The migration from DB plans to DC plans isn’t working for the individual participant, and it will only get worse! As a result, a retirement crisis is unfolding in the US, and the social and economic ramifications are likely to be profoundly negative.
As a result of the greater use of defined contribution plans, we’ve asked our employees to become investment experts when nearly all of them aren’t trained to handle this responsibility. We certainly require training / licensing when hiring plumbers, electricians, nurses, etc. Under these circumstances, why would anyone think that this migration from one retirement plan to another is a positive development for our society? Worse, our Millennial children are earning wages that are dramatically lower than those from the Boomer generation.
Millennials are falling behind their boomer parents. According to a new analysis of Federal Reserve data by the advocacy group Young Invincibles, Millennials are worse off than their Boomer parents by roughly 20%. Couple the lower wages with much greater education costs and you have a formula for disaster.
In addition to excessive educational costs, our employers are footing a much smaller percentage of health care costs, while rental expenses are rising rapidly in many urban environments. Have you checked out Hoboken for instance? I am very concerned about the long-term implications that this toxic combination is producing. We WILL suffer profoundly negative economic and social ramifications as a result of our failure to address the impending retirement crisis.
DC plan participants can have a successful outcome if they fund their retirement accounts with a good chunk of their compensation (10% to 15% annually), and do so as early in their careers as possible. However, life gets in the way for many of us today, and the ability to make these on-going contributions can be a challenge. There is a basic level of compensation that must be earned just to survive, let alone thrive! Clearly, for most of the younger population survival is today’s name of the game.
As a society, we must deal with the ridiculous cost of higher education, the lack of quality jobs accompanied by living wages, the assumption that everyone is capable of managing their own retirement, a public education system that is not producing outcomes that prepare our students for a 21st century economy, while retraining all those workers that have been displaced or soon will be (see driverless cars) as a result of major technology advances.
When will we get serious and begin to tackle these important issues?