A Generation Without Pensions?

April 20, 2015 - Posted by: admin - In category:

taxes - No Responses

Pensions Are Now Largely a Thing of the Past.

It is natural for parents to relate their life experience to their children and this applies in many contexts, including as parents consider the adult years and eventual retirement of their children. Since many of today’s retired parents enjoy pensions and other retirement benefits in addition to their IRA and other defined contribution plans, often such parents will assume that their children will someday have these same advantages and benefits. However, the reality is that defined benefit plans are largely a thing of the past–having been replaced by defined contribution plans, such as 401(k) and IRA plans. This is currently having a profound effect on the living environment of Generation X, Generation Y and the rising generation and this trend will only continue.

To put it another way, while members of the Baby Boomer generation have many different sources of retirement income (speaking as a whole), including pensions and other defined benefit plans, children of such baby boomers will often not enjoy these same benefits. Accordingly, Baby Boomers need to realize that in situations where a portion of their retirement saving accounts eventually makes its way their children, such inherited retirement accounts may end up being most, if not all, of the retirement that such children will ever have. Realizing this will often give such Baby Boomer parents a VERY DIFFERENT perspective for choices and options they leave to their children with regard to such retirement plans.

For example, lets consider Mr. and Mrs. Jones, who are members of the Baby Boomer generation and have 2 children (each of which is married with young children). Mr. and Mrs. Jones realize that neither of their adult/married children has a job that will provide them with a pension (i.e. defined benefit plan) now or at any time in the future. Mr. and Mrs. Jones also consider the real possibility that one or both of their children will experience one or more of divorce, lawsuits, bankruptcy and/or disability at some point. Finally, Mrs. and Mrs. Jones have come to realize that although their retirement accounts are “modest” in size (they are not wealthy, by their reckoning), with their pension plan income, social security and other sources of retirement income, it is highly likely that each of their children will eventually inherit a balance in their IRA accounts that will total at least six figures.

Because Mr. and Mrs. Jones have looked at and considered the aforementioned realities, they are also wise enough to get competent estate planning and financial planning information from competent professionals. At the end of the day, Mr. and Mrs. Jones have come to see that it is really a no-brainer decision to have their estate planning attorneyestablish stand-alone retirement trusts (a/k/a IRA trusts) for the benefit of their children. By doing so, Mr. and Mrs. Jones have accomplished several very important objectives and have ensured that their children will, without question, have a source of retirement income in the future and that such retirement income will not be jeopardized by divorce, lawsuits, bankruptcy or disability.

What do Mr. and Mrs. Jones know that you don’t know?

Contact us and we’ll be happy to answer your questions.

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