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Home > The Era of Defined Benefit For The Individual Is Fading

The Era of Defined Benefit For The Individual Is Fading

March 22nd, 2009 at 07:05 am

The risk factor is shifting. Because of growing uncertainty in the market cycles and the health sciences keeping people alive longer, in order to limit their long term exposure, many employers, large and small, for some years now have instituted a shift away from the traditional defined benefit plans that provide guaranteed levels of retirement income to different forms of defined contribution plans. During the go-go period of The Big M, it went largely unnoticed by many that in this shift a large part of the risks associated with how this money was invested was being pushed from the employing entity to the individual employee.

The batting averages don't match. It is a known fact, that for many of the high-profile financial experts, a batting average of .500 is considered to be at the high end of their range of accuracy. In other words, the top people are right about 50 percent of the time and our current predicament bares this out. However, for the vast majority of people whose expertise lies elsewhere in all of the countless categories necessary to make this or any society really function, their batting average by definition must be a lot higher than .500, or they wouldn't last very long in their chosen fields. Many of what I would call the real experts invested their hard-earned life savings largely based on historical trust in a financial system that most failed to understand was morphing before their very eyes. It's reasonable to think that if this gap between batting averages was narrowed, the overall exposure to our society would be reduced accordingly.

Taking the risk out of risk. Knowing that core assets are safe and that you are not over-exposed to risk greatly helps in avoiding back-against-the-wall syndrome where you may be forced to sell out and lock-in losses out of panic or just to meet basic lifestyle needs during the more severe down cycles. By keeping your level of exposure manageable, you are essentially taking the risk out of risk by being in a more safe and secure position to ride out unexpected storms until balance in the system once again restores itself.

The real tipping point. No doubt, many of us have accomplished the goal of taking personal responsibility for the safeguard of our life savings. But the real tipping point that will take this country in a healthier direction over the long term will not be the short term massive spending plans of the system - the debate of which will be left to other forums - but a growing number of average people who are the ones really responsible for making this society function, day in and day out, realizing, once again, that as it always ends on them, it has to start with them.

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