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Pension plans used to be an incredibly popular retirement vehicle for countless workers.

In 1975, an impressive 88% of private sector American workers had a pension sponsored by an employer. Thirty years later that figure had dropped to 33%.

As pensions disappeared, many turned to 401K plans and savings accounts to fill the gap. However, according to a 2016 Prudential report, 67% of American workers are afraid that their savings won’t last in retirement.

Those fears appear to be well-founded. A 2017 survey by the Employee Benefit Research Institute revealed that 32% of workers age 55 and older have less than $25,000 saved for retirement.

Compounding the problem, 401K investing can often be confusing and overwhelming for the average individual.

“Nobody else puts as much burden on individuals as we do in this country,” said Matt Carey, who formerly worked at the U.S. Treasury advising the treasury secretary and other senior officials on the future of retirement. “Nobody thought 401Ks would replace pensions. Now that people are retiring without pensions and don’t have the financial security their parents had or that those in the public sector have, we’re starting to see all these problems. It’s a big problem and it’s going to get worse.”

The market risk associated with a 401K and increasing longevity expose many Americans to running out of money in retirement, says Carey.

For those who don’t have an employer-sponsored pension, there are ways to create one on your own. And doing so may be a good idea because unlike a 401K, pensions can provide a paycheck every month for the rest of your life.

What is a Self-Funded Pension?

Insurance companies have long been offering annuity programs, financial products that allow individuals to put aside money that can be used to provide themselves with monthly paychecks similar to the way a pension would.

Insurance companies typically invest the money you give them and provide you with a monthly paycheck that’s a mix of principle and earnings. These paychecks continue as long as you live.

However, traditionally annuities require handing over a large amount of cash up front – $20,000 to $100,000 or more.

To make this type of retirement option more accessible, some companies have recently begun creating what’s known as a subscription income annuity programs, meaning you simply pay into them each month while you’re still working, rather than forking over hundreds of thousands of dollars.

“Unlike an annuity, you don’t have to make that big commitment today,” explained Carey, who recently founded Blueprint Income, a digital retirement program that allows individuals to create subscription-based pensions with an investment of $5,000.

Blueprint is breaking new ground by making pensions available to the masses online via digital payments and allowing for subscription level buy-in, rather than requiring substantial sums of money up front.

Additional companies wading into this emerging space include Prudential and Nationwide. Prudential recently announced a voluntary deferred income annuity program that it’s offering to individuals through their employers.

Currently available in 43 states, GIFT allows participants to make monthly after-tax contributions that are as low as $100. While the program must be offered by an employer, GIFT is not an employer-provided benefit. Employer involvement is limited to making GIFT available to employees and collecting payroll deductions.

How Do You Know if You Need to Create a Pension?

Confirm that you need income in retirement. The answer to that question for most people is yes.

Social Security isn’t going to be enough to pay for your retirement, it typically only covers 40% of one’s retirement expenses on average, says Carey.

“So unless you have a pension, you’ll be relying on your savings or a market-based portfolio to cover the rest of your expenses,” said Carey. “And that just isn’t reliable when you don’t know what will happen in the market and you don’t know how long you’ll live, and thus how many years of retirement expenses you’ll need to cover.”

How and When to Get Started

There are many questions to ask yourself in order to establish a personal pension, such as when do you want your retirement income to start and what are your retirement income goals.

But the key is that it’s never too late to create a personal pension (even if you’re in your 40s or 50s), said Carey. And just because you already have a 401K or a savings account, doesn’t mean you should skip creating a pension.

“A 401K is optimized to help you accumulate assets and you’re exposed to the market,” said Carey. “A pension on other hand is optimized for something very different, for giving you real retirement security. It’s a monthly paycheck that comes every month for as long as you live…Pensions used to be that great blue-collar retirement product and we’re trying to bring that back.”

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