May 1, 2023 - News

More Chicago retirees are relying on 401(k) income

Illustration of a middle-aged person holding their head in their hands with arrows and zigzag lines in the background.

Illustration: Shoshana Gordon/Axios

In recent months, Mayor Lori Lightfoot and Gov. JB Pritzker have touted big progress in paying down city and state pension debt.

  • That's the good news on this International Workers Day.

The bad news: Fewer and fewer workers have access to these kinds of reliable pensions, writes Axios' Felix Salmon.

  • Instead, most Americans retiring now are going it alone as the first generation to rely primarily on private savings instead of pensions to navigate the financial vortex of retirement.

Why it matters: 401(k) plans and IRAs don't generate steady and predictable income, as pensions and Social Security do. The result is a feeling of perpetual insecurity, even among those who've amassed substantial savings.

Zoom in: Despite recent progress on Illinois and Chicago pensions, taxpayers are still paying dearly to service them, not because of high benefit levels but because of "underfunding for decades," Ralph Martire, executive director for the Center for Tax and Budget Accountability, tells Axios.

  • With adequate funding, the state's general fund payment to pensions this year would be close to $2.6 billion, instead of $10 billion, he says.

Catch up quick: Those public sector pensions are guaranteed, but when retirement relies on a fixed pool of money like a 401(k), it becomes almost impossible to answer a simple question: How much income do you have?

  • The individual retiree, rather than any fund administrator, ultimately decides how much money to withdraw each month.
  • Resurgent inflation makes such calculations even harder, putting today's retirees in a much more uncertain situation with a host of spending needs — some foreseeable, some coming out of the blue — that all must be funded out of a volatile and unpredictable retirement portfolio.

By the numbers: In a recent Goldman Sachs survey, 51% of retirees reported living on less than half the income they enjoyed pre-retirement.

  • Nearly half (45%) of current retirees said they found entering retirement to be somewhat or very stressful in terms of financial anxiety.
  • The No. 1 unexpected financial challenge in retirement is already "understanding what my income will be," while the most important feature of retirement income is that it be "consistent and stable month over month."

What's next: Those numbers are certain to rise as guaranteed incomes make up an ever-smaller proportion of retirement income.

Tell us: Are you recently retired or planning to retire soon? If so, Axios wants to hear about your experience with retirement.

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