The New Defined Benefit IRA
Written by Jasmin Sethi and published in Forbes.
The decline of the defined benefit plan, together with the loss of job stability, have created a unique challenge for individuals. On average, college graduates graduating between 2006 and 2010 held almost twice as many jobs in the five years post-graduation from college as those who graduated during the 1986 to 1990 period. Moreover, whereas the distribution of tenure levels among workers ages 20 and older had been moving toward longer tenures for much of the past 35 years, shorter tenures have recently gained share, with the percentage of workers holding tenures spanning between one and two years and less than 1 year having grown between 2014 and 2018.
Given these job changes, individuals have to be proactive about managing their own retirement planning, even if each employer for whom they work sponsors a retirement plan. Workers may not have consistent access to employer-sponsored retirement plans throughout their careers. As nonprofessional investors, they are often ill-equipped to prepare for their own retirement security, which requires evaluating their investment alternatives both through their employer and apart from their employer. Even social security, long a bedrock of people’s retirement plans, is in jeopardy, most recently with President Trump asserting that he will defer payroll taxes. More individuals would likely save for retirement outside of employer-sponsored plans if such saving was automated, access to a match was provided, and lots of time and mental bandwidth were not needed to evaluate investment alternatives.
