Why DB?

In our continuing focus on why DB as opposed to DC or anything else resembling a retirement program, the U.S. economy is leaving a significant percentage of our workers behind. The following information is taken from an article, “Trump’s Economy Isn’t So Great” written by the leading retirement voice, Teresa Ghilarducci, Professor of Economics at the New School, who wants us to make sure that we aren’t confusing the economy with the stock market’s performance.

Teresa writes, “A Brookings Institution report found that low-wage earners—those who earn two-thirds median wage in the region—make up over 53 million workers or 44% of all workers ages 18 to 64. More than 40% are raising children, and over half are in their prime working years. 

And low-wage workers are unsettled and insecure. Another Brookings report, based on extensive interviews, found that “despite the rosy headlines, workers described feeling uncertain and uneasy about their future.” They live paycheck to paycheck, have inadequate or no health insurance, can’t see how their children could afford college, lack access to retirement plans and in many regions have trouble finding affordable housing. 

Even with low unemployment, low-wage workers are suffering what journalist Annie Lowery calls the Great Affordability Crisis: “Fully one in three households is classified as financially fragile,” lacking even $400 in emergency savings, so that “a surprise furnace-repair bill, parking ticket, court fee or medical expense remains ruinous for so many American families, despite all the wealth this country has generated.””

Yes, the stock market is booming, but according to Teresa, the stock market “barely touches the lives of most Americans”, as the median retirement balance for “All Near Retirees” is only $15,000. Social Security and one’s home provide most of the wealth for this cohort.

Inadequate Retirement Savings for Workers Nearing Retirement

For those 53 million Americans age 18-64 who may or may not have access to an employer-sponsored retirement program, the paycheck to paycheck subsistence creates a profound impediment to funding a retirement plan. These folks need a DB plan. Without that the federal social safety net may be their only choice later in life.

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