billion surplus in its pension plan. While the change may limit potential upside for younger employees and those making significant contributions, it still provides a stable benefit.
As the shortcomings of 401(k)-style defined-contribution plans become more apparent in the current economic climate, younger workers and some companies are showing renewed interest in defined-benefit pension plans. Only about one in 10 Americans in the private sector participate in a defined-benefit pension plan, while roughly half contribute to defined-contribution plans. However, job seekers are increasingly searching for employers that offer pensions, and companies are responding by mentioning pensions more frequently in job postings. The stability and long-term income provided by pensions are seen as advantages, especially in light of market volatility, inflation, and concerns about the viability of Social Security. Some companies, like IBM, are even restructuring their retirement benefits to include a cash-balance defined-benefit instrument alongside their 401(k) plans.
