Are Pension Plans Obsolete? Modern Retirement Planning in 2025

Sitting around the kitchen table recently, watching Graham skim through our statements while Thalia and Alaric played, a weird question popped up in my mind: does anyone actually count on a pension these days? My grandmother’s pension funded her yearly trips to Spain, but for us—well, let’s say the landscape looks nothing like her safe, predictable world. It’s not just nostalgia at play. The statistics paint a sharp, almost jarring, picture about what’s happening with pension plans in 2025. But is it time to write them off completely? Or is there life left in this so-called dinosaur? Let’s crack this puzzle open and see what’s really going on.

The Shrinking World of Traditional Pensions

There was a time, not even that long ago, when you could get a job at a big company, work there for 30 years, and walk out with a guaranteed monthly check for the rest of your life. Those were what we call “defined benefit” pension plans—employers promised to pay a fixed sum when you retired, no matter how the markets behaved. Now, try explaining this to anyone under 30, and you might get a blank stare. According to the U.S. Bureau of Labor Statistics, in 2025, only about 13% of private sector workers have access to a traditional pension plan, down from nearly 60% in the early 1980s. Public sector workers, like teachers or firefighters, fare better, with almost 80% still having pensions, but even those numbers are slipping.

Part of the decline has to do with economics. Pensions are expensive for companies. They require steady funding, careful investment, and no small amount of luck to keep future promises. The unpredictability of markets, rising life expectancy, and regulatory pressures pushed many businesses to shift toward “defined contribution” plans, like 401(k)s. Instead of guaranteeing you a set payout, they hand you a menu of investment options and say, "Good luck!" In other words, the risk shifted from employer to you.

If you’re Gen-X, Millennial, or Gen-Z, chances are you’re investing for retirement on your own, with only a handful of friends relying on traditional pensions. For many, phrases like "golden handshake" and "final salary scheme" feel as dated as VHS tapes. Even unions, once the loudest advocates for pensions, now focus on keeping what’s left rather than fighting for new plans. There’s pretty solid evidence to show the old model just isn’t the norm anymore. But if traditional pensions are nearly extinct, does that actually mean they're obsolete? Or is there more to this story?

Why Did Pension Plans Lose Their Shine?

The reasons behind the fading of pension plans are as complicated as your first budget spreadsheet. The obvious one is money. Actuaries (the math geniuses who crunch the numbers for these things) constantly underestimate life spans and investment returns. For example, pension funds in the UK now expect the average retiree to reach age 88. Compare that to 79 just two decades ago. People living longer is great, but it wreaks havoc with pension math.

Look at what happened at General Electric. Back in 2019, GE announced it would freeze pension benefits for about 20,000 U.S. employees. Check the same pattern in big companies like IBM, Boeing, and even the mighty Shell. They all either froze or seriously restructured their plans. Why? It boiled down to cost. Funding shortfalls became eye-watering: the Pew Charitable Trusts estimated U.S. state public pensions were underfunded by a shocking $1.3 trillion in 2024.

It’s not all about companies being stingy. The market madness of 2008 and the COVID-19 shock in 2020 reminded everyone: investments can tank, and betting your future on unbreakable promises just doesn’t hold water anymore. Companies realized if they got their projections wrong by even a couple of percentage points, the consequences could be severe. Adding to that, younger workers—people like me, honestly—value flexibility. We’re not sticking with one company for decades. We’re hopping gigs, retraining, freelancing, and starting side hustles. Who wants a plan that works only if you stay put for 30 years?

This massive change started quietly but gained real speed. Employees craved portable benefits. Employers wanted less risk. The result? Hello, 401(k)s and portable IRAs. A study by Fidelity Investments in April 2025 showed that nearly 72% of U.S. workers contribute to a defined contribution plan, while only 10% are enrolled in a pension. If you’re curious about how costs compare, check this table:

That table says it all. More money went into pensions but came with a higher bill for employers. With portable 401(k)s, the outlays dropped—so did the guarantee.

Modern Retirement: More Choices, More Confusion

Ask my friend Sara, who works in finance, how she’s handling retirement, and she’ll probably scroll through an app showing half a dozen accounts: a rollover 401(k), an IRA from her last job, plus a “fun money” trading account. For our parents, the script was simple—work, retire, collect a monthly check. Now, the average American changes jobs 12 times by age 52, according to the Bureau of Labor Statistics in 2025. Each move tosses another set of rules and options into the mix.

Choice sounds great… until you’re drowning in it. Pick a plan, choose a fund, decide your risk tolerance. Do you want pre-tax or Roth? Target-date fund or self-directed brokerage? Nobody’s born knowing this stuff, but the expectation is that you’ll figure it out, or else. A 2024 report by AARP found that only 39% of Americans are "confident" they're saving enough for retirement. And here’s a stat to chew on: Vanguard’s 2024 analysis noted the median 401(k) balance for Americans aged 65+ is $87,700—which equates to maybe $365/month in income, depending on age and withdrawal strategy. That’s a far cry from a comfortable retirement for most folks.

Then, there’s Social Security, limping along. Yes, people still get it—and for lots of folks, it’s the single biggest part of retirement income—but nearly every projection suggests benefits could be reduced by about 20% starting in 2034 if Congress doesn’t act. So, while pensions might look outdated, navigating the new world of "do-it-yourself" retirement is harder than anyone expected. This is probably why so many people long for the predictability of old-school pensions, even if most can’t get them anymore.

Pensions may be less common, but there are places where they're still alive and relevant. My neighbor, a public school teacher, has no intention of quitting until her pension is fully vested. In many European countries, like the Netherlands and Denmark, public pensions remain generous. It can make you wonder if the American model just took a drastic turn—maybe too drastic.

Could Pension Plans Make a Comeback?

Plenty of experts and advocates argue that pensions are not obsolete—they’re on pause, waiting for a smart revamp. With the retirement crisis looming (almost half of Americans have no retirement savings at all, according to the Federal Reserve’s 2025 Economic Well-Being report), there’s serious talk about "collective defined contribution" (CDC) plans. These hybrids try to blend the predictability of pensions with the flexibility of 401(k)s.

In April 2024, New York state launched a pilot CDC plan for municipal workers, which could cover up to 250,000 employees if successful. In the UK and the Netherlands, CDC plans are already established, pooling assets and risks among workers, but without making unsustainable guarantees. Advocates say this could strike a sweet spot: stable, inflation-adjusted payouts that don’t bankrupt employers.

Even old-school pensions are adapting. Some new plans offer adjustable benefits—they rise or fall slightly based on investment performance. Public policy wonks want tax breaks or regulatory tweaks to make it easier for smaller employers to offer pooled plans. Still, bringing back pensions, even in a new form, isn’t just a financial problem. It’s cultural. Workers have grown used to portability. Any revival would need to mesh with today’s "patchwork" approach to careers.

I’ve heard union reps on NPR say, "If companies want loyalty, they’ll have to offer the security that pensions bring." The flexibility we all crave comes at the cost of that ironclad monthly check. Some creative employers—think Google or UPS—are now experimenting with "mini pensions," essentially smaller guaranteed income streams to supplement 401(k)s and attract hard-to-find talent.

So, is a comeback on the horizon? Maybe, but not by turning back the clock. The next generation of pensions, if they take off, will look nothing like our grandparents’ plans but could address today’s deep insecurity about retirement.

Smart Retirement Planning: What Should You Do Now?

If you’re reading this and realize your own retirement looks like a half-finished quilt, join the club. The advice is plain but critical: start planning, even if it feels overwhelming or late. Here are some practical moves I’m making right now, and no, you don’t need to be a financial expert to get started.

• Track what you have. List every retirement account, old 401(k)s, IRAs, even pensions from jobs you had ages ago. Don’t lose track of "forgotten money."
• Use online calculators to estimate your retirement income—and adjust for taxes and inflation, which take a bigger bite than you’d think. Plan for living longer than expected.
• Don’t lean on Social Security alone. Future benefits could shrink, so treat Social Security as a bonus, not a plan.
• Consolidate your accounts if possible. Having six accounts didn’t make anyone richer. It just adds confusion.
• Review your investment mix. As you get closer to retirement, it usually makes sense to move money into less risky assets, such as bonds or stable value funds.
• Talk to someone. There’s no shame in saying, “I’m confused.” Financial planners can help and, thanks to new fee-only models, don't always cost a ton.
• Keep some cash safe for emergencies—that way, if the market tanks right when you retire, you won't be forced to pull money at the worst possible time.
• If your company offers matching for 401(k), grab all of it. That’s free money every year.

Finally, for those lucky enough to have a pension—public workers, certain union jobs—take the time to really read the fine print. Ask what happens if you move or change jobs, and what survivor options exist for your partner (I know I had to explain to Graham, and he was pretty relieved to find out our benefits actually work for both of us!). And if you’re dreaming of retiring abroad, check how benefits might change depending on your destination.

Here’s a little wisdom I find comforting when things get muddy:

"Retirement is not in the cards for everyone, and the future looks different for today's workforce," says Alicia H. Munnell, director of the Center for Retirement Research at Boston College. "But with some planning and a realistic view, most people can avoid the worst surprises."

No one magic fix will work for everybody. The game keeps changing. But the fact that pension plans are rare doesn’t mean they’re totally obsolete. It does mean we all have more to do—and more to think through—than ever before. The best tip? Don’t go it alone: compare notes, ask questions, and stay curious. If you ever catch yourself staring at a pile of paperwork and thinking, “This was probably easier for grandma,” you’re not wrong. But we have new tools, new choices, and, yes, still a few decent options for building that future we dream of.