A Defined Individual Pension Plan:
75% of Americans Don't Have One

Unfortunately, only 54% of American households participate in any type of individual pension plan. Only 25% have a defined benefit plan (Source: Federal Reserve Board’s Survey of Consumer Finances).

In a study conducted by Ohio State University, only 55% of those with a defined individual pension plan will have an adequate retirement nest egg. That equates to only 13% of the entire population. Additionally, that “nest egg” will only cover basic living expenses. That means no vacations, no new car, no new house, and very little discretionary funds for their “golden” years.

Even with a defined plan, benefits won’t start kicking in until their mid 40’s (at the earliest). Social Security won’t kick in until age 67. Most people will have to continue working for more than 20 years after they “retire”. Even then, their pension and Social Security benefits may not add up to maintain their standard of living because of inflation. Furthermore, reliance on a contribution-type pension plan makes the assumption that investments will increase in value.

A Washington Post article, “For Many 401(k) Catch-up Won’t Be an Easy Game”, states a lot of people may be very unpleasantly surprised. According to EBRI, a benefit research institute, 44% of 401(k) balances in 2000 were less than $10,000. 14% had less than $20,000.


BOTTOM LINE: 58% of people with a 401(k) have less than $20,000.

With inflation and rising costs of health care, $20,000 won’t go very far.

Another recent study was released by the Economic Policy Institute, conducted by New York University economics professor Edward N. Wolff. The study considered households headed by someone between 47 and 64 years old, those nearing retirement. The “retirement wealth” of all but the wealthiest workers actually declined between 1983 and 1998.

Suppose a household has a $600,000 nest egg at retirement. They decide they need $3,000 a month to live on and they want to maintain that level of buying power (meaning they will withdraw increasing amounts to keep up with inflation). If they live 20 years they have a 3-in-10 chance of running out of money, according to calculators devised by T. Rowe Price.

That’s worth repeating: Even with $600,000 saved, you have a 30% chance of running out of money within 20 years. That’s living on only $3,000 a month (which is not much – no new cars, no new house, very little vacation, not many presents for the grandkids).

And many baby boomers will have nowhere near $600,000 put away for retirement.

The average American household has a net worth of only $264,000 at retirement (Money Magazine, Dec 2004). That’s net worth, which includes the value of a house, car, furniture – not things you want to use to supplement an individual pension plan.

That accounts for an average inflation rate of 3%. It does not account for the rising costs of health care. In 2000, the cost of health care and prescription drugs jumped 17% and have been increasing 8.2% a year since 2003 (Washington Post, 21 Jun 2005).

Retirees age 65-74 spend 11% of their income on health care, and those over 75 spend 15% (Money Magazine, April 2005). A typical 65-year old retiree who liives to 90 will need nearly $300,000 just to cover medical expenses (Money Magazine, May 2005).

An individual pension plan, if you’re fortunate enough to have one, probably will not provide enough income, by itself, for you to maintain your standard of living after you retire.

What if you could supplement or replace your pension plan by generating a residual income (every single month over and over) that continues regardless of the economy, the stock market, or social security.

Could that equate to the essence of the American dream: INDEPENDENCE?

You can do exactly that with a home business.

Request our FREE Home Business Success Pack to see how.

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Starting a Small Home Based Business:
Supplement an Individual Pension Plan



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