Ghilarducci How to Retire with Enough MoneyI sat down with Richard Eisenberg of Next Avenue to discuss my new book, "How to Retire with Enough Money." We discussed systemic issues in our current retirement system and the need to create savings vehicles for workers, such as Guaranteed Retirement Accounts, to provide a safe stream of income during retirement.

The AtlanticIn “What Is This 'Wage Insurance' Obama's Talking About?,” I discuss the rich history behind one of President Obama’s proposals in his final State of the Union address. Though most Americans probably haven’t heard of wage insurance, it’s an old idea with a diverse backing.

Robert LaLonde, an economist at the University of Chicago, wrote “The Case for Wage Insurance” in 2007. He argued that America’s current system of unemployment insurance isn’t enough for workers who lose high-paying jobs and can only find low-paying jobs to replace them, and workers who are older and lose their jobs to foreign trade. His argument was based on fairness. If free trade creates winners and losers, the winners should compensate the losers.

Though President Obama’s proposal for topping up the wages of workers re-hired at lower-paying jobs is new, the concept of wage insurance has a long history in the United States’ government. Since 1935, we’ve had unemployment insurance, which replaces some of the income of laid-off workers while they look for new jobs. In 1975, President Nixon signed into law the Earned Income Tax Credit (EITC), which supplements the wages of low-income workers who have dependents, indirectly subsidizing their employers. Some companies have Supplemental Unemployment Benefit Plans, which give extra income to workers who are laid off, but who the company hopes to re-hire soon, so they don’t feel compelled to find another job.

Wage Insurance isn’t without its critics. Some argue it creates moral hazard by making bad situations less undesirable. Others claim it encourages the proliferation of low-wage jobs. Still others argue it is effectively a subsidy for big corporations that don’t pay well. All have their points. It would be great if we could go without it, but for workers who need it, wage insurance can be indispensable.

The AtlanticIn “How the Government Underestimated the Extent of Income Inequality,” I write about the reality of Social Security’s future - not the dire warnings you hear from alarmist pundits and politicians. Without modifications, Social Security will generate enough revenue to pay for three-quarters of future benefits. The shortfall isn’t because the retirement age is too low, it’s because the wealthiest Americans by-and-large avoid Social Security taxes.

Social Security was not designed for an economy as unequal as what we have today. Most income gains of the last two generations have gone to the richest Americans. Since 1979, while the top 1% saw their incomes grow by 138%, the wages of the bottom 90% have risen only 15%.

This wouldn’t be a problem if all income was subject to Social Security taxes. But it’s not. Rather, only income up to $118,500 is subject to the tax. For most of us, this doesn’t matter, but for the wealthy it makes a big difference. The top 10,000 or so wage earners will make about $4 million on average this year. They’ll be done paying into Social Security within the first week of the year. As you go up the income distribution, this gets ridiculous, with the top wage earners done paying into Social Security (for the year!) before lunch on their first day of work.

Adjusting the system to the reality of income inequality is an easy way to make it solvent. By taxing all wages (not to mention capital gains) for Social Security, we can ensure that one of America’s most cherished public programs survives for generations to come. It’s not so unreasonable. A bipartisan coalition eliminated the cap on medicare taxes in 1994. A similar cross-aisle effort is needed again.

Older Unemployed Workers Take Longer to Find Jobs than Younger Workers

The unemployment rate is falling for workers in all age groups. For workers over 55, today’s jobs report from the Department of Labor shows an unemployment rate of 3.2% in December, a decrease of 0.5 percentage points from last month.Older Workers Take Longer to Find Jobs

While this is good news overall, if an older worker is out of a job, it will take them 10 weeks to find a new one than their younger counterparts. In 2007, the average time spent unemployed for workers 55+ was 23 weeks, compared to 20 weeks for younger workers, a gap of three weeks. In 2015, the gap increased three fold to ten weeks, with older workers spending 36 weeks looking for a job compared to 26 weeks for younger workers. Older unemployed workers take longer to find a job than younger workers #JobsReport @tghilarducci

Whatever the cause, be it age discrimination or biased job training programs, older workers are less able to recover from the shock of losing a job. As their time looking for work stretches out, many turn to early retirement as an escape, paying a high price in decreased standards of living due to inadequate savings. Cutting Social Security benefits by raising the retirement age will fuel the increase in older workers’ income vulnerability. Systemic change requires a comprehensive program in the form of Guaranteed Retirement Accounts to ensure older workers have the retirement income needed to leave the labor market when they chose.

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.