The Retirement Crisis

by Yves Smith, published March 26, 2015

This interview, with Teresa Ghilarducci, who the Wall Street Journal called “the most dangerous woman in America,” discusses how and why pensions are under stress, and what can be done to fix them. While she agrees that the retirement crisis is real, she also argues that it is eminently fixable, particularly since there really is no free lunch. The alternative, of widespread poverty among the aged, also imposes costs on government and society.

Ghilarducci also points out that the biggest reason that pensions are coming up short is due to how much the managers are extracting in feed. Ghilarducci’s dangerous idea, which she discusses here, is that of lowering the Medicare age to 60. She contends that it will pull in older workers that are un or underinsured, but also generally healthier than the over 65 Medicare pool. The combination of intervening earlier for some long-term ailments, most important of all diabetes, plus getting a broader set of risks into the pool, will lower overall costs.

From the summary at INET:

The retirement crisis is anything but imaginary. According to research conducted by Professor Teresa Ghilarducci, head of the Department of Economics at the New School in New York City, only 44% of workers in the United States have access to a retirement plan at work. Except for workers with defined benefit plans, most middle class U.S. workers will not have adequate retirement income — 55% of near-retirees will only have Social Security income at age 65.

A labor economist, Ghilarducci’s work focuses on the need to restore the promise of retirement for every American worker. Her research documents the many problems people now face in planning for retirement: decreasing coverage and contributions, increasing investment risk, portability, leakage, high fees, and the drawdown of benefits in retirement. This body of work led her to put forth a bold reform idea – the creation of Guaranteed Retirement Accounts (GRAs) – to provide a secure retirement to an additional 63 million people. This of course goes against the prevailing trend in our government’s treatment of pensions, particularly public pensions, which governors have persistently raided to avoid the more politically unpalatable option of raising taxes to support the viability of these plans. As she discusses in the interview below, she issues a clarion call for policy makers and political leaders to find a way to save retirement, “a necessary- if now threatened – feature of civilized societies.” As Ghilarducci eloquently notes, all people – rich AND poor – deserve a decent retirement income after a long working life. Are our leaders up to the challenge?