Pensions were once a standard part of an employee benefits package, but that’s no longer the case. Meant initially to supplement pensions, 401(k)s started replacing them in the private sector. These days, pensions are the exception, not the rule.

As pensions disappeared, this forced people to do something else to prepare for retirement. Eventually, pensions became little more than a memory. Meanwhile, 401(k)s, IRAs, and other retirement savings and investment plans took over. That’s not to say the new system is entirely bad.

The rise of investment-based retirement strategies gave people the chance to increase their income into old age far beyond what a modest pension could ever provide. With that said, these replacements have come with new risks. As happened in 2008, people can lose thousands in retirement savings overnight. The following explains the disappearance of pensions and how it has permanently changed retirement planning:

Why Did Pension Disappear?


There are a lot of reasons the pension disappeared. Most people will tell you that it happened because employees thought the 401(k) type of retirement plan was more beneficial. Maybe this happened because a 401(k) is more portable than a pension.

If you want to switch jobs, you can take your 401(k) with you, but pensions could be lost unless you worked long enough. In addition to that, an employee has options as to where funds get invested, such as a mutual fund or an index fund. The problem is the employee assumes all risks. With pensions, the employers took the risk.

They were the ones who had to figure out how they would guarantee their payment. This offered more protection for employees, but you can easily see why employers started pushing 401(k)s since it’ll help absolve them of being responsible for your retirement.

However, the ultimate reason for pensions becoming all but extinct is due to their cost. Companies and municipalities found it increasingly difficult to cover the cost of pension programs for employees. Inflation and longer lifespans made pensions impractical from a bottom-line point of view. While the decision to do away with pensions was initially met with heavy resistance, only workers protected by unions could prevent pensions from disappearing altogether.

How is This Changing Retirement Planning?


The loss of pensions has altered retirement planning in a lot of ways. The following are some prime examples, but there are many others:

Relying on Home Equity


The reality is 401(k)s aren’t too safe, and no one can guarantee how much you’ll receive each month. This makes it harder for a retiree to make plans for the future since their income isn’t promised. It’s for this reason that many people end up turning to things like their home equity.

EasyKnock explains how more people are using home equity as retirement savings, and it makes perfect sense since you can borrow at pretty reasonable rates, especially compared to other types of loans. You’re indeed putting your home in jeopardy, but if you plan everything outright, you should be okay. Talk to your financial advisor to see if this is the right choice.

Another option is something called a reverse mortgage. In essence, you sell your house but get to keep living in it for the duration of your life. Once you’re gone, the buyer takes the house. While a convenient option in many instances, it requires careful research and due diligence.

Creating a Savings Fund


The next thing you want to do is make sure you have a good savings fund. As mentioned earlier, 401(k)s aren’t too reliable. The amount of cash you get one month might not be the same as the next, so you need to have enough saved to take care of your expenses each month, just in case you need it.

Of course, people with pensions had to save, too, to deal with emergencies, but the stability that pensions offered made savings account more of a backup. That’s not the case with 401(k)s, which make savings a necessity. You don’t want to miss a payment because your monthly payment wasn’t as high as it should be.

Finding Smaller Accommodations


The other thing you see retirees doing now is downsizing. The amount of money people get is not always enough, so people consider living in small places. These are usually much more affordable. These include mobile home parks, tiny houses, or retirement communities.

Other people move to other states because they find that the prices in smaller states or rural areas are more affordable. Another option is to move in with loved ones with a spare bedroom. It’s an arrangement that more and more people are considering as a means to save money.

In doing so, they also help their family members cover the cost of living, thanks to contributing to the household income via retirement savings and social security benefits. For many people, a bedroom and bathroom are all they need to live comfortably in retirement.

Taking Up a Side Hustle


Retirees also add one more thing to their retirement portfolio: a second job or a side hustle. This will give them a second stream of income. Sure, some folks start to invest some of their money, but that doesn’t always work out the way it should, which leads some to seek part-time employment.

The good thing is retirees have many ways to make a little extra cash, like renting out a backhouse, their garage, and even their vehicles when they’re not driving. There are also several types of businesses that prefer to hire older individuals whenever possible. This gives retirees an excellent opportunity to earn extra income.

Examples include sports stadiums, museums, playhouses, and theme parks. These and similar part-time employment options provide older folks with seasonal means of earning supplemental income. Without a pension, money isn’t as secured for retirees as it should be, making people in this stage in their lives make these sorts of decisions. Hopefully, some of this information makes it easier to plan for the future.