[quote=Parabolica]The problem with defined contributions plans as I see it is that the vast majority of working people lack the financial sophistication required to invest for their retirement. They are consigned to investment company sharks by their ignorance and the limited choices available to them in their company 401(k) choices.
Harvey, how does the average person taking your prescription save for their own retirement? Do they know about index funds? Do they get idea of changing the equity/bond ratio as they approach retirement? If they look for advisers can they avoid the sharks? I say that they cannot begin to match the returns and stability provided by professional managers of defined benefit programs. Do you see it differently?
The corporations were allowed to strip workers of defined benefit plans, moving liabilities off their books, and giving employees the ‘freedom’ to chart their own financial course. It is like handing someone a parachute and kicking them out of a plane for the first time so that they may have the ‘freedom’ of learning how to reach the ground without perishing. Those stripped of defined benefit plans are angry that their employees, government workers, have not been been rendered naked as well. Understandable, but not pretty.[/quote]
You’ve nailed it, Parabolica.
Apparently, Pri/Harvey hasn’t seen the stats on savings, either.
“There hasn’t been a significant increase in wages, people have student loans and other debt, and many are continuing to struggle financially,” said Charles Jeszeck, the GAO’s director of education, workforce and income security, which analyzed the Federal Reserve’s 2013 Survey of Consumer Finances to come up with its estimates. “We aren’t surprised that people have not saved a lot for retirement.”
“…Even among those who do have retirement savings, their nest eggs are small. The agency found the median amount of those savings is about $104,000 for households with members between 55 and 64 years old and $148,000 for households with members 65 to 74 years old. That’s equivalent to an inflation-protected annuity of $310 and $649 per month, respectively, according to the GAO.
“I don’t care what anyone says. That’s not enough income for retirement,” said Anthony Webb, senior research economist at the Center for Retirement Research at Boston College, who reviewed the GAO report.”http://www.cnbc.com/2015/06/03/most-older-americans-fall-short-on-retirement-savings.html
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There isn't a "lifestyle adjustment" of any kind that will ever make this DC system solvent. The government WILL be bailing people out, one way or another. We might as well do it in a way that is transparent, honest, and humane. That means that we will need to strengthen and expand SSI. Just lift the contribution and benefit base (cap on income subject to SSI tax), and cap the benefits at around $100K or so and adjust this cap by CPI every year.
If it still needs more shoring up, increase the tax rate, or subsidize it with other federal money, until it's sustainable.
