Workers with pensions might not want to put all their eggs in that defined benefit basket, a report says. (Photo: Shutterstock)

American workers are in a bind.

The pensions that served their parents and grandparents so well are largely defunct.

Even people who have worked all their lives and contributed to a defined benefit plan, whether public or private, are learning now of massive funding shortfalls that could mean little, if any, retirement income now that they’re close to exiting the workplace.

A Kiplinger report says that not only are employers freezing what pension plans they had, shutting out new workers, they’re offering lump-sum payouts in place of what was supposed to be a nice, steady income stream.

And employers who failed to make sufficient pension contributions, or who indulged in riskier investments in the hope of boosting plan balances, are putting employees between a rock and a hard place as plans come up short.

Other problems that provided a double whammy to pensions include a longer lifespan for workers after retirement (although that trend appears to be reversing itself) and way lower interest rates on retirement savings (although that too might be turning, as the Fed contemplates additional rate hikes that will weigh heavily on debt, thus further endangering workers’ ability to retire).

That interest rate issue is a real double-edged sword, what with low rates tempting investors to try their hand at higher-risk stocks than is prudent.

So what’s a worker to do?

For starters, don’t expect much from your pension—in fact, give serious thought to how you’d cope if it went south and you ended up with a lot less than you expected—or, in a worst-case scenario, nothing at all.

Where can you find alternate sources of income during retirement? How much will your Social Security be? What can you do to improve the odds of coming through retirement with enough of a financial cushion not to end up eating cat food?

Next, make a Plan B, says the report. Stuff that 401(k) or IRA for all you’re worth and then some.

Make catch-up contributions, if you’re old enough, and if you’re not, or you’re worried about taxes in retirement when you finally start to make withdrawals, open a Roth and stuff that, too.

Then you could consider a deferred annuity. There are a lot of moving parts to making an annuity part of your retirement plan, so you need to consider carefully before you take the plunge.

While they can be handy, providing a regular stream of income as well as the possibility of a death benefit, they can also eat up your returns in fees and cost you in other ways—penalties come to mind.

Life insurance can offer some strategies, too, for your Plan B, with indexed universal life policies that can provide guaranteed tax-advantaged lifetime income in retirement through loan provisions, as well as a traditional death benefit.

But again, they’re not something to be dealt with lightly.

Last but not least, you need to consider the ramifications of a lump-sum payout on your pension, if you’re confronted with that choice.

Get advice—good advice—on all the pros and cons before you decide.