The Pending Retirement Nightmare
The Pending Retirement Nightmare
A retired friend approached me at church and asked to talk. In hushed tones he wondered whether I might know of an employment opportunity. When I asked why, he responded that he was experiencing financial difficulties. The problem? He was running out of money.
A seismic shift in pension responsibility occurred in the last 20 years. Prior to 1975, many employers offered a pension that employees could count on for retirement. These were called Defined Benefit plans because the pension benefit to the employee was defined in real dollar amounts. The employee knew that he or she would receive a specific dollar amount for the remainder of their lives. Further, this amount was also allowed to a beneficiary, although with a percentage reduction.
Those days are over. Defined benefit plans simply became too expensive for employers to offer. In response employers began to offer Defined Contribution plans. A defined contribution plan sets the amount of dollars contributed to the plan versus the amount received from the plan. In other words, a defined contribution plan is what most employees recognize as a 401K.
What is the problem? The problem is that the switch to defined contribution 401K plans equally switched the responsibility of retirement from the employer to the employee. This portends a coming disaster. Why? People simply are not saving enough money on which to retire. One of the dirty little secrets of retirement is that people generally do not change their lifestyle by one dollar from the day before retirement until the day after retirement. They live in the same town, statistically, the same home, shop at the same stores, eat the same food and buy the same clothes and other necessities.
It is virtually common knowledge that Americans are not saving money. We now are on the brink of the first generation who is entirely responsible for full savings to fund their own retirement. This makes big box stores happy, of course, because the lack of savings provides a continuing employment pool for greeters and other part time employees that don’t require expensive benefits to maintain.
The potential disaster lies deeply within our social fabric. What will we do with increasing amounts of aging people who do not have enough money to live on? Some sort of political response is inevitable. What that might be, however, is anyone’s guess.
What is clear is that we all need to save more money for retirement because no one else is going to help us. Financially, defined contribution 401K plans say to the employee: you are on your own!
For further information concerning retirement please visit Stephen O Meidahl’s website at http://www.smeidahl.com