A Conundrum

A very interesting article appeared in The Record (Bergen) on Christmas Day. The title was Retirement Savings vs. Student Loan Payments, by Janet Kidd Stewart.

We have been discussing this topic for years. Given the financial demands on individuals, whether they be in their 20s or 60s, the ability to fund a retirement program is being compromised. Wage growth has been stagnant since the late ’90s, and the labor force participation rate keeps on falling and is currently 62.7% (11/16), with roughly 95 million age-eligible workers on the sidelines.

In addition to being burdened with incredible student loan debt, many individuals are paying a much larger share of their medical insurance premiums, while incurring rising housing and rental costs. In the wake of all this debt and expense is the need to fund a retirement program through a defined contribution plan, as the private sector is just about out of the defined benefit game.

Regrettably, funding retirement accounts hasn’t been the highest priority for most households, and according to the the National Institute on Retirement Security (NIRS), the median U.S. household has just $3,000 in retirement savings! We believe that a retirement crisis is unfolding in the U.S., and the social and economic impact will be devastating.

There are many who believe that irresponsible behavior (spending more than one earns) is leading us down this path, but we believe that our economy’s lack of quality jobs, flat wages, and exorbitant educational costs are crippling many, both young and old.  Sure, there will always be those that spend recklessly, as seen by the incredible total of auto loans and revolving credit debt that has been amassed, but we believe that it isn’t the norm.

Obviously, we’d welcome the revival of the traditional DB pension with the monthly payout until death, but we are not naive enough to expect that plans that have been shuttered will once again rise from the ashes.  However, we can do a better job to make sure that those DB plans still active today start on a new path to better funding by focusing more attention on the promise that they have made.

For those of you in a DC plan, we know and appreciate how difficult it is for the untrained (that is most of us) to manage this responsibility.  We at KCS have strategies and ideas on how to make your participation in a DC plan a more successful venture, but it all starts with funding whatever you can afford as early as possible.  Let us help!

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