When I'm Sixty-Four: The Plot against Pensions and the Plan to Save Them

by Teresa Ghilarducci

Overview

A crisis is looming for baby boomers and anyone else who hopes to retire in the coming years. In When I'm Sixty-Four, Teresa Ghilarducci, the nation's leading authority on the economics of retirement, explains how to confront this crisis head-on, revealing the causes behind the increasingly precarious economics of old age in America and proposing a bold plan to guarantee retirement security for every working citizen.


Retirement is one of the hallmarks of a prosperous, civilized market economy. Yet in America today Social Security is on the ropes. Government and employers are dismantling pension security, forcing older people to work longer. The federal government spends billions in exemptions for 401(k)s and other voluntary retirement accounts, yet retirement savings for most workers is falling. Ghilarducci takes an unflinching look at the eroding economic structure of retirement in America—and what she finds is alarming. She exposes the failures of pension regulators and the false hopes of privatized Social Security. She tells the ugly truth about risky 401(k) plans, do-it-yourself retirement schemes, and companies like Enron that have left employees without any retirement savings. Ghilarducci puts forward a sweeping plan to revive the retirement-income system, a plan that will ensure that, after forty years of work, every American will receive 70 percent of their preretirement earnings, guaranteed for life. No other book makes such a persuasive case for overhauling the pension and Social Security system in order to provide older Americans with the financial stability they have earned and deserve.

Product Details

ISBN-13:	9780691178028
Publisher:	Princeton University Press
Publication date:	10/31/2017
Edition description:	Reprint
Pages:	384
Product dimensions:	6.00(w) x 9.25(h) x (d)

About the Author

Teresa Ghilarducci, after having taught economics for twenty-five years at the University of Notre Dame, now holds the Irene and Bernard L. Schwartz Chair of Economic Policy Analysis at the New School for Social Research. She is also the 2006-2008 Wurf Fellow at Harvard Law School. Her books include Labor's Capital: The Economics and Politics of Private Pensions.

Read an Excerpt

When I'm Sixty-Four The Plot against Pensions and the Plan to Save Them

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By Teresa Ghilarducci Princeton University Press
Copyright © 2008 Princeton University Press
All right reserved.
ISBN: 978-0-691-11431-6

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Introduction In the mid-1960s, when the first wave of American baby boomers-the 76 million people born between 1946 and 1962-tripled college enrollments and Medicare legislation was adopted, the Beatles' song "When I'm Sixty-Four," could not, in retrospect, have been more forward-looking.

Since the first Social Security check was sent sixty years ago, Americans losing their hair have been receiving "pension valentines." Today, as the Beatles' first fans are approaching age sixty-four, American workers wonder if the promised pensions, Social Security, and medical care, will materialize in their old age.

In the face of a crumbling pension system, a badly functioning medical insurance system for the aged, and soaring national deficits, policymakers and leaders can find a way to save retirement-a necessary, if now threatened, feature of all civilized democracies-by combining the appropriate governmental, economic, and social ingredients into a new, and newly imagined, retirement system. By mustering the political will and economic intelligence to do this, leaders will not only spare society the travails of the currently damaged system, but will provide generations present and future a new blueprint for maximizing the well-being and social contribution of elderly people-a win-win formula.This book explains how.

Categorically, everyone admits that Social Security has been stunningly successful at halving the elderly's poverty rate and enabling the middle class to retire. The entire pension system, including employer pensions, has been even more successful. Europeans are often surprised that Americans have any guaranteed income programs at all. Even more surprisingly, given this nation's reputation for "do-it-yourself" financial lives, there is widespread acceptance that older Americans, even those who are healthy and still able to work, deserve to retire.

In 1950, a working man could look forward to seven years of retirement time before he died; for women it was about thirteen and a half years. By 2000, on average, men retired for almost fourteen years and women eighteen. Overall, as a nation, we have constructed steady improvements in a very valuable resource-retirement time-and it should be a cause of celebration (see figure 0.1). Nevertheless, powerful forces threaten this vital addition to the quality of workers' lives.

Although most of us value our "leisure," while doing research for this book I discovered revulsion for that word. Friends, reporters, and politicians recoiled from my phrase, "retirement-leisure." Defending retirement-leisure-the kind of retirement where older people can afford to not work-was more challenging than I expected. The financial ability to withdraw voluntarily from the labor force, the ability to rest, and, even to recuperate before dying, is, to workers, a fundamental part of dignified living and a marker for achieving middle-class status. And, if pressed, most economists would admit to expecting that, as civilized societies grow richer, they will create institutions that permit able-bodied people to retire.

However, all people seemed defensive about the notion of retirement, quickly asserting that they wanted to be productive, not shrivel up and die. Nevertheless, the notion that retirement was a last chance to do what one wanted grew sweeter as one contemplated it coming at the time when life is filled with nothing but last chances. Time before death has special proprieties. Chief among them is scarcity, and scarcity always increases value. In Saul Bellow's novel Ravelstein, an older writer reflects on his life-threatening illness; he wants very much for his much younger wife to understand how valuable time is before death:

And Ivan Ilyich also mentions the slow rise of a stone thrown into the air. When it returns to earth it accelerates thirty-two feet per second. You are controlled by gravitational magnetism and the whole universe is involved in this speeding up of your end.-Art is one rescue from this chaotic acceleration. Meter in poetry, tempo in music, form, and color in painting. Nevertheless, we do feel that we are speeding earthward, crashing into our graves. (Bellow, 192)

I used to include this quotation on birthday cards-but very few were amused.

We are deep in a national bargaining session over "socially optimal" retirement. I wrote this book to articulate what is at stake: that the needless fear that retirement is not deserved, nor affordable, is framing the debate and distorting the analysis.

As I was finishing this book in the summer of 2006, a retired United Airline pilot called me, apologetic for taking my time. He told me he lost 68.3% (he rounded to one decimal point!) of his pension after flying thirty-five years for one company. He said, "Except the military, I worked for United about my whole life." He said he made "pretty good" money and "they" told him to put his money toward his retirement. "And now it's gone. How can they do that?" At sixty-one, he needed to find a way to keep his house. Taking retraining classes at the local high school, he created a website as a project for his computer class. He still does not have a job; but he has a website dedicated to "not letting what happened to me happen to other people." He used his much smaller pension to buy the domain name www.protectpensions.org.

This book aims to explain these kinds of pension losses with the hope that they never happen in the future.

Part I explores the undermining of the U.S. retirement income security system, which, despite popular belief, is not caused by Social Security collapsing, but by work-based pensions tottering badly, as many financial risks that workers cannot control are no longer shared by employers and the government, but shifted entirely to workers.

Part II addresses the break from the forty-year trend of older men withdrawing from the labor force. Older workers are being partly pulled into the labor force by more job opportunities, and partly because of their diminishing pensions and health insurance.

Part III identifies who benefits when older people work more. Human-resource consultants warn clients that the supply of teenagers, housewives, and immigrants will dry up, raising workers' bargaining power and causing upward pressure and a squeeze on profits.

The book concludes with proposals for a retirement income policy that finances retirement and distributes it more evenly across workers.

(Continues...)

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Excerpted from When I'm Sixty-Four by Teresa Ghilarducci
Copyright © 2008 by Princeton University Press. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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Table of Contents

Introduction 1

Part I
The Attack on Retirement

Chapter 1: Hope for Retirement's Future 7
Principles for a Pension Rescue Plan 8
The Successes of the U.S. Retirement System 10
Three Beliefs That Threaten the Pension System 17
Individual Retirement Accounts: Current Reform Ideas Fall Short of a Vision to Successfully Preserve Retirement 23
Conclusion: Retirement's Future 25

Chapter 2: The Collapse of Retirement Income 26
What People Need in Retirement 26
What People Think They Know: Retirement Income Expectations 28
Predictions of Retirement Readiness 30
The Five Parts of a Retirement Wealth Portfolio: Four Are Failing 32
Distribution of Retirement Income and Distribution of Retirement Readiness 42
Women Face Special Pension Circumstances 44
Pension Futures for Workers with Moderate Incomes 53
Conclusion: Failures of the Current U.S. Retirement Income Security System 56

Chapter 3: When Bad Things Happen to Good Pensions—Promises Get Broken 58
Defined Benefit Pensions and the Road to a Middle-Class Retirement 59
Diminished Defined Benefit Plans 60
The Paradox of Overall Pension Stagnation 66
Workers’ Demand for Defined Benefit Pension Plans 72
Why Workers Don't Like Defined Benefit Pension Plans 78
Lump Sums and Defined Benefit Plans: A Cure that Creates the Disease 80
Box 3.1. The Story of Lump Sum Payouts 82
Why Firms Like Defined Benefit Pensions 84
Box 3.2. The Story of the Miners’ Union's Pensions: How Secondary Markets Are Transformed 87
Employers Who Do Not Sponsor Defined Benefit Plans Prefer 401(k) Plans—or Nothing 90
Legacy Costs: Defined Benefit Plans Do Not Kill Companies 92
What Should Government Policy Do? 95
Policy Options 96
Conclusion: When Bad Things Happen to Good Pensions 101
Appendix 3.1. The Pension Protection Act of 2006 103
The Pension Protection Act: Destroying the Defined Benefit System as the Way to Save It 108
The Effects of the Pension Protection Act of 2006 112
Conclusion: The Pension Protection Act of 2006 115

Chapter 4: Do-It-Yourself Pensions 116
Trends in 401(k) Plans 117
Advantages and Disadvantages of Defined Contribution Pensions 118
Longevity, Investment, Financial, Inflation, Political, and Poverty Risks 122
Box 4.1. Investment Management Fees: The Politics and Profits 128
Causes of the Shift to 401(k) Plans 130
Box 4.2. Are 401(k) Plans Cheaper Than Defined Benefit Pension Plans? 133
Conclusion: Do-It-Yourself Pensions 136

Chapter 5: The Future of Social Security 139
How Does Social Security Work? 139
Issues in Social Security Financing 143
Box 5.1. Why Did the Greenspan Commission Get It Wrong? 150
The Personal Savings Account Plan 154
Box 5.2. Advance Funding Retirement 156
Motives for and Likely Effects of Personal Savings Accounts 157
Fixes that Maintain Social Security's Basic Structure 164
Political History of the Social Security Program 169
The Debate over Social Security: Some Things Never Change 172
What Is New in the Social Security Debate? 175
Conclusion: The Future of Social Security 178

Part II: What Is Good about America's Retirement Income Security System

Chapter 6: The Short History of Old Age Leisure in America 181
Retirement Leisure by Generation 181
Repositioning the Retirement Idea 186
Praising and Promoting Work 188
Can the Elderly Work More? 190
Affordability: Are Pensions a Form of Fiscal Child Abuse? 191
America's Unique Pension Debate 192
Policy Implications of Repositioned Retirement Norms 194
Conclusion: Old Age Leisure in America 195

Chapter 7: The Distribution of Retirement Time:Who Really Gets to Retire? 197
The Value of Time and the Link between Paid Work and Health 198
Who Has the Most Retirement Time? 201
The Difference between Survivors and Nonsurvivors 210
Is Retiring Earlier Really the Ticket to Retirement-Time Equity? 212
Equalizing Retirement Time with Disability Insurance 215
Conclusion: Who Really Gets to Retire? 215

Chapter 8: Working: The New Retirement's Effect on the Economy 217
Box 8.1. Age Is in the Eye of the Beholder, the Researcher, the Lawyer, and the Retailer 218
Older Americans Are Working More 219
The Quality of Older Workers Jobs: More Push than Pull Gets the Elderly to Work 223
How 401(k)s Destabilize the Economy 226
Pension Surprises and Work 230
Conclusions and Policy Implications: The New Retirement 233
Contents ix

Part III: The Rescue Plan for Retirement

Chapter 9: The American Labor Movement: Advocating Retirement and Obtaining Pensions 237
Unions Opt for Employee Benefits 238
Are Pensions Deferred Wages or Payments for Depreciation? 240
What Unions Do: Explaining the Union Pension Advantage 245
Unions and Legacy Costs in Defined Benefit Plans 249
Organized Labor and Social Security 252
Labor's Capital 253
Conclusion: Unions and Pensions 258

Chapter 10: Rescue Plan for American Workers’ Retirement: Averting the End of Retirement 260
Guaranteed Retirement Accounts 263
GRA Efficiency, Fairness, and Shared Risk 266
Failure of the Current Tax Policy 275
Are Guaranteed Retirement Accounts Politically Feasible? 280
Box 10.1. A Persistent Policy Recommendation: Raising the Retirement Age 284
Conclusion: The Final Bottom Line 288
Appendix 10.1. Guaranteed Retirement Accounts: Questions and Answers 290

Notes 295
Glossary 331
Bibliography 341
Acknowledgments 365
Index 367

What People are Saying About This

Laura D'Andrea Tyson

This is an insightful book on an important topic. Policymakers know that the baby boomers are facing a precarious retirement future. But most baby boomers do not appear to be concerned. Ghilarducci's analysis is a warning call designed to shake up the complacency. She proposes a bold plan to shore up the eroding economic foundations of retirement in America.
— Laura D'Andrea Tyson, University of California, Berkeley

Galbraith

At last! A robust, reliable, and highly readable reaffirmation of the right to retire. Teresa Ghilarducci is America's leading pension economist, defender of Social Security, and scourge of schemes to bilk the elderly. Here she tells it straight: what's right, what's wrong, and what should be done.
— James K. Galbraith, University of Texas, Austin

Palley

A blockbuster. This book addresses a hot topic. It is timely and full of interesting arguments, materials, and facts.
— Thomas I. Palley, author of "Plenty of Nothing"

From the Publisher

"This is an insightful book on an important topic. Policymakers know that the baby boomers are facing a precarious retirement future. But most baby boomers do not appear to be concerned. Ghilarducci's analysis is a warning call designed to shake up the complacency. She proposes a bold plan to shore up the eroding economic foundations of retirement in America."—Laura D'Andrea Tyson, University of California, Berkeley

"At last! A robust, reliable, and highly readable reaffirmation of the right to retire. Teresa Ghilarducci is America's leading pension economist, defender of Social Security, and scourge of schemes to bilk the elderly. Here she tells it straight: what's right, what's wrong, and what should be done."—James K. Galbraith, University of Texas, Austin

"A blockbuster. This book addresses a hot topic. It is timely and full of interesting arguments, materials, and facts."—Thomas I. Palley, author of Plenty of Nothing

Editorial Reviews

"Passionate. . . . In [Ghilarducci's] plan, the funds would not be managed by Wall Street but sent to Washington, where the federal government would guarantee a minimum return of 3 percent a year. . . . The conception behind Ghilarducci's dramatic proposals makes sense. If Americans cannot, without heavy sacrifice, save enough themselves to ensure adequate retirement, perhaps government, backed with subsidies should, as she suggests, make them save."—-Jeff Madrick, New York Review of Books

"When I'm Sixty-Four is an excellent book . . . and makes a bold and workable proposal."—-Clive Crook, Chronicle of Higher Education

"Teresa Ghilarducci's When I'm Sixty-Four is quite simply the best thing yet written on the retirement crisis facing baby boomers and the larger fragility of our retirement system. Far from defeatist, she proposes an ingenious national plan that will instantly become the reform against which all others must measure up. In clear prose, Teresa Ghilarducci cuts to the essence of an often bewildering subject that affects every American."—-Robert Kuttner, American Prospect

"Teresa Ghilarducci isn't one for conventional wisdom. In When I'm Sixty-Four [she] 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."—-Pat Regnier, Money Magazine

"What's the difference between saving for retirement, on the one hand, and plain old saving, on the other? Teresa Ghilarducci, an economist at the New School, has a provocative book . . . which forces us to ask that question very seriously."—-Felix Salmon, Portfolio.com

"What I like about Ghilarducci's proposal is its boldness—the idea that it is better to create a new model than to keep retrofitting a system that presents unacceptable risk to so many workers."—-Martha M. Hamilton, Washington Post

"This volume provides a welcome curative to the daily news reports on the imminent retirement crisis facing the US because of falling birthrates, lengthening life spans, uncertain national economic performance, deliberate corporate gutting of programs, wage stagnation, and the potential Social Security fund insolvency. Ghilarducci carefully guides the reader through the morass of claims and counterclaims about the prospects for those entering their 'golden years' in the US. . . . Ghiladrucci's timely book addresses an important public policy issue."—-D.J. Conger, Choice

"The book reads easily and well throughout, and I like the frequent boxes setting out 'Data to Digest' and 'The Bottom Line.' The diagnosis is powerful and hits many nails on the head."—-Nicholas Barr, Journal of Economic Literature

"This precise moment in history is probably the ideal one to read Teresa Ghilarducci's When I'm Sixty-Four. . . . Its value to labor educators lies in Ghilarducci's thorough examination of the issue and in her extensive supporting documentation."—-Judi King, Labor Studies Journal

From the Publisher

This precise moment in history is probably the ideal one to read Teresa Ghilarducci's When I'm Sixty-Four. . . . Its value to labor educators lies in Ghilarducci's thorough examination of the issue and in her extensive supporting documentation.

Labor Studies Journal - Judi King

The book reads easily and well throughout, and I like the frequent boxes setting out 'Data to Digest' and 'The Bottom Line.' The diagnosis is powerful and hits many nails on the head.

Journal of Economic Literature - Nicholas Barr

This volume provides a welcome curative to the daily news reports on the imminent retirement crisis facing the US because of falling birthrates, lengthening life spans, uncertain national economic performance, deliberate corporate gutting of programs, wage stagnation, and the potential Social Security fund insolvency. Ghilarducci carefully guides the reader through the morass of claims and counterclaims about the prospects for those entering their 'golden years' in the US. . . . Ghiladrucci's timely book addresses an important public policy issue.

Choice - D.J. Conger

What I like about Ghilarducci's proposal is its boldness—the idea that it is better to create a new model than to keep retrofitting a system that presents unacceptable risk to so many workers.

Washington Post - Martha M. Hamilton

What's the difference between saving for retirement, on the one hand, and plain old saving, on the other? Teresa Ghilarducci, an economist at the New School, has a provocative book . . . which forces us to ask that question very seriously.

Portfolio.com - Felix Salmon

Teresa Ghilarducci isn't one for conventional wisdom. In When I'm Sixty-Four [she] 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.

Money Magazine - Pat Regnier

Teresa Ghilarducci's When I'm Sixty-Four is quite simply the best thing yet written on the retirement crisis facing baby boomers and the larger fragility of our retirement system. Far from defeatist, she proposes an ingenious national plan that will instantly become the reform against which all others must measure up. In clear prose, Teresa Ghilarducci cuts to the essence of an often bewildering subject that affects every American.

American Prospect - Robert Kuttner

When I'm Sixty-Four is an excellent book . . . and makes a bold and workable proposal.

Chronicle of Higher Education - Clive Crook

Passionate...In [Ghilarducci's] plan, the funds would not be managed by Wall Street but sent to Washington, where the federal government would guarantee a minimum return of 3 percent a year...The conception behind Ghilarducci's dramatic proposals makes sense. If Americans cannot, without heavy sacrifice, save enough themselves to ensure adequate retirement, perhaps government, backed with subsidies should, as she suggests, make them save.

New York Review of Books - Jeff Madrick

This precise moment in history is probably the ideal one to read Teresa Ghilarducci's When I'm Sixty-Four. . . . Its value to labor educators lies in Ghilarducci's thorough examination of the issue and in her extensive supporting documentation.
— Judi King

Labor Studies Journal

The book reads easily and well throughout, and I like the frequent boxes setting out 'Data to Digest' and 'The Bottom Line.' The diagnosis is powerful and hits many nails on the head.
— Nicholas Barr

Journal of Economic Literature

This volume provides a welcome curative to the daily news reports on the imminent retirement crisis facing the US because of falling birthrates, lengthening life spans, uncertain national economic performance, deliberate corporate gutting of programs, wage stagnation, and the potential Social Security fund insolvency. Ghilarducci carefully guides the reader through the morass of claims and counterclaims about the prospects for those entering their 'golden years' in the US. . . . Ghiladrucci's timely book addresses an important public policy issue.
— D.J. Conger

Choice

What I like about Ghilarducci's proposal is its boldness—the idea that it is better to create a new model than to keep retrofitting a system that presents unacceptable risk to so many workers.
— Martha M. Hamilton

Washington Post

What's the difference between saving for retirement, on the one hand, and plain old saving, on the other? Teresa Ghilarducci, an economist at the New School, has a provocative book . . . which forces us to ask that question very seriously.
— Felix Salmon

Portfolio.com

Teresa Ghilarducci isn't one for conventional wisdom. In When I'm Sixty-Four [she] 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.
— Pat Regnier

Money Magazine

Teresa Ghilarducci's When I'm Sixty-Four is quite simply the best thing yet written on the retirement crisis facing baby boomers and the larger fragility of our retirement system. Far from defeatist, she proposes an ingenious national plan that will instantly become the reform against which all others must measure up. In clear prose, Teresa Ghilarducci cuts to the essence of an often bewildering subject that affects every American.
— Robert Kuttner

American Prospect

When I'm Sixty-Four is an excellent book . . . and makes a bold and workable proposal.
— Clive Crook

Chronicle of Higher Education

Passionate...In [Ghilarducci's] plan, the funds would not be managed by Wall Street but sent to Washington, where the federal government would guarantee a minimum return of 3 percent a year...The conception behind Ghilarducci's dramatic proposals makes sense. If Americans cannot, without heavy sacrifice, save enough themselves to ensure adequate retirement, perhaps government, backed with subsidies should, as she suggests, make them save.
— Jeff Madrick

New York Review of Books