Democratic vice presidential nominee Tim Walz's finances made headlines after his financial disclosures showed he owns no stocks or bonds. His lack of investments caught a lot of people's attention and, on the surface, makes him more relatable to the average American. According to the Survey of Consumer Finances, as of 2022, only 21% of families directly held stocks and 1.1% held bonds.
While Walz's lack of investments and diversification potentially make him more relatable, he has something many of us don't — a pension, which is a defined benefit plan.
"I'm not so sure he is like most . . . I mean, nobody's got that [a pension] anymore," said Dan Casey, investment adviser and founder of Bridgeriver Advisors and Panic Proof Retirement. "I rarely see people anymore that come to my office anyways that have pensions. So it's a lot more difficult for, I think, the average American to get that guaranteed income."
The power of the pension
A pension is a golden ticket to guaranteed retirement income until the day you die, no matter when that happens. Pensions have become nearly extinct to the general population, typically reserved for government and public service workers.
According to Bureau of Labor Statistics (BLS) data, only 15% of private industry workers had access to a defined benefit plan, compared to 86% of state and local government workers.
"The employer will pay into a pension as you're working," said Pamela J. Sams, financial adviser and chartered retirement planning counselor (CRPC) at Jackson Sams Wealth Strategies. "And so the years of service that you have in, basically that translates to after you retire, them providing that defined benefit or pension for the retiree."
Walz's reliance on his pension with few assets elsewhere might not be as shocking as the headlines made it out to be.
"I think, for the most part, when people have pensions, they feel a little bit more secure, and they really don't seek outside investments as much," Sams said. "I have a lot of federal employees in the D.C. area . . . They really don't go outside of what they have with their employer."
The main perk of a pension is that the employer sets it up and takes on the investment risk. The employer is the active participant, while the employee is the passive receiver of the benefit. But with the pension going the way of the dodo, planning and saving for retirement isn't your employer's problem anymore.
From pensions to 401(k)s
"Most people now have what they call a defined contribution plan, which are 401(k)s, 403(b)s, 457s, things like that where the onus is basically on the participant or the employee to make those contributions," Sams said. "So they don't have that pension portion."
The change in the tides from employer-funded pension to self-funded retirement started in the late '70s and early '80s. Ted Benna, known as the "father of the 401(k)," launched the retirement vehicle in 1978, which later found mainstream success.
As of 2023, 67% of private industry workers had access to a defined contribution plan like a 401(k), and only 15% had access to a defined benefit plan, such as a pension, according to the latest BLS data.
The 401(k) is now the most common defined contribution plan, making up 70% of assets among all defined contribution plans. But even the father of the 401(k) himself admits that as a retirement vehicle, the 401(k) has morphed into something else, and he's "disturbed" by investment fees employers are passing off on employees, according to an interview with Fortune.
Americans aren't saving enough for retirement
For years, the concept of a well-rounded retirement plan focused on the "3-legged stool metaphor." The three legs of the stool are Social Security benefits, a private pension and personal savings and investments. The thought is all three sources must be present to create a strong foundation in retirement.
For the majority of Americans, one of those legs has been effectively sawed off without an available pension. "So it makes a little bit of a wobbly stool for most people," Sams said. Only about 7% of older Americans have all three income sources, according to the National Institute on Retirement Security.
Americans need to pick up the slack and save more for retirement. But even with access to 401(k)s and potential employer matches, Americans don't have that much saved.
Americans have a median balance of $54,000 in their 401(k), according to the latest United States Census Bureau data. Not everyone is on equal footing, however, and the averages vary widely by race.
White Americans have an average of $60,000 in their 401(k), while Black Americans have an average of just $23,500 and Hispanics have an average of $25,000.
What's more concerning is Survey of Consumer Finances data shows that 54.4% of families have retirement accounts, which means 45.6% don't. If this is any indicator of how other Americans are living, a major part of the population isn't investing for retirement — or certainly not enough. But why?
"I think it's probably fear," Casey said, "and just not knowing how to do it."
Instead, many people are relying heavily on Social Security benefits. In fact, Social Security Administration data shows that 37% of men and 42% of women Social Security beneficiaries 65 or older rely on Social Security benefits for 50% or more of their income. Twelve percent of men and 15% of women rely on Social Security benefits for 90% or more of their income.
The data shows that a large portion of people put a lot of weight on the "Social Security leg" of the three-legged stool.
While Social Security is in place for current retirees, alarm bells have been going off for years, signaling that Social Security is running out of money and the benefits program could change.
"I don't think it'll ever go away, but I think it could be greatly reduced. So I guess if I was advising a younger person, I'd probably just do a worst case scenario and just kind of try to assume it's not going to be there, or maybe only count it for 50% of what we think is expected to happen," Casey said.
Given the current retirement statistics and programs in place — or lack thereof — it seems like Americans need to build a new stool, one that is sturdy enough for whatever the future holds. The retirement of years past is no longer, and the "average" American has to plan for themselves. Walz doesn't, and he'll be just fine.
