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Professor Describes American Approach to Retirement as “Ridiculous”

Category: Financial and taxes in retirement

July 24, 2012 — Recent studies from the Employee Benefit Research Institute and the Boston College Center for Retirement Research paint a pessimistic picture of retirement. Teresa Ghilarducci, a professor of economics at the New School for Social Research, cites much of their data in describing the American approach to retirement as ridiculous. She goes on in a recent New York Times Op-Ed piece, “Our Ridiculous Approach to Retirement“, to posit that new retirement accounts should be mandated, on top of Social Security, in order to prevent future generations from a poverty stricken retirement.

Although we wonder about Prof. Ghilarducci’s statement* that “seventy five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts”, her message is correct: Americans in an age of disappearing pension plans have not saved enough for retirement. According to her figures, 49% of middle class Americans will be poor in retirement. While Ms. Ghilarducci’s figures are for an “individual”, the number from the Federal Reserve’s 2010 Survey of Consumer Finances (SCF) that we see consistently quoted is by “household” – a typical household headed by someone 55-64 has $120,000 in combined 401k and IRA assets. That amount would provide a theoretical $575 a month to the household. Add to that the typical individual Social Security benefit of $1230 month, plus an estimate $615 spousal SS benefit, and you get a total household income of $2420 (or $29,040 annually). That’s about 2 times the 2012 poverty level for a 2 person household, but by no means much money.

A big part of the “Ridiculous” article centers around denial – the inability of most Americans to do what needs to be done to prepare for retirement. We don’t have a plan, we don’t save enough, we don’t invest wisely, we start saving too late, and we trust financial advisors who aren’t always that great. Another problem with the current retirement system is not our fault – more and more Americans are losing their jobs before their expected retirement age, and are not able to replace those jobs with ones of equal pay.

If we were in charge
These are sobering reports. We agree that something needs to be done, although we are just not sure this idea will gain traction. However we do agree with suggestions from the Center for Retirement Research that firms offering 401ks should have automatic enrollment for their employees, and more restrictions should be placed on loans from these funds. In our opinion too many people rely on them as piggy banks, which does not help their retirement planning.

In the meantime we are grateful that, according to our recent survey, more than two thirds of Topretirements members feel comfortable about the financial aspects of their retirement.

* (Regarding the confusing quote in the second paragraph)
Special thanks to Mary Ellen J, who found the source of this quote from the Schwartz Center for Economic Policy Analysis at the New School. Looking at the original source, it appears the NY Times quote was missing the qualification about annual income contained herein: “Three quarters of near retirees (ages 50 to 64) have annual incomes below $52,201, with an average total retirement account balance of $26,395 . When stretched out into an annuity over an average retirement lifetime, this sum does not provide a significant addition to a monthly Social Security benefit. Further, the median value of retirement account balances for half of near retirees is zero, meaning that over half of this group has no retirement savings.”

Comments? Please share your thoughts about this study and about what could be done to safeguard future generation’s retirements. If you were in charge, how would save American’s retirements!

Posted by John Brady on July 24th, 2012


  1. Save your money, and don’t use credit cards! I had a bank book in public school kindergarten supplied by a local bank. We saved dimes in it. When all the slots were full, we would get a new one. We saved a dime each week. Sound corney? It worked and I was always a saver. Only debt I ever had was a mortgage. Now that I’m retired, I’m traveling the country in my motorhome, and living my dream. It’s all about discipline and delayed gratification. I have to thank my folks too. They both lived through the Depression and gave me the same values. Motto is: spend less than you earn, don’t get into “bad” debt, and plan ahead. Thanks for all the great articles!

    by Susan — July 24, 2012

  2. I think I’m a little younger than Susan, but I also grew up with one of those bank books with the dimes in them. They were a great idea.
    Warning: slight rant!:
    I, at least, am absolutely not in favor of additional government-mandated retirement accounts. If people don’t have enough sense to think about their own futures and do that sort of thing out of their own volition — saving at least SOMETHING every month — well, they ARE going to be in trouble, and they must know it. I’m not heartless (if proof is needed, I give 10% of my income to charities). But I’m tired of the lack of personal responsibility and total embracing of instant gratification that is so evident (in most, if not all, age groups) and many areas of life these days. And more often than not, people who know what responsibility is end up paying or others’ irresponsibility, financially and in other ways. I guess I’m from a different world and time, but I have a hard time understanding how such people can be so clueless.
    I would be in favor of advertising campaigns by banks, not the government, to urge people to save, and why and how. If it was done right, both the new savers and the banks would benefit. And indirectly, so would the rest of us.

    by Marian — July 24, 2012

  3. The area of behavioral economics sheds a lot of light on how we act, and can help explain why many people are in challenging circumstances when it comes to getting financially ready for retirement. Here are two examples: 1. Hyperbolic discounting. Our “present selves” make decisions that are often very different from what our “future selves” would make. For example, “I will start saving for retirement with my next paycheck, but today, I’m going shopping!” Or (not retirement related, but very common), “I’ll start that diet on Monday, but right now I’m going to finish off the Ben & Jerry’s.” Or, “I’ll take out those loans for college now; I’ll worry about my $100,000 debt later.”
    2. Anchor. An anchor is a fixed idea of worth, even though it may not be based in reality. When it comes to selling a home (perhaps to move someplace less expensive), most of us have an “anchor.” This is the price at which we think our home should sell, and we don’t want to sell it for less than that amount. The anchor is often based on what we paid for the house and what we think it should be worth now, even if market conditions have changed drastically. This is often combined with “loss aversion” – we feel worse about a loss than we feel happy about a gain. So, even though we can purchase a new house for less in this economy, we have emotional trouble selling our current home because of “loss aversion.” Another common example of anchoring (perhaps related to saving for retirement indirectly) is when we go shopping. We’re more likely to purchase a shirt that is on sale (say the “anchor” is $40, but it’s marked down to $30, so we think we are getting a deal), but may well pass up the shirt not on sale for $30. The “anchor” of $40 makes us think we are getting a better deal, even though we have no true worth of the item, so we buy it.

    I’ve found this entire area of behavioral economics to be fascinating. I know this is a little different from the kinds of wonderful exchanges usually found on this site, but thought it provides a different slant. We are, as Dan Ariely (one of the gurus of Behavioral Economics) says, “Predictably Irrational.”

    Jan Cullinane,
    The Single Woman’s Guide to Retirement
    The New Retirement: The Ultimate Guide to the Rest of Your Life

    by Jan Cullinane — July 25, 2012

  4. I agree with you 100% Marian. That irresponsible attitude seems to have grown with every new generation, mom and dad or somebody else will take care of it. In N.J. it’s an accepted way of life for public employees and the leaders who want to keep their positions.

    by Billy — July 25, 2012

  5. I do think that people need to handle their finances better but the professor is just stating her opinion about how things should be run. I sure can’t see turning over more money to government to finance their bridges to nowhere and their military expeditions. I think it was Ronald Reagan that said something like: the most feared words are “I’m from the government and I’m here to help you.” On the other hand people need to get serious about their money or face the not very nice consequences.

    by L Fremont — July 25, 2012

  6. :evil:A little individual responsibility goes long ways. However I perceive that we have been educated/ market and etc to be a society based upon spending and easy credit . Often for things that we really do not need.In prior generations if you did not need it or have the money you got by. You did not purchase to keep up with others .

    by william — July 25, 2012

  7. It isn’t always a matter of personal responsibility. I’m extremely fortunate to be retired and it is NOT because I’ve managed money better than others or made better life decisions. I know people who have endured financial storms that I’ve escaped. Even with a decent paying job medical bills can wipe out the most responsible person, even when insured. Taking care of elderly parents is a responsible thing to do but can rob people of their own retirement. Those who thought they’d done well now find their homes worth much less and their retirement accounts with less than they’d planned on having at this stage.

    I have a “guy” , as the author mentions in the article, who manages my funds because I do not have the expertise nor interest to do it myself. I, too, have learned that experts sometimes fall short. There aren’t many financial geniuses in the real world and there’s too much we can’t control. I think a safety net for everyone is necessary so those of us who are fortunate can remain comfortable. It saddens me that many think because they have theirs, others must be slackers for not having enough.

    by Kathy — July 25, 2012

  8. Marian is right about too much government interference in our lives, BUT all those poor irresponsible retirees who never saved or had 401Ks will be relying on the government for help. And guess who the government is? US and our taxes! We’ll be paying for them to keep their heads above water. So, it’s better to force them to save when they’re young.

    by Elizabeth — July 25, 2012

  9. It is very obvious the 401k system has failed. It was created in an effort to eliminate corporate defined benefit pension systems. The only answer is a single National ( mandatory ) defined benefit plan that’s portable from employer to employer. The investments would be simple, a target dated portfolio of global index funds. In retirement, you would be able to purchase an life income annuity from approved vendors. Keep Wall Street brokers out of the picture, they do not add value.

    by fishbum52 — July 25, 2012

  10. A great amount of blame for the lack of preparedness can be given to government. When people fail to exercise good judgement and make wrong choices, the government always spreads the safety net. If you drop out of school and can’t fine a job with more than the excessive minimum pay, don’t worry, the government will give you food and housing and medical care. There is no personal responsibility for one’s actions.

    by BA — July 25, 2012

  11. Presentation is typical of a professor promoting more government regulation. Failure to develop skills leadind one to save and manage one’s investments is directly related to shortcomings in parental involvement and the current public school curricular objectives. Current parents of Gen-Xers are too young to have learned the Great Depression lessons from their parents, and No Child Left Behind et al mandates have gutted public education curriculum of “real life” learning topics such as personal finance and history. Furthermore, life-long continuing education is essential to avoid being sheared like sheep as markets evolve.

    by John — July 25, 2012

  12. Here’s a novel idea – businesses return to traditional pensions instead of continuing to gut the middle class. Our economy soared in the 50s and 60s with fair wages and pensions.

    by zync — July 25, 2012

  13. Hope this information is not too depressing for everyone. I’ve been working with people my entire life and I’m using this life experience to share what I have observed. A sizable section of the population perhaps 25% is made up of people who never have made a good decision in their lives. If given an opportunity to make any kind of decision today – even with new information given to them immediately before they are given a choice to make; they STILL would not be able to think of the rational decision first. In my work with families and seniors I have seen this time and time again. How can anyone convince people like this to become responsible when they are unable to make the choices needed to help themselves.

    I believe this is a fact of life and it does cut across every social and racial barrier. The more highly educated the person can ensure that at least some of their life choices are reasonable. IE: better jobs often pay into Social Security for the employees and have provided health care plans. That alone saves many people from medical bankruptcy and from a 0 balance in their retirement accounts. In other words they are prevented from making poor decisions.

    It is extremely difficult to move away from a home situation where there is no role model for a child to look to for advice, all they see are poor decisions and awful living situations. How can that child know about personal responsibility?

    We need to decide as a country just how we view medical care, as a “right” as a “pay for yourself” or some other path to reach our goal. From my point of view right now we are headed towards medical coverage that will significantly reduce the coverage of all working class to middle class people. The really wealthy people won’t have problems, and the less educated or less responsible people will have a big increase in available coverage, while the middle class loses in every way. We will have to wait for services that we currently have available everyday. We will have to wait to see Doctors for perhaps a month rather than the week or two wait we have currently.

    This may seem picky and small but remember resources are finite. Sure I want medical care for everyone – but what will I have to give up so that those services can be provided? Imagine this as a test in school. 100 students take the test and the grades range from 97% correct answers down to 32% correct answers. Instead of the curve rating system used when I was in school the professor has begun a new system where everyone needs to have grades between 75% to 90%. To get there the grades must all be combined so high scorers will lose their grades to help the poor scorers achieve the minimum grade of 75% How would you as a parent of a high scorer feel about that system? Would students try their hardest with no chance to excel?

    Just think about it.

    by Sunny Dowling — July 25, 2012

  14. THEORETICALLY earn $575 per month on $120,000???? Whose theory is THAT?? No offense intended, but I don’t know of anyone who is making 5 3/4% on investments in today’s economy. Try $100-200 per month on that amount, which is all that investments are making in the current environment in “safe” accounts such as CD’s. Regular savings accounts at 0% won’t generate any income at all. Somebody needs to work with Suze Orman or a good financial planner and sit down to do realistic math. If you’re retired when the economy takes a dive, such as it did 3 yrs ago and continues today, liveable income from investments also goes away for years at a time.’s rate comparison shows the national highest rate as of today for 1 yr CD’s is 1.1%, with a minimum deposit of $25,000. So for a 1 yr CD at $120,000 it would generate $1320 per year, or a whopping $110 a month! Sure won’t add anything significant to anyone’s SS income.

    That’s why it is so critical to retire in a state where the property taxes are low and there is either no or low state income tax.

    Editor’s note: Just to be the devil’s advocate here, we suspect that the way to get $575/month is the assumption that one would spend the principal down to nothing during one’s lifetime. That is your typical plan, basically treating your savings as an annuity.

    by SLW — July 25, 2012

  15. Thanks to Mary Ellen J, who clarified the source of the Professor’s statement that “75% of retirees have less than $30,000…”. You can find the original source from the New School at the end of the article above.

    by Admin — July 25, 2012

  16. Unfortunately, those who cannot act responsibly, outnumbering those who do, will demand, through their votes, to be supported by the few. And the rich will employ every tactic to evade taxes.

    by Old Nassau'67 — July 25, 2012

  17. Defined benefit pensions are too expensive to fund.There is not enough money anywhere to make that work. The reason that the US economy soared in the ’50s and ’60s is that the folks who expected the pensions were working and contributing to the Ponzi scheme of Social Security and were young. As they reached retirement age, in many cases when they were far too young to make the acutarial assumptions used to fund those pensions work, things began to fall apart.
    As life expectancy soared, pension funds began to buckle. remember that the traditional 65 retirement age was chosen because few people made it to that age or lived much longer if they did.
    In the early ’70s, it was not uncommon for people, usually men, to die withing a few years of reitirng at age 65. Now, most of us can expect to live for decades after retirement.
    Government is not the answer. As long as people expect someone else to take cre of them, we’re all doomed.

    by Sandie — July 26, 2012

  18. In response to SLW on investment returns I agree with most of what was stated. I currently have a company pension that I rolled over to my 401K that currently is earning 3.3%. The problem with 401K is a lack of flexability in setting set up quarterly distributions. This problem was solved by opening an IRA and transfering a few years worth of income which was allowed. The current return on the account is 3.2% so far and it holds a variety of bond funds. While 5.75% isn’t a very realistic return a person that does a little research and bounces some idea’s off a financial planner can get some decent returns.

    by leftyOmalley — July 26, 2012

  19. My unprofessional but broad knowledge of investments says that one can chase yield and find high single digit returns at a price. It depends on your tolerance for risk, what you can afford to lose and as always, time.

    by Billy — July 27, 2012

  20. To Zync….(July 25):

    Wake up now, you’re dreaming again!

    by Dave C. — July 27, 2012

  21. Hi,
    My goodness! Such a variety of opinion. And angst. No point in pointing fingers. It won’t solve the problem.

    Let’s hear some ideas for solutions!

    To start: Many other countries encourage saving through postal savings accounts. You can deposit very small amounts. No service fees, like banks. Easily accessible and easily converted to electronic access.
    Earnings small but better than nothing. And it would help prop up our postal system which needs an overhaul. We could start with children and build better habits over a lifetime.


    by Lulu — July 29, 2012

  22. Ridiculous = arousing or deserving ridicule

    The presumption that managing one financial life is the same as wiring your own house is as ridiculous as title of the authors artile. Managing money is no more difficult than preparing your own meals. There are simple tried and true recipes for nutritious results. Some can do better than others. And yet, most people eat too much fast food. The US system provides choices and there are no villains or victims!

    The existing US system is a very good one. Sure, it could be improved but all the ingredients are in place for almost anyone to have a respectable retirement.

    Meals on wheels for everyone? Demographics will not permit budgeting SSI expansion or any government funded solution.

    Individuals without family resources are the one that meed to save and invest and build up a next egg in 401k, IRS, and other personal saving. I did it and so can you!

    The non-savers are merely relying on the most common retirement system in the world; a system where children and other family members provide for the elderly. What is wrong with that if it is your culture and your choice?

    by Dave — July 29, 2012

  23. I agree 100% with Zync. Totally, 😀

    by Bonnie — July 30, 2012

  24. great comments on a hot topic. i agree with those who want to keep our government out of our lives and money. too many of us have suffered, from the great elected financial experts, in our government. we got the Wall St. Mess, bank bailouts, and easy home loans. Added to that, a lack of personal responsibility partially explains the mess laid before us. as i approach my retirement day in 2013, i see my financial confidence fading. i worked, saved, invested and planned, with a modest amount of resources, that appeared to be do-able. life of course has thrown a few curves lately and the world has gotten more ugly. the tone and flavor of America is starting to show it’s mean side. guess i will need to put my financial body armor on, so i can survive my rocking chair days. good luck to you all.

    by davefh — July 30, 2012

  25. Folks – heads up regarding this redistributionist – be aware. She was presenting to a congressional commitee in(nov 2007) the “solution” for revamping the current shortfall of social security and the “retirement” problem that people have no funds to carry them through retirement. I listened to her present her solution – to grab 13 trillion $$ from 401k and IRAs and place these funds into US teasury bills to back the huge social security defict. The retiree would then get a social security check and a check from the new pool of government retirement funds. You in essence have no control over your IRA/401K account as you have now. instead the government would sen a check from the new pool of money. That’s redistribution – just like Argentina did several years ago – google it and read the history of those actions and how they raped their own citizens retirement accounts – it’s not pretty. Below is the link of a PDF you might want to read regarding her roadmap. Currently – many folks are unaware that there is a bill in congress ready to go and implement something like this as the US government’s trillion dollar deficit and obligations keep going up.

    Take responsibility for your retirement – teach your kids the same.

    Keep well the road folks.

    by Watcher101 — August 1, 2012

  26. Watcher101…I didn’t find anywhere within the 2007 Article from Professor Ghilarducci any referrence to grabbing 13 trillion from 401k and IRAs and placing these funds into US teasury bills. I did find references to the current tax advantages of 401K’s verses Defined Pension Accounts. The theme I found in the article was to remedy this problem the tax advantages of the 401K accounts needed to be reduced and replaced with Guaranteed Retirement Accounts which would better serve low income workers verses 401K’s that offer greater benifits to higher income people. You are right on the fiasco in Argentina but I can’t find a parallel here.

    by leftyOmalley — August 2, 2012

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