Are Retirement Savers Doomed?

Kerry Hannon from Yahoo interviewed Teresa Ghilarducci who is a professor at The New School and is often cited in the media as an expert on retirement. We've mentioned Ghilarducci a handful of times over the years. I think she has interesting ideas even if I disagree with most of them. She appears to be a big believer in having the government play a very big role in solving the problem.

There clearly is a problem, that much is certain. We are grossly undersaved and there's not a lot of visibility for how it will work out. Layer on top of that the threat of some sort of reduction in Social Security payouts starting sometime in the mid-2030s. 

She has a lot of ideas about what should be done which are again very government-heavy. I think everyone could get on board with one of her ideas which is that the taxation on Social Security should be cut. She doesn't believe that people should have to work beyond a certain age, different story if they want to, but we shouldn't have to. 

Ghilarducci is very critical on the shift 40-ish years ago that took the onus off companies and defined benefit plans and transferred the responsibility onto the worker with defined contribution plans. There is a reasonable criticism here that employees haven't been given the tools, via workplace education, to be up to the task of managing their 401ks and then knowing how to decumulate effectively. If it is true that the problem is worse now than it was 50 or 60 years ago when more people were pension eligible, yes it is up to us to solve our own problems, but if collectively we are not solving our problem then the criticism is reasonable. There can be both serious shortcomings and fantastic success stories with 401ks. 

Of course, if you read the article, read the comments too. Always read the comments. Most of the comments filtered into two camps, one was the government should stay out of it and people who did all the right things and retired in their mid-50s.

The government is going to get involved at some point. That's not my endorsing the idea, I'm saying it is going to happen. There were comments about means testing Social Security which I first mentioned ages ago at the first iteration of my blog. And I think means testing will come down to an income/net worth level that isn't very high. If you think that is unfair, you're right, but I wouldn't bet against that outcome.

I've read a couple of things over the years that say a cut to Social Security won't be what most people think it will be. There won't be some random date where everyone gets a 23% reduction. If you're getting SS now, you're not go to have it cut. Anyone taking before the drop dead date won't have it cut. It might not even effect people born in the 1970's. The people who will be subject to a cut will have a long runway to figure it out and adapt. Again, I am passing on conclusions from others that I've read so hopefully, if cuts have to come, that turns out to be correct. I would not apply this thought to means testing. If they go that route then I think that would be aggressive and unfriendly for people who've done the right things.

The idea that the government will screw it up if they intervene resonates somewhat but my primary reason for not wanting the government coming in a big-footing us is that I think people who wait around for the government to "fix it" may never see it happen. The idea of waiting for anyone, government or otherwise, to solve my problem without my giving the full effort goes against everything I believe in. I don't want the stress, aggravation or sense of lost time by sitting around hoping someone else gets it right. That seems like a miserable way to live. 

There are so many things that seem to be broken or are at risk of an unfavorable (for people who did the right things) outcome which is why I've talked so much about having a Plan B or Plan C and developing a third income stream beyond SS and portfolio income. 

One final point about working longer. One commenter said something about working until 70. I was not sure if he was saying he has to or wants to. Someone replied saying he'll never be able to do it. That might be overly negative but anyone who is 60 and thinking "yeah, I gotta keep working until 70" is hopefully putting some effort to stay healthy and at least moderately fit. I've used the phrase "life becomes much easier when you...." and one of the references is staying fit. Working until you're 70 out of need becomes much easier when you're fit too. It may not work out but I would not feel regret if I tried and it didn't work out. We can control the input, not necessarily the output. Putting in the work increases the odds of favorable outcomes even if that work can't ensure favorable outcomes. 

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