“Economist Teresa Ghilarducci argues that we needn’t be chained to our desks forever.”
This is a my reaction to the 5 question mini-interview by Pat Regnier with Ms. Ghilarducci in this month’s Money Magazine. The folks at Money Magazine have one of these mini-interviews every month, and they typically focus on mutual fund managers and financial gurus. I will say this for them – they are always an interesting read. But this month, I almost fell out of my chair when I read this one.
“(Money Magazine) – Conventional wisdom says that since Americans are living longer, we should work longer too – and that 401(k)s are the best tool for funding whatever retirement we can hope to afford.”
This is probably true. We could argue whether a 401(k), IRA or Roth IRA are better, but the idea is the same regardless of the vehicle used.
“But Teresa Ghilarducci isn’t one for conventional wisdom. In her upcoming book, “When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them,” the New School University economist argues that a rich nation ought to be able to ensure a secure old age. And she has a radical proposal for making that happen.”
Whoa, this sounds promising. We don’t have to work forever AND we can have the safety of a pension again!
“(MM): One idea for fixing Social Security is to raise the retirement age, since life spans have increased. You don’t agree.
(TG): No. Just because we are living longer doesn’t mean we’re living healthier. …We may be raising the retirement age presuming people can keep or find suitable jobs when in fact that won’t be true. “
She makes a good point here. Many assumptions about retirement length and age treat health and quality of life as remaining constant and relatively good.
“(MM): Your book argues for a new retirement system that gets rid of the 401(k) tax break. Can you explain?
(TG): The tax breaks for 401(k)s and IRAs are worth $50 billion a year. What are we getting for that? People aren’t saving any more because of them; those who use 401(k)s and IRAs are moving money they’d already be saving from taxed to nontaxable accounts. “
We’ve all heard stories about how people never get around to saving for retirement and make many mistakes when they do, but I’m not sure what the part about them moving money from taxed to nontaxable accounts is about. It sounds like she thinks it’s bad that people aren’t paying taxes on their retirement savings!
She goes on to say….
“The 401(k) doesn’t even make top-paid people save consistently. The only answer, and this is after 25 years of looking at it, is to make people save: a mandatory, universal savings plan on top of Social Security.”
I’m not sure how this is the only answer to the problem of people not saving for retirement. In fact, many employers have taken steps to solve this problem already – such as “forced” enrollment into the company 401(k) with the money going into a life cycle fund. The major criticism with this approach seems to be only that it isn’t enough.
“(MM): But the 401(k) is kind of a sacred cow.
(TG): Whatever contributions you’ve made to your 401(k) still won’t be taxed, but most people will have to contribute 5% of salary to a public “guaranteed retirement account.” Only that amount will be pretax, and the government will contribute $600 a year. For those in top brackets, income tax will go up – but so will their retirement security because even if you’re tempted to stop saving, the government is saying, “You can’t.”"
This is where she really goes off the cliff. Maybe I’m way off base here (I’m sure comments will let me know), but her idyllic “guaranteed retirement account” sounds an awful lot like what the Social Security program was meant to be when it started back in 1935!
So, in short, since the government made such a mess of their forced retirement savings program over the past 73 years we need to create another version ON TOP OF THE ONE THAT IS HAVING PROBLEMS NOW?! And we have to pay a portion of everyone’s $600 “government” contribution.
No thanks.
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[...] while back I posted my reaction to a Money Magazine interview with Economist Teresa Ghilarducci. The gist of the interview (and why I said she was crazy) was her proposal to “fix” the [...]