What Disposable Income?

US males have seen their median lifetime earnings collapse relative to those entering the workforce in the late 1960s and early 1970s despite the tremendous cost increases related to housing, post-secondary education, healthcare, etc. One needs not to look any further than the chart below to understand why there is such discontent in the US at this time.

When I entered the workforce in 1981, it wasn’t unusual that your employer had a defined benefit plan, paid all or a significant portion of one’s medical insurance, and may have even supported education by paying for a class or two each semester. Wow have things changed. Today, you hardly find any examples of these being offered. Worse, we now have on-call workforces with little to no benefit of being a “full-time” employee.

Incredibly, lifetime earnings began to retrace at just about the same time that DB plans were supposed to be protected by ERISA. The demise of the private sector DB plan has put significantly more pressure on American workers to fund their own retirement benefits. But how? As the chart above reflects, compensation hasn’t come close to keeping pace with the tremendous growth in living expenses. There is a basic level of income necessary just to just “live” and for a significant percentage of the American workforce, they are not even getting to that level let alone have the disposable income to fund a defined contribution plan.

As I reported last week, it is forecast that 22% of the American adult population will be >65-years-old by 2050. While it is wonderful that we are living longer, not having a retirement benefit means that our golden years will not be so golden. It also means that a significant percentage of our population won’t likely continue to be active participants in the economy, as the average Social Security benefit is only $1,543/month.

There is a huge economic divide in our country. This crisis shows little sign of abating. The lack of a company funded retirement program is not helping.

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