What an odd time for retirement benefits. Congress and the president are gripping the third rail of politics, discussing possible changes to Social Security and Medicare to try to keep them solvent many years into the future. Collective bargaining faces stiff political and popular headwinds. These recent developments come on top of the well-documented, decades-long move away from the security of a defined benefit (DB) pension plan and toward the uncertainty of a defined contribution (DC) plan. Retiree medical benefits are now the exception, not the rule. And while DC plans have begun the slow climb back to pre-2008 levels, there remains much uncertainty.
The implications of all this are clear, if sobering: You and I will be responsible for the cost of our retirement income and you and I will be responsible for the cost of our medical coverage in retirement. The sooner you and I start saving, the more that interest compounding will help increase the value of our 401(k) plan account balances. We will all bear the risk that we may outlive our retirement savings accounts or that they will drop again as they did in 2008, resulting in reductions in our future monthly incomes.
Will we have saved enough money so our heirs will not have to pay to bury us?
What if we were able to participate in one of those types of retirement plans our parents were able to have, the ones that provided a monthly benefit for our lifetimes—a DB plan?
What if the cost of such a plan could be 5% of pay year after year with underlying assets invested conservatively to avoid downward investment risk on the employer’s money?
Would you and I be willing to take a pay cut to have the security of some form of income in our retirement years?
What if we used the 401(k) retirement savings account to supplement our retirement benefit, as it was originally intended, and the match and/or profit sharing went towards the cost of the defined benefit plan and the 5% shaving on our compensation could be eliminated?
We might be able to better meet the unforeseen medical expenses, have a reasonable income stream during retirement, not have to totally rely on Social Security and Medicare, not pay more in taxes, and not receive less in governmental services.
Wow, we would all win.
I know it is a pipe dream, but what if?