The Retirement Plan Solution

The Evolution of Retirement

People did not always expect to retire and spend their senior years at leisure. Indeed, it was not until 1889 that German Chancellor Otto von Bismarck introduced a retirement program for his nation’s workers. One of the first such plans in history, it promised German laborers an income for life if they retired at 70. This didn’t help most Germans, since at the time the majority lived only to age 45. Today, however, many middle-class people in developed nations assume they will enjoy retirement without having to continue to work for enough money to cover their costs. Since people are living longer than ever, this scenario is becoming an increasingly expensive goal.

American retirement schemes used to be based primarily on defined benefit (DB) plans, where employers promised specific benefits and pooled pension funds for future individual payment as people retired. Now companies are replacing (or have replaced) DB plans with defined contribution (DC) plans, where firms track each worker’s money separately and make preset deposits, usually a percent of the employee’s salary that the worker matches or exceeds. DC plans cost employers less than...