On May 16, 2013, SCEPA Director Teresa Ghilarducci joined a panel discussion hosted by the Economic Policy Institute (EPI) on Robert Kuttner's new book, Debtor’s Prison: The Politics of Austerity Versus Possibility. Below are her comments on the structural shift of risk:

"The last 20 years has seen significant growth and change in the character of interactions between working and middle-class households and financial institutions and markets.1

With this financial development and households' increased exposure to financial risk, academic economists and others have embarked on a new inquiry, a body of study some call the "culture of finance." This is the name of an NYU seminar taught this summer featuring business faculty, anthropologists, and investment bank economists. Other scholars call this line of inquiry the "financialization of households," and even others embed it in literature as the "culture or varieties of capitalism" (see among others David Soskice and Peter Hall).2

Generally, the project seeks to understand how and why individuals and households are taking on more and more economic risk. These risks were once managed by government and employers, and sometimes social insurance arrangements or employee benefits, such as pension plans, unemployment insurance, and default risk by banks. These institutions have been replaced by financial institutions and products, and are key to the story of how corporations and banks have shifted the risk of financial loss to households.

The fact that the U.S. retirement is in crisis is no secret here or abroad. On May 14, 2013, The New York Times article How They Do It Elsewhere highlighted a recent Mercer study that graded the retirement systems in the advanced industrialized countries. Not surprisingly, the U.S. received a mediocre C. Considering that the retirement system is failing millions of Americans each year, one might wonder if they graded on a curve.

Every country is worried about investing retirement funds correctly, and every country wants to minimize risks to the taxpayer so there aren’t large, unknown bills in the future. In the United States, we use our tax code far more than other countries to try to encourage savings and other socially beneficial behavior. We spend hundreds of billions of dollars to try to incentive saving for retirement through 401(k)’s and I.R.A.’s. That costs us a huge amount of money without much effect creating a secure retirement system. In fact, America’s voluntary system means that nearly six out of 10 workers are not in pension or 401(k) plans.


On April 10, President Obama introduced his budget proposal for Fiscal Year 2014, which includes a controversial change in how the Social Security program determines benefits for seniors. In short, the President wants the program to determine cost of living adjustments based on a "chained" Consumer Price Index (CPI), rather than a traditional CPI.

The chained CPI assumes that people can easily substitute cheaper goods for households necessities. However, SCEPA Director and retirement expert Teresa Ghilarducci joins the PBS Newshour blog, "Does Obama Have it Right or Wrong on Social Security?," to argue that seniors face the opposite as they age, as more and more of their income is taken up by expensive healthcare services and other products that do not have cheaper substitutes. It is also increasingly difficult for the elderly, especially those with health problems or disabilities, to buy in bulk or go from store to store bargain shopping. This fact is well-documented and led the U.S. Department of Labor's Bureau of Labor Statistics (BLS) to develop a measure of inflation that reflects the true costs of aging: the Current Price Index for the Elderly (CPI-E).

The differences between the chained CPI and the traditional CPI are only .03% lower per year. However, these small cuts year after year would mean that the average retiree would lose $1,147 a year by age 85. The cumulative cuts to people on Social Security reach $28,000 by the time a retiree is 95 according to Social Security advocates. In contrast, linking Social Security benefits to CPI-E would raise benefits by 6% for a 95-year-old rather than cut them by tens of thousands of dollars.

On Tuesday, April 23, 2013, the PBS program Frontline aired "The Retirement Gamble," a news investigation into how the financialization of retirement savings via 401(k)-type accounts has eroded individuals' ability to retire. I am interviewed, along with Robert Hiltonsmith, a policy analyst at Demos and my former student at The New School, on our work documenting the structural failure and high fees of the 401(k). 

Frontline's investigation reveals:

  • On any given street, one household may be paying 10 times as much to invest in a 401(k) as the household next door;
  • Over the course of a lifetime, a seemingly low annual fee of 2 percent can reduce what your balance would have been by more than 60 percent—potentially adding years to your working life;
  • Popular 401(k) providers often charge a plethora of hidden fees, burying them under opaque names like "Expense Ratio";
  • Many financial advisers are not required to provide advice that is in their clients' best interest; they are only obligated to give advice that is "suitable"; and
  • The best way to maximize your return might be to cut Wall Street out of the equation and invest in low-cost, unmanaged index funds.

Watch The Retirement Gamble on PBS. See more from FRONTLINE.


The Urban Institute recently published a Retirement Security Data Brief that shows Americans are contributing more to defined contribution (DC) plans of the 401(k) variety than to defined benefit (DC) pension plans as less employers offer DB plans to their employees. This supports SCEPA research, which has documented the effect of this structural shift in the labor market - a downward trend in individual’s ability to retire at their current standard of living due to high fees and market losses.

In their documentation of this trend, The Urban Institute’s analysis can be misleading. It shows that when adjusted for inflation, DC assets have increased by 5 percent from 2007 to 2012, suggesting that DC accounts have recovered from the recession and that these accounts can recover from market vulnerability. However, this calculation includes yearly workers’ contributions, which is the same problem faced by the Beardstown Ladies, the savvy group of older women who pooled their knowledge to invest their money. Their fantastical returns reported in their best selling book were audited when it was discovered they included their contributions as earnings.

When yearly contributions are subtracted, the increase is only 1 percent - hardly enough to be considered a recovery and certainly not enough to adequately prepare for retirement.


American workers' retirement plans are not working as hard for them as they should. If these funds had been contributed to a Guaranteed Retirement Account it would have created a more stable and significant source of retirement funding. The GRA shields workers' hard-earned savings from stock market crashes by pooling investments and guaranteeing a rate of return. GRA plans would provide 3 percent returns above inflation, plus the 5 percent of combined employee-employer annual contributions. This 8 percent increase over 4 years would mean an increase of 32 percent, including their own contributions.