The united states Has a Retirement Bid, Ghilarducci Says

I'm here with Teresa GHILARDUCCI.She is the professor of economics at the New School for Economic Research.And you are a thought leader. A lot of folks on Wall Street go to youfor advice on how to deal with what they think of as a retirement crisis.But there are some divergences here and what people think the solution shouldbe. You think of Larry Fink, for example.BlackRock is now working to announce partnerships initiatives over years toeven work on the average age of retirement, encouraging people to worklonger. You recently came out with a bookdebunking a lot of that thinking.

What's the discrepancy here?Well, if I was in a room with Larry Fink, I would say, look, what you do atBlackRock is a solution that you're managing money.You're managing wealth for all Americans to save for their retirement.That's a really good thing to do. And Americans need to build more wealthfor retirement. But if you think, Mr.Fink, that people working longer, maybe just one year or two years longer, willmean that people won't go into their old age without being downwardly mobile intopoverty from being a middle class worker, or you think that working longerwill maintain people's living standards.

You'll be wrong for eight reasons.The first reason is that he and everyone else might think it just makes sense toto work longer because people are living longer.And that's actually not true. Not everyone is living longer.There is a slice of the population that have had good health care, have had thekinds of jobs that enhance their health and their well-being and their skills,and they're living longer. So white men are definitely livinglonger than they had before. But there are some parts of our economy,of our America, where actually the longevity is going down, deaths ofdespair, the suicides, the opioid.

Addiction, even the kinds of jobs thatpeople have or for shortening their lives.So the inequality of longevity and healthy longevity is reallydisproportionately distributed, so they can't work longer.I have six others, but let's harp on that for a moment, because a lot ofpeople on Wall Street believe that working longer is a solution justbecause of how health care has gotten better.Let's get a little more specific on who it doesn't work for and how large isthat population not being addressed if this is the solution?Well, I've been in these rooms for about.

40 years.That's how long my career has. And ever since I started when SocialSecurity was being cut and pensions were going on the wayside and there were more441 KS or do it yourself type systems. We all knew that people would not haveenough given that we did not have a good pension system.And so people thought, well, for the small group of people who are bluecollar workers, bricklayers, they will be able to be disabled earlier.But for everybody else, the work is going to get easier.Well, in 40 years that has not happened. Now, think about it for a while.A lot of jobs that aren't blue collar.

Work have become pink collar, and pinkcollar jobs are jobs that women do very much in the service sector, taking careof older people, taking care of children.That requires a lot of heavy lifting, a lot of stooping and bending, a lot ofphysical activity. And those jobs break bodies down.There are also a lot of light blue collar jobs or semi pink collar jobsthat require a lot of engagement with the computer.And the computer has made some aspects of jobs easier, easier on the knees.But the requirements for intense concentration, keen eye sight andactually be able to speed up your work.

Because of increased surveillance hasactually made those jobs harder, too. And when you add up all the complexitiesinvolved in jobs that older people have, those jobs actually can raise cortisollevels, increase inflammation and cause more better metabolic disorders andearly death. So a lot of the jobs that people have orexpected to have in old age are actually the kinds of jobs that will break bodiesdown and are accelerating sickness. That's the impact on the individual.It seems like the retirement burden in a lot of ways has shifted from employersto the individual at the same time. There's a question of whether a lot ofthese jobs will be supported at that age.

Level.How do you see that conundrum working out?Yeah, well, there are some businesses that are we are hoping that there'll bea big supply of desperate, older workers ready to work.Those jobs are in home health care and personal care.So we have one of the biggest industries.Everybody is in this personal care. They're destined to add over a millionjobs in an economy where we'll only add about 11 million jobs over the past tenyears. A good 10% of the new labor force willbe these jobs and just that one.

Occupation.But business services, janitorial work, again, disproportionate amount of olderworkers. I think those businesses really like thefact that these workers are very, very cheap and they're very desperate.The fact that the jobs are breaking down their bodies really isn't a of a concernof the employers. But we will.Part of the crisis is that the lucky ones will be able to get those jobs.The part of the part of the crisis that I think that many experts, includingLarry Fink, doesn't understand, is that most people cannot decide when theyretire.

They are retired.They don't retire the verb and the agent is really on the wrong person.So 52% of people who say they are retired said they were forced to forcedto retire either because of their knees or their metabolic disorders or just thethe stress of the job they couldn't take or they had to take care of theirspouse, but also because they were pushed out or laid off.So this idea that workers can just decide to work longer is also a mythbecause most people cannot decide whether or not to work or not.There's another problem here, whether you're on a state or local pension planhere, pensions across the entire country.

Are underfunded.Yes, there's a separate issue as well with the 401k plans where a lot ofpeople are not saving enough to retire on.Whose responsibility ultimately is it to make sure that there is enough money forthis population to retire on? A We can say that it's up to the 18 yearold to be financially literate and tounderstand that when they get out of school or start work because half of 18year olds don't even try college, it's not an appropriate place for them.And you could think so it could be on the individual.And then people say it was up to their.

Parents to tell them what to do.Well, a lot of children do not pick the right parents.That was a joke. But it's really important for us as asociety to realize that there's a lot of wealth, including knowledge and wealth,actual wealth that it's handed down and a lot of debt and a lot of burden thatis also handed down. So the answer to your very pointedquestion, who's responsibility is, I'm going to say it is unreasonable to thinkthat it's just the person, individual person's responsibility.No other country requires the individual to do so much for their retirementplanning than the United States.

So when we moved away fromtraditional pension plans where if a worker worked, they were just put into aplan. That money was managed for them.They couldn't choose. And we moved to four in one case wherethe worker had to decide how much to invest, whether or not to invest, andhad to choose an employer that actually provided the plan.Most employers do not. Most people now 83 million workers rightnow today as we're talking, are employed, but they're not employed inany kind of set up where they can save for work.So the employer doesn't even have to.

Have any responsibility for it.And the government's responsibility is to give a tax deduction to a an employeethat happens to say, well, who are those?They're the highest paid and they have the sort of the best employers.So the tax deduction, the government's responsibility for savings is only goingfor the very top so that 80% of our $270 billion we spend the government spendson retirement savings is going 80% of that is going to the top 20.That call to eliminate the tax deduction.Within one year, Yes. My colleague, Alicia munnell and herRepublican counterpart came together to.

Call out what I'm calling out.So we're agreement there. This is a very expensive and regressivetax, but it does help some people save for retirement.So why get rid of something where if it works for one slice of the population?All I'm saying is don't leave the 83 million people who don't have access to.Obama plans out of this big bonanza. So perhaps we can put a cap on it andmake it less expensive and more efficient by not giving away thousandsof dollars a year to people who don't need it.So we could cap it, but we also could broaden it so that everybody can getsome help from the government.

I'm still going back to your question.Whose responsibility is it? And it is the system's responsibility toget people to accumulate money for their retirement earlier in life.We accumulate Social Security credits. You know, there's no choice aboutwhether or not you're in Social Security or not.We would even the most conservative Republican would not call for makingSocial Security voluntary. So why do we have our pension system,the other vital part of the pension system accumulating money?Have you having to manage by block BlackRock or whoever?Why would we make that voluntary?.

And the countries around the world thathave a system that's graded a or a minus, there's an international gradingsystem of pension systems. None of their advance funded, pre fundedpart of their pension system is voluntary.This idea of voluntary Social Security, there are real concerns under thesurface on how to fund Social Security for the long term.A lot of concern outside of the baby boomer generation on how America's moneygets filtered into America's youth as they age.What's the fix? Yeah, so the fix for Social Securityis to put more revenue in it.

We are past the point where we can fixSocial Security by cutting benefits. That is a non-starter because thebenefits for Social Security are keeping almost all of the people on SocialSecurity above the poverty level. Everybody below a certain amount.So it is a vital anti-poverty device. Cutting it would just make the systemeven more grim. So we need more revenue into it.The Social Security actuaries back in the day, I mean, this is in the thirtiesagain, we knew in the forties, fifties, sixties, said that Social Security willneed revenue from general revenues. We should not just be dependent upon thepayroll tax to fund the whole thing.

So there are many, many easy fixes toSocial Security and it really requires just more money from pot, from otherpots, capital gains. Lots of other places we can get SocialSecurity revenue. The key thing as an economist is whetheror not the amount of money needed will break the bank, will break the economy,and we're nowhere near that. We spend much less in terms of our GDPon the elderly that other countries, even if we fully funded Social Security,we would still be under the international averages.It's less than half of a percentage. It's interesting to hear you say thatcapital gains can help fund Social.

Security.How much would that help fill the gap? And also, wouldn't that be a transfer ofwealth from the investor class to the broader public?Well, you know, the investor class is part of the broader public and part ofthe conversation we've been having for the past five years is that if you onlytry to protect the investor class and let them be involved in the wealthaccumulating part of our economy, the investor class may be threatened by thecollapse of the very economy they're benefiting from.So I think with Ray Dalio and even Larry Fink, there's a very much a recognitionfrom the investor class.

I was just the Milken Conference that ifwe have a wealth building institutions in this country, everybody has to bepart of it. So back to Social Security.I did a calculation that if Elon Musk paid for Social Security just on hissalary for the entire year and some of his capital gains were taxed to fundSocial Security, just one person, it would save 1/20 of the deficit in SocialSecurity. Imagine broadening that out to maybe20,000 other people to gently. This is not very much.You don't have to raise the tax rate to any perceptible amount, but just helpingshare in the funding of Social Security.

We could solve that problem overnight.The problem with not funding Social Security and not having an actual reportto say, Hey, it's funded for the next 25 years is it depresses the savings ratesof ordinary Americans. I we're finding out in surveys thatpeople are saying I'm not saving for I'm not saving for retirement.I'm not building wealth because Social Security won't.Be there the worst as the worst cultural norm that you could flame thatwould reduce the savings rate is fatalism.And not dealing with Social Security is inducing a fatalism that is suppressingthe savings rate, which actually.

Suppresses the motive for people to savefor their own retirement. So it's interconnected.So the fix for those 83 million people, as you're talking about, is SocialSecurity part of that fix or is it something else?It's Social Security has to be part of it, but there has to be something elsewhich is much bolder than the kind of moving the needle legislation we've seenin the last 40 years. And almost everybody everybody I talkedto agrees from the very highest investor class to the person who just did mymakeup this morning, is that we need to get people saving for their lifecycleneeds, their retirement earlier, as.

Early as possible.So as soon as someone starts working and having to pay into Social Security isexactly the moment they should start paying into their own account.And there is a bill in Congress, not even just in the House or just in theSenate, but both in the House and in the Senate, and not supported by justRepublicans or Democrats, but supported by both Republicans and Democrats.So it's a bipartisan, bicameral, simple fix, and that's called the RetirementSavings for Americans Act, RSA. And what it does is everybody who's notin a pension plan now. So all of your listeners who are in thebusiness and selling for one case, two.

Companies.This does not apply to them. It only applies to all the people thatover half of workers who do not have a retirement account now and won't nextyear, that they will be automatically enrolled into a government administeredpension plan, a national pension plan. Automatically they'll save 3% and iftheir earnings are below the median, So that's half a half of workers in this inthis eligible set, the government will match 5%.And everything we know from behavioral finance, from from just case studies isthat when you include a match, something flips in people's brain.They're not fatalistic about retirement.

Any more.It's interesting, this sounds very close to what we see in some other countries,similar to something like a super fund or even a sovereign wealth fund of itsown kind for America. That kind of idea is something that youand a lot of the folks that are running these big financial institutions wouldagree on. Why would that be the fix?How hard is that to accomplish? Who manages the money?Well, I've been working for a lot of years with with many different people,many of them, you know, on Wall Street. I co-authored a book with Tony James,who was the president of Blackstone at.

The time.This was The Fix. I wrote a paper with Kevin Hassett, whois Trump's top economic adviser. We all agree that we should takeexamples from other countries where they build a capital fund.Capitalists love it because it provides a capital is fund and everybody isinvolved. And the Democrats love it because itactually provides economic security. Republicans should care about economicsecurity as well. But there's something for everybody.It is like the sovereign wealth fund, which is it's a it's an asset thatmatches a liability.

And that liability is that a populationages and can't work forever. So one big problem that a lot ofAmericans have is getting them, as you've been saying, to save early on.Yeah, some people are living. Many people are living paycheck topaycheck in which they find it difficult to save.Yeah, I'm so glad you asked that, Sonali.We are finding, in fact, in practice and in surveys that the lowest paid workersare the ones that want to save the most. They're not financially illiterate.It's actually the opposite. They're keenly aware of of the hardshipsthat they're facing.

And they know that having a wealthcushion is really important. I've interviewed Latino mothers inChicago and in Los Angeles as part of a project that did that.And they said to us, Give me a pension plan that's my own and that my familydoes not have. Access to.Because if I tried to save anything for my retirement, I have to use it for myfamily members. That's very much part of what wealthbuilding is for, for very different communities.So if we don't have a place where people can save for emergencies and and alsosave have a protector for their.

Lifecycle, no one, not except the eliteswill be able to take advantage of compound interest.The question of who manages the money fund like this I think is an importantone because, you know, I think the money management industry wakes up every dayto try to meet these retirement needs. But at the end of the day, are theymeeting that need? Well, the retail managers have a verydifferent platform than the institutional managers.I'm a big fan of traditional pension plans, the ones that state local workershave, and many of the unionized workers in big companies or the companies thatdon't want to be unionized.

So they provide a good plan like thelike the non-union car companies. What they do is they pool money and thisis what the government plan would do. The government would not manage thismoney. It would be managed just like thedefined benefit plans of of actually the World Bank, you know, or the state ofCalifornia. They would be managed by institutionalinvestors. But more importantly, that the dollarsinvested into those kinds of pooled professionally managed funds will go alot further than the 401 K money today. Right now, we provided a system toAmerican workers that is guaranteed to.

Not give them the best fee adjusted riskadjusted rate of return because the poor individual has to decide where to whatportfolio to get them on the efficient frontier.Completely impossible for a worker who has to deal with building a building orteaching an English class, you know, can possibly do.So we have a system that is not aligned with the capabilities of of the peoplethat have the most responsibility. So the money would be funded in thesovereign wealth fund by professional private money managers.So there was a recent story in The New York Times with the question, was the401ka mistake?.

It cites your research.Yeah. Was the 401ka mistake?Yes, the 401k system was a mistake If it was meant to be the retirement systemfor all Americans, it would have been called the retirement system for allAmericans. Instead, it was named after an obscurepart of the IRS code, and it was meant for a completely different purpose.It was meant to supplement Social Security and traditional pensions, butbecause of several factors, it became a retirement savings plan for just aprivileged part of the of the American economy.This idea of a pooled retirement plan, a.

Giant super fund.That's a super fund of a super fund for the sake of this conference like thisfor in Australia, this is kind of one of the closest examples that there is eventhat's underfunded. Yeah.So why would this be the right fix? Well, you know, you always have agrowing liability in any kind of pooled fund.And you saw that with Social Security. It's always had a drop dead date of 20years, but it's lasted for 75 years. No, there are many funds that aren'tunderfunded. And in fact, those good funds are arefunded because they the money always.

Comes in in this super fund, you know,that would be created. It would be always 100% funded becauseno money could come out that wasn't put in the.The magic is is that the money going in would be invested well and it's notinvested well in a401k. So this idea is a hybrid fund fundbetween a defined contribution defined benefit.But this fund would always be 100% funded.So in the world of money management, there's a large and growing debate aboutthe role of private assets. Yeah.This whole idea that private assets.

Given that there is some room to wait topay out some of the pensioners or retirees, that these private pools ofcapital can be used to increase yields in the interim or even some say thatthere is a liquidity myth that exists in public markets versus private markets.But we are at a point where you're seeing pensions, asking private fundmanagers for their money back. They're having trouble getting it backin many instances as well. Why would private assets be any sort offix? Yeah, no, I get that.It's not a fix for an individual fund, an individual having private assets.That's along with liquid assets in a 401.

K account is very difficult to manage.Exactly. The reason you want in one case are notlong term investments. They're fully liquid.A person can take money out of that account.Remember my Latino mothers. And so we we Congress called themretirement accounts, but they're not retirement accounts at all.I told Congress, I think just several weeks ago I was in front of a Senatecommittee. I said Congress, call them the GreatAmerican Emergency Savings Act. You know, our savings accounts, but havea real retirement account.

A real retirement account is not liquid.And therefore, the asset that is not as liquid as a public market assets is theappropriate asset. So that you get this we have this systemwhere we're trying to match short term assets with long term liabilities.It's a huge giant asset mismatch that is costing Americans their old age and it'scosting the American economy a huge inefficiency.So a super fund would be an asset that has long term illiquidliabilities as well as others. But it would match this long termliability each worker has, which is their life cycle needs.So to be clear, you think private assets.

Make sense in a longer term poolportfolio, but not in a401k plan? Yeah, and I know I'm up against some ofmy friends that are trying to sell them maybe little itsy bitsy parts in a in ain account. But no, because the 401k is a liquidaccount and even the private asset managers will say, yeah, it's not forsomeone who demands liquidity. And what I'm telling them is that everyfour or one K holder will demand liquidity because they the leakage inthese plans, you know, are gigantic. It's dooming the system to be aretirement plan and therefore it's not a good asset.

Sharing is caring!