A recent opinion piece by Teresa Ghilarducci in the New York Times took on what she termed a “ridiculous approach to retirement,” drawn from what appears to be a series of “ad hoc” dinner conversations with friends about their “retirement plans and prospects.”
Most of the op-ed focused on the perceived shortfalls of the voluntary
retirement savings system: People don’t have enough savings, don’t know how much
“enough” is, make inaccurate assumptions about the length of their lives and
their ability to extend their working careers, and aren’t able to find qualified
help to help them make more appropriate savings decisions. In place of the
current system, which Ghilarducci maintains “will always fall short,” she
proposes “a way out” via mandatory savings in addition to the current Social
Security withholding. Consider that, just three sentences into the op-ed, she
posits the jaw-dropping statistic that 75 percent of Americans nearing
retirement age in 2010 had less than $30,000 in their retirement accounts.
“You don’t like mandates? Get real,” she declares.
Average IRA Balances a Third Higher When Multiple Accounts are
That’s not to say that the financial challenges outlined in the op-ed won’t
be a reality for some. In fact, EBRI’s Retirement Security Projection Model®
(RSPM) developed in 2003, updated in 20102, finds that for Early Baby
Boomers (individuals born between 1948 and 1954), Late Baby Boomers (born
between 1955 and 1964) and Generation Xers (born between 1965 and 1974), roughly
44 percent of the simulated lifepaths were projected to lack adequate retirement
income for basic retirement expenses plus uninsured health care costs (see “Retirement Income Adequacy for Boomers and Gen Xers: Evidence from
the 2012 EBRI Retirement Security Projection Model”) .
The op-ed declares that a voluntary Social Security system “would have been a
disaster.” Indeed, an objective observer might conclude that that is why
Congress originally established Social Security as a mandatory system, to
provide a base of income for retirees as it still does today. With the
underpinnings of that mandatory foundation of Social Security, the current
voluntary system was established to allow employers and individuals to
supplement that base. In recent decades Social Security’s benefits have been
“reduced” by increases in the definition of normal retirement age, and a partial
taxation of benefits, despite increases in the mandatory withholding rates, in
order to adjust to the realities of rising costs from changing demographics.
Even before the recent two-year partial withholding “holiday,” Congress was, and
is still today, discussing additional adjustments to that mandatory system.
The voluntary system should be judged as just that, a voluntary system. As
noted above, the data makes it clear that voluntary employer-based plans are, in
fact, leading to a great deal of real savings accumulated to supplement Social
Security. Many in the nation work every day to encourage those savings to be
increased (see www.choosetosave.org
The “real” questions, certainly as one reflects on the debate over the
Affordable Care Act mandate, amidst today’s political and economic turmoil, are
whether the Congress and the nation will be willing – and able – to pay the
price of an expanded or new retirement savings mandate, and, regardless of that
outcome, how can a voluntary system be moved to higher levels of success?
Nevin E. Adams, JD
1 Active in this case is defined as anyone in the database with a
positive account balance and a positive total contribution (employee plus
employer) for 2010.
2 The RSPM was updated for a variety of significant changes,
including the impacts of defined benefit plan freezes, automatic enrollment
provisions for 401(k) plans, and the recent crises in the financial and housing
markets. EBRI has recently updated RSPM to account for changes in financial and
real estate market conditions as well as underlying demographic changes and
changes in 401(k) participant behavior since January 1, 2010. For more
information on the RSPM, check out the May 2012 EBRI Notes, “Retirement Income Adequacy for Boomers and Gen Xers: Evidence from
the 2012 EBRI Retirement Security Projection Model.”
Last June EBRI CEO Dallas Salisbury participated in an “Ideas in Action with Jim Glassman” program discussion with
Ghilarducci and Alex Brill from the American Enterprise Institute titled
“America’s Retirement Challenge: Should We Ditch 401(k) Plans?” You can view it