The following article appears in the WSJ today. It speaks to an issue that we, at KCS, have been discussing for years. Specifically, with U.S. wages staggering, the ability to fund a retirement plan through a defined contribution plan is getting more and more difficult, if not impossible.
The American Dream is fading, and may be very hard to revive
According to several researchers at universities, including Harvard, Stanford and the University of California, 92% of 30-year-olds in 1972 out-earned their parents at the same age. Regrettably, only 51% of 30-year-olds can say the same thing today. Wages have stagnated since the late 90’s, and adjusted for inflation, they are actually below 1999’s level.
So, we repeat, who thought that it was smart policy to shift a significant portion of our private sector from company funded defined benefit plans to defined contribution plans? Many of our 30-year-olds are burdened with excessive student loan debt because of incredible increases in tuition expense. At the same time, the companies that they work for have dramatically reduced their support of company sponsored medical insurance, the cost of which has also far outpaced inflation. These increasing burdens further reduce one’s ability to fund a retirement plan – so they don’t!
It shouldn’t be a shock then to read about median DC account balances that are ridiculously low, while also learning that roughly 50% of our population hasn’t saved anything for retirement. You are kidding yourself if you don’t believe that there is a retirement crisis unfolding in this country. There will be grave social and economic implications as a result. It is time to rethink this failed policy choice!