Study shows defined-benefit pension could be retirement lifesaver

Households with both a defined-benefit pension plan and Social Security with savings are less likely to outlive their savings than households without a defined-benefit pension. The research stems from Ernst & Young LLP's latest findings on financial security during retirement.

"A couple with preretirement earnings of $75,000 that will have a pension has a 31 percent chance of outliving their assets. That couple without a pension has a 90 percent chance of outliving assets," reports Scott Burns of the Boston Globe. "The study confirms what Alicia Munnell, director of the Center for Retirement Research at Boston College, has been warning for years – that a smaller role for Social Security benefits, rising Medicare premiums, and disappearing pensions will make the retirement of younger workers far more difficult than those of current and past retirees."

Keeping in mind the study was done for Americans with $50,000 to $100,000 of preretirement income, the findings segregate a large portion of those earning less income. So where is the upside, according to Burns?

• Workers can create their own pension. "Just convert some of your retirement savings into a lifetime annuity. A single female without a pension, for instance, has about a 75 percent chance of outliving her assets. With a pension, the odds go down to about 25 percent. The change in the odds is similar for single males. While it's not so dramatic for married couples (90 percent down to about 54 percent), it's clear that having a guaranteed lifetime income in addition to Social Security adds major security to retirement."
• There are too many assumptions. "(The study) was done for Americans for Secure Retirement and like most retirement research was done for the financial services industry. It assumes we need to replace a large portion of the income being earned immediately prior to retirement. Most of us have never had 70 to 85 percent of our income to spend on ourselves."