The Opening Ceremonies for the 2016 Olympic Games were held in Rio de Janeiro last Friday. Four days into the competition, medals have been awarded, dreams have been fulfilled, and millions watching at home have been inspired. Just like the Olympic athletes preparing for the games, preparing for retirement takes years of hard work, dedication, and long-term thinking. The evidence is now clear: the gold medal winner for retirement security is a defined benefit pension.
Planning for retirement is a marathon, not a sprint. It takes years to accumulate the savings needed to retire. Fortunately, one of the key advantages of pensions is that they can invest on an infinite time horizon. This is because pensions are not tied to the lifespan of any one individual. This allows pension funds to maintain an optimal investment portfolio of high- and low-risk investments. If investment returns are low for one or two years, pensions have time to recover when the financial markets improve and returns are stronger.
Just like a rowing team working together in unison, pensions pool assets collectively from hundreds or thousands of workers. By combining their assets in the pension fund, workers and employers are able to weather shocks in the financial markets. When the Great Recession struck, an individual invested in a 401(k) could have seen her retirement savings wiped out overnight. For pension plan members, however, their pooled assets are able to weather the ups and downs, just as a sailing team weathers rough seas in pursuit of their goal.
After you win an Olympic gold medal, you are an Olympic champion for life and it’s the same way with pensions: once you’ve earned your benefit, then it is guaranteed for life. 401(k)s don’t even make it on the podium because they fail to provide a reliable and secure retirement to working families.
Whether you are sprinting for gold in the 100 meters or dutifully contributing to your pension with every paycheck, you know that years of working toward your goal can help you achieve your dream, whether that is Olympic glory or a secure and dignified retirement. To us, the winner is clear: pensions get the gold for providing a secure retirement.