With just 29% of U.S. workers covered by traditional pensions and a sharp divide between public and private sector benefits, the shift to 401(k)s is reshaping retirement security and placing more risk on individuals
Traditional pensions, once a mainstay of American retirement, have become increasingly rare for today's workforce. While many retirees still benefit from defined benefit (DB) plans that guarantee a fixed monthly income, most current workers must rely on other sources for retirement security. This shift has significant implications for how Americans save, invest, and manage risk as they approach retirement age.
According to the Federal Reserve's Report on the Economic Well-Being of U.S. Households in 2025, only 29% of American workers are covered by an employer-sponsored DB pension. The likelihood of having a pension rises with age, from just 5% among workers aged 18-24 to 52% for those 65 and older. This generational divide reflects decades of change in employer retirement offerings, with most private companies moving away from pensions in favor of defined contribution (DC) plans like 401(k)s since the 1980s.
Pension Coverage by Sector and Age
The gap between public and private sector pension coverage is striking. As of March 2025, Bureau of Labor Statistics data shows only 14% of private-sector workers had access to a pension, compared to 86% of state and local government employees. Professions such as teaching, law enforcement, and firefighting have largely retained traditional pensions, while most corporate workers now depend on DC plans. This transition has shifted the responsibility for retirement funding and investment risk from employers to employees.
For retirees, pensions remain a significant source of income. The Federal Reserve reports that 52% of Americans aged 65 and older receive pension income, a figure echoed by a 2026 survey from the Employee Benefit Research Institute (EBRI) and Greenwald Research. However, this share is expected to decline as younger generations, who have less access to DB plans, reach retirement.
How Pension Benefits Differ
Pension income varies widely, especially between public and private plans. According to the Pension Rights Center, the median annual pension for private-sector retirees aged 65 and older was $11,440 in 2024, while state and local government retirees received a median of $24,930. Several factors contribute to this gap. Some government workers are not covered by Social Security, so their pensions are designed to be larger. Public-sector employees also tend to have longer tenures, which increases benefit size, and many public plans include cost-of-living adjustments that help preserve purchasing power-features that are now rare in private-sector pensions.
This evolving landscape means that future retirees will need to rely more heavily on personal savings, Social Security, and investment accounts. The shift away from guaranteed pension income increases the importance of understanding risk, asset allocation, and the role of different retirement vehicles. For those seeking steady income, some investors look to dividend-focused funds, such as those highlighted in coverage of dividend equity ETFs, as a way to supplement retirement income, though these carry their own risks and do not offer the same guarantees as pensions.
Retirement Income Mix and Future Trends
Most retirees draw income from a combination of sources. The 2026 EBRI/Greenwald Retirement Confidence Survey found that Social Security remains the most common and stable foundation, followed by personal savings and investments, then retirement plans such as pensions, IRAs, and 401(k)s. As pensions become less common, the burden of ensuring adequate retirement income increasingly falls on individuals, who must navigate market volatility, longevity risk, and the challenge of converting savings into reliable income.
Recent data from the Bureau of Labor Statistics underscores the trend: in 2024, only 21% of all U.S. workers participated in a defined benefit pension plan, down from 38% in 1980. Meanwhile, participation in defined contribution plans has grown, but these accounts require workers to make investment decisions and bear the risk of market downturns. The decline in traditional pensions is likely to continue, making it essential for workers to understand their options and plan accordingly.
Defined benefit pensions and defined contribution plans differ fundamentally in how they allocate risk and responsibility. In a DB plan, the employer promises a specific benefit, typically based on salary and years of service, and bears the investment and longevity risk. In a DC plan, such as a 401(k), the employee contributes and manages investments, and the eventual retirement income depends on market performance and personal decisions. This shift means that workers must be more proactive about saving, investing, and planning for retirement, and may need to consider additional products such as annuities or income-focused funds to help manage risk and provide stability in retirement.
