The Do-It-Yourself Retirement System Isn’t Working

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The retirement crisis is real. 40% of older, middle-class workers and their spouses will fall into poverty or near poverty in retirement. Economist and retirement expert Teresa Ghilarducci says the U.S.’ 40-year experiment with do-it-yourself retirement is seriously flawed, but there are ways to fix it.

The Do-It-Yourself Retirement System Isn’t Working. Retirement Pro Teresa Ghilarducci Has Solutions


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Teresa, forty percent of older workers and their spouses will experience downward mobility in retirement. What’s going on?

Well 40 percent of middle class. Workers who are about ready to approach retirement. Don’t have enough. Money in their retirement accounts or don’t have any retirement. So when they reach retirement age they will only depend upon Social Security and Social Security isn’t enough to maintain a middle class workers. Retirement standard of living the standard of living they reach when they were when they were working. And what’s happening is not so much the fault of the workers who are coming into retirement. The problem is that this cohort the generation of workers have lived under an experiment in the United States a kind of a do it yourself experiment where governments. Have shrunk their pensions especially Social Security but also Medicare premiums went up and companies have moved away from offering or expanding their retirement options. And so. For the past 40 years the boomer generation has really had to know the ropes and started saving. From the moment they started working and kept that money in an account almost every year you know for 42 years for the system to have work for them. Is that realistic.

We’re now seeing the result of that that do it yourself pension experiment we’ve been conducting for the past 40 years.

This experiment is really for those who are lucky enough to have an employer sponsored plan or a 401k. And of course IRAs are new relatively new as well. But what about the rest of us that those who you know that that aren’t covered is their predicament worse or better than it was let’s say 40 years ago.

We were never in a golden age of retirement. Let’s say in the 70s and 80s because. Not everybody was covered by a supplemental plan. On top of Social Security. But the numbers were a lot larger. Than people thought at any one point in time. There were about 50 percent of workers were covered by a defined benefit plan. But by the time a workers reach retirement the chances that they pass through an employer that had had a defined benefit plan or somewhere along the way that they collected vesting benefits was far higher than that was about 70 percent off of a defined benefit plan. Were valuable. If you were vesting toward the end of your working life and that’s when people would stop shopping for job and stay with an employer you know for a period of time. So the data is quite remarkable because I see retirees now who are already on the plan now they’re not rich on the plan but they had spousal benefits. So a surviving spouse would have a steady income for the rest of their lives and sitting on top of Social Security. And the chances. That. Someone with a modest DB plan. Would be more in retirement is almost zero. They’re kind of lower middle class workers with a DB plan. You remainder lower middle class retiree where we’re seeing a lot of risk of poverty are older people who have some defined contribution plan or nothing at all because when you get older that money runs out or when you’re living alone and the money has already run out and you actually have a little bit more expenses when you’re living alone because two people can live a lot cheaper per person than one person. So they’re. The defined benefit system was not perfect but it was much much better than the system we have now.

Your thesis is that it’s it’s not our fault that basically it’s the do it yourself system is this experiment as you’ve described it that really is the the main problem. But when I look at the savings rates for instance and this has been something that you know for the last 40 years as a matter of fact that the savings rates of the U.S. have overall declined and you’re an economist. You tell me if that’s accurate but isn’t it also the case that we’ve become much more consumer oriented and that in fact that we’re not saving enough don’t we share some of the responsibility for our retirement security.

The idea that we can blame the victim. You know this generation of workers without enough.

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