Ghilarducci How to Retire with Enough Money

I am excited and honored to join The Diane Rehm Show on WAMU 88.5 tomorrow from 11:00am to 12pm to discuss my new book, "How to Retire with Enough Money." 

New York TimesOn January 1st, 2016, The New York Times published an oped, "A Smarter Plan to Make Retirement Savings Last," jointly authored by myself and Blackstone President Tony James and mentioned in today's daily news updates by Daily Kos and Politico.

In the piece, James and I call for the creation of a mandatory savings plan as a necessary solution to the coming retirement crisis:

"We need a bolder plan, which we are calling the guaranteed retirement account (G.R.A.). Under our proposal, all workers and employers will have to make regular payments into a G.R.A., which builds until retirement age, then pays out a supplemental stream of income until that person and his or her beneficiary die. 

The current system - a mix of 401(k)s and individual retirement accounts (I.R.A.s) - is broken." 

The AtlanticIn “By 2050, There Could Be as Many as 25 Million Poor Elderly Americans,” I cast a pall over some good news from the National Reverse Mortgage Lenders Association. They celebrate that the value of older Americans’ homes is growing faster than their debt. I show how poverty among the elderly will increase by 180 percent over the next generation.

My bad news is the result of some simple back-of-the envelope calculations. As the Baby-Boomers retire, the number of elderly Americans will grow by about 106%. Due to America’s deteriorating retirement system, a growing share of them will be in or near poverty. The result? The number of poor retirees will increase from 8.9 million in 2010 to about 25 million in 2050 -a jump of 180%.

The good news is this scenario is not inevitable. To avoid a retirement crisis, we need to take two steps. First, expand - not cut - Social Security. Second, implement Guaranteed Retirement Accounts (GRAs), mandatory, pooled savings accounts to supplement Social Security which will let all workers enjoy a comfortable and dignified retirement.

NYTIn this Sunday’s New York Times, Mark Miller writes about my alliance with Blackstone President Tony James to advocate for replacing 401(k)s with a mandatory retirement savings program.

Since I first proposed Guaranteed Retirement Accounts (GRA) in 2009, the effort for reform has gained steam as policymakers recognize the chasm between what experts recommend people save and what they actually do. Most Americans, even in the upper-middle class, have saved nowhere near enough for retirement.

The will for reform is present abroad and at home. Britain, Australia, and New Zealand have all implemented mandatory retirement programs of their own within the last generation to great success. In Britain, workers can expect to receive 71% of their salary in retirement. Three US states have enacted universal pension plans since 2012, and another 23 are considering a variety of proposals. State action is a response to federal inaction, and state policymakers would prefer federal reform.

Last month the US Treasury debuted its myRA program, which makes government-sponsored starter IRA’s widely available. But since myRAs are voluntary and small, most experts expect their impact will be limited. Nonetheless, they reflect a broad recognition of the need for reform. We need more alliances between academics and business leaders to bolster the case for federal retirement reform.

Today’s unemployment report - while good news for the overall economy - reveals that the number of older people in the labor market continues to outpace population growth. While we all know the number of older people is increasing as the Baby Boomers hit retirement age, this isn’t a story about demographics. It’s about a larger percentage of older workers relying on the labor market. Tweet: #JobsReport reveals hidden surge in # older workers dependent on labor market @tghilarducci

You can see this trend in both the shrinking unemployment rate for older workers and the increase in their labor force participation rate. In November, the unemployment rate for older workers was 3.7%, one of the lowest since the beginning of the recovery in 2010. More people are working or looking for work.

Number of Older Workers Grew Twice as Fast as their Population

The labor force participation rate, like the unemployment rate, includes both those looking for work as well as those who have jobs. In November, the participation rate for workers 55+ was about 40.2%, close to its peak of 40% in 2012. In 1995, only about 30% of workers over 55 participated in the labor force, an increase of 124% over the past 20 years. As a result, the labor market is flooded with 35 million older workers. In contrast, the number of prime-age workers (those between 25 and 54 years old) has not grown as fast as the prime-age population. The labor force participation rate of prime-age workers fell to about 80.7% from 80.8% in 1995.

Why are more older workers in the labor market? Given the crisis in retirement savings, some are unable to leave due to inadequate savings, the increase in 401(k)-type plans, and the lack of affordable health insurance.

Cutting Social Security benefits through raising the retirement age leaves work as the primary solution to the shortfall in retirement wealth. While it may look good to see an increasing demand for jobs among older people in an expanding economy, this rosy scenario doesn’t account for bargaining power. If the surge in older workers continues, the job market for all workers takes a hit in lower wages and increased competition between old and young.

The solution is to ensure retirement income through Guaranteed Retirement Accounts. This benefits both old and young. Older workers would have the choice to retire at their current standard of living and younger workers will see an increase in the supply of jobs.

How to Retirement with Enough MoneyI’m honored that Geoffrey James at INC has included my new book “How to Retire with Enough Money and How to Know What Enough Is” as number two on his list of 12 New Business Books for the Perfect Gift.

It’s a short read--maybe even a single-sitter--that explains why experts recommend you retire with at least 8-12 times your salary saved up, and offers some best practices to help you get there. It’s also a primer on current retirement policies, and contains some suggestions for states and the federal government to help all workers to retire comfortably, like Guaranteed Retirement Accounts.

The book will be available on December 15th, but you can pre-order it today.

The AtlanticIn “The Welfare State: A Terrible Name for an Essential System,” I discuss how the social safety net protects Americans from immiseration when they’re unlucky and props up consumer demand in downturns.

The welfare state is especially important for the 30% of American workers who are part-time and the roughly 8% more who are temps, self-employed, or on-call, and don’t have access to employer-provided benefits. For the most part, these workers aren’t eligible for unemployment insurance, so if they can’t find work in a recession they may rely on Medicaid and the Supplemental Nutrition Assistance Program (commonly called food stamps) to survive.

The perennial question, rehashed every presidential election season, is how robust should America’s welfare programs be? Today, the word welfare has a negative connotation, particularly among Republicans. But the concept of a basic income - now widely regarded as a fringe idea - once had the support of Richard Nixon. In the past hundred years, the welfare state has steadily and incrementally improved, from Social Security in 1935 to the Affordable Care Act in 2010. The American welfare state has the same skeleton as more robust welfare states like Denmark and Sweden. The question is how much meat should be on the bones.