We’ve been highlighting the U.S. retirement crisis since KCS’s inception in 2011. As frequent readers of our Fireside Chat series and this blog will recognize, we’ve placed the blame firmly on the demise of the traditional defined benefit plan and the greater (almost exclusive) use of the defined contribution plan as the primary culprit. FINALLY, we have some realization from the financial world (thanks, WSJ) that there is indeed a retirement crisis and acknowledgment that the benefits of the DC plan may have been overstated.
The article highlights all the ugly stats that we’ve been throwing out, including; only 13% participation in a traditional DB plan for the private sector (down from 39% in 1979), only 30% participation in any type of retirement plan for the private sector, retirement savings of <$3,000 for the median family with a significant percentage of those not having any savings, etc. The numbers are staggeringly poor!
The “financial experts” have determined that an individual should retire if they have an account balance that is roughly 8 times their current income. Oh, boy, we are in deep trouble! Excessive fees, misaligned product (relative return versus absolute-oriented), poor oversite, and longer lives are just some of the reasons why this crisis is unfolding. However, the biggest culprit is asking untrained individuals to become portfolio managers in funding and managing this responsibility. This hasn’t worked and it is NOT going to work going forward.
We need to protect those defined benefit plans still in existence (both private and public), further help those employees mired in only a DC plan while trying to create new retirement vehicles that will provide an annuity-type product for the masses to stretch throughout their retirement (such as Double DB). These actions must be taken unless we are confident that our government can foot the bill for a greater percentage of our population to live on welfare later in life!