In episode one, we meet Henry and Bridget, two employees at The New School university. They share similar fears about retirement and poverty, yet have different savings options based on the nature of their jobs. Henry is part of a union, which gives him access to a traditional pension. Bridget, on the other hand, isn’t a union member and instead receives a defined contribution plan, a 401(k), from her employer.
Next, experts look at how Henry and Bridget’s stories relate to what’s happening across the nation. Featuring host Teresa Ghilarducci and guest economists from the Retirement Equity Lab at The New School, the round table diagnoses systemic challenges and dwindling access to savings plans in the workplace, and presents the concept of Guaranteed Retirement Accounts, a bold new idea for a better future. Finally, we close by highlighting a successful state retirement program that proves both the need and the possibility for needed reform.
Expert Roundtable Guests
Teresa Ghilarducci, Host, SCEPA Director, and Economics Professor
Teresa Ghilarducci is the Director of the Schwartz Center for Economic Policy Analysis (SCEPA) at The New School. She joined The New School after 25 years as a professor of economics at the University of Notre Dame and 10 years as director of the Higgins Labor Research Center at the university. Her latest book, co-authored with the Blackstone Group’s Tony James, argues our financialized pension system destabilizes the macro economy and fails to provide equitable, adequate and efficiently delivered retirement income. It outlines a bold policy vision to create Guaranteed Retirement Accounts (GRAs) for all American workers. Her research areas concern automatic stabilizers, financialization, and labor market dynamics. Ghilarducci holds a Ph.D from the University of California Berkeley.
Siavash Radpour, SCEPA Research Associate
Siavash Radpour is a PhD student in the economics department at The New School for Social Research. He currently works in the SCEPA Retirement Equity Lab on current retirement options and their impact on the labor market. His research interests include institutional economics, development economics, macroeconomic modeling, and macro and micro econometrics. He received his MA in economics and business from the University of Groningen in the Netherlands and Corvinus University of Budapest.
Anthony Webb, SCEPA Economist
Tony Webb is the Research Director at SCEPA's Retirement Equity Lab. He is a widely recognized expert in retirement planning and policy. Prior to joining SCEPA, Dr. Webb was a senior research economist at Boston College’s Center for Retirement Research, and a senior research analyst at the International Longevity Center. He completed his PhD in economics from the University of California, San Diego. His research interests include the impact of pension type on the retirement age, the financing of long-term care, and the management of the process of asset decumulation.
Full Episode Transcript
— INTRO —
Teresa: The messages we get about retirement these days are “be afraid” and “it’s all your fault.” We’re told that if, like most people, we don’t have enough saved for retirement, it’s all because of what we did, not the system’s fault.
But is that the truth? The Reset Retirement Podcast asks, what does retirement really look like for Americans?
By hearing from people who have both struggled and succeeded in saving, we can learn where the real problems lie within our retirement system. We can stamp out retirement-saving shame, and we can discuss real solutions.
I’m your host, Teresa Ghilarducci, a labor economist and professor at the New School for Social Research. In our first episode, we dive right into people’s retirement fears. We ask our guests and our expert roundtable, “Are you worried about being poor in retirement?”
— STORY —
Teresa: Today we are joined by two members of our new school community: Bridget and Henry. They each have worked at the university for a decade or more, but due to their job classifications have different retirement plans. Henry is represented by a union, Teamsters Local 1205, which means he is in a traditional defined benefit pension plan. Bridget is not in the union. She has a defined contribution plan through the Teachers Insurance Annuity Association or TIAA. Now both of these plants provide high quality options in terms of what is available in the labor market for private sector employees, half of which do not have access to any retirement savings plan at work at all.
This conversation is to hear the speaker's experiences as individuals. And later we'll discuss how their stories highlight larger trends in our retirement system. So if you can each give me a brief introduction to your story...Henry will you start first?
Henry: Hello my name is Henry. I've been working at the New School for about 12 years. I'm 34 years old and I am a senior secretary for the New School for Social Research
Bridget: And I'm Bridget. I'm 43 years old. I've worked at the New School for about 10 years now, and for the majority of the time I've been in the economics department as the Associate Director of SCEPA, which is the Schwartz Center for Economic Policy Analysis.
Teresa: So Henry, what has your experience been with saving for retirement since you started your career?
Henry: So I've started working at the new school right out of college without much thought given to retirement. I always knew it was something that was important but when I first started here at The New School I was really focused on doing a good job, trying to get promotions and raises and just trying to move out of my parents’ home.
The first, I think year, into my employment, contract negotiations were started and I volunteered to be on the committee where I learned that I was part of a pension and that our pension wasn't in great shape. This was about 2007.
Teresa: so I'm Henry I'm wondering - you're only 34 going on 35 - but you may not even assess where you are with your retirement savings, but how do you feel about it?
Henry: Well I feel confident at this point. I know many of my colleagues I don't have as much put away - those who aren't in unions or in participating in a pension particularly - but I have a round number, where around a million dollars is what I think I will probably need at minimum to retire and a roof over my head, plus my Social Security. So I do rely on those two sources sources of income when I retire.
Teresa: Yeah that makes sense. Bridget what about your retirement savings experience.
Bridget: So honestly, I didn't start saving at all until I got into this job and learned that I was supposed to have been saving all this time or since the beginning of my career. I had worked in other jobs and had access to - I actually worked in Congress for a few years - and I had access to the Thrift Savings Plan which now I know is actually a very good comprehensive plan. I had some contributions that automatically went into that but when I left the job I cashed it out and actually paid a penalty fee for that. So that's something that I regret now.
That was actually the only plan that I had participated in at the time, before I got here. So once I got into this position and was educated a little bit about how much money you need to have saved for retirement, I started saving right away and have been saving ever since. And now actually, I max out my contributions but it's pretty difficult for me because I also have a lot of student loans that I'm still paying off.
If I wasn't in this job and didn't know how the retirement system works I would say - I currently have about one hundred and fifty thousand dollars saved - and I would have thought that was a huge sum of money. But of course after hearing Henry say that usually a million dollars is what people target to have saved, I know that it's not enough. I know I have more time to save but I also have a lot of competition for the income that’s coming in and it makes me feel much more reliant on the job market. So I know I need to keep a good paying job in order to secure my retirement future
Teresa: So are you worried about being poor in retirement?
Henry: Absolutely. Even with that amount of money, you know, there are a lot of variables that I'm concerned about: inflation, my pension - although it feels very secure - there is no guarantee that the market will perform. I just, the way I see it, I have a better hedge in the market if it does dip, unexplained health care costs that I expect between now and the next 40 years to have to address, and I would have to say just living in New York City, it seems rent costs are so high that most of my colleagues moved further and further away and travel two hours to make it to work in order to afford that roof over their head while they save. Additionally, I'm always concerned that for my particular pension plan...that a dip in the market will be a problem.
Teresa: And Bridget, poverty and retirement, how are you feeling about that?
Bridget: Yeah, I think about it all the time. I think that it's interesting, when I started saving happened to be right before the Great Recession hit and so I'm super sensitive to the idea that your savings can be wiped out. I know not to touch my savings and let time ride it out, but you know when I think about my future, it feels it feels very precarious.
So I think that my biggest hurdle is debt because I feel like right now I have a lot of competition for each dollar I earn. You know, do I put it into saving for a house, because I'm also a renter in New York. Or do I put it towards my student loans, or do I put it towards my retirement savings, or do I put it towards eating, which is something that I also like.
So you know I feel like I feel like those are tough decisions and I feel they're all attached to the labor market. As a woman, I feel like the labor market doesn't get any friendlier as women get older. And you know I'm dependent on it. I'd like to be able to retire someday. I know that there's a lot of talk about working longer, working until you die. And I'm actually really looking forward to retirement and not having to work or being able to choose.
Teresa: Well thanks very much for sharing these stories I know they can be very personal and they're also uncertain because it's about the future. So thanks very much.
Bridget: Thank you. It's great to be here.
Henry: Yes. Thank you so much.
— ROUND TABLE —
Teresa: My question for today's experts in our roundtable discussion is how and why does the system treat Bridget and Henry so differently. What do their experiences tell us about our system as a whole. Sia and Tony, can you introduce yourselves?
Sia: My name is Siavash Radpour. I'm a research associate at the Schwartz Center for Economic Policy Analysis working on retirement.
Tony: My name's Anthony Webb. I’m a PhD Economist at the Schwartz Center. I have dedicated my working life to researching and trying to understand the U.S. pension system.
Teresa: Oh thank you. I really picked up from Bridget and Henry that they're worried about being poor in retirement. Should they be?
Tony: Yes I think so. If we focus on those households that are approaching retirement and have actually saved something, the median account balance, where one half have more and one half have less, is one hundred and fifty thousand dollars. And that is enough to give the household a monthly income of 500 dollars at age 65 and that by anybody's standards isn't enough.
Teresa: Higher income people, are they fine?
Tony: No unfortunately not. We we observe inadequate savings right the way up the income distribution.
Teresa: Now Bridget and Henry had really different pension systems. Bridget had what's called a defined contribution plan. Henry had a defined benefit plan. Sia, what's the difference between those two?
Sia: First let me point out that these two are much more similar than we think. The thing is Bridget and Henry both are covered with a retirement plan, and that's something that's rare. Almost half of workers in the United States do not have any retirement plans provided by their employer. So I think they are both lucky to have good jobs that provide them with the option to have a retirement plan.
Teresa: That's a great point. One of the risks, Tony, of the defined contribution plan is that when you turn 65, even if you've done everything right is it you have a lump of money but a defined benefit system really pays out their benefits in a very different way. Can you tell me about the difference?
Tony: So in a DB pension, the pension fund gives the worker a lifetime income that is fixed. So however long the person lives, the payments carry on.
Teresa: So you're saying that the defined benefit plan pays a monthly benefit for a person's life. And if the person picked a spousal option, for the rest of their spouse’s life, if they’ve died?
Teresa: In a defined contribution plan, a person has a pot of money when they retire and they have to decide how to make it last for the rest of their life. And that's very difficult.
Sia: Henry doesn't face any investment risk because the pension - the defined benefit plan - takes some money and give it to professionals to invest. But Bridget has to decide how she wants to invest the money. Her choices are limited but there is always the risk that you make the wrong decision. There are always high fees and there are many challenges that she has to overcome in order to have a decent return on this investment.
Teresa: One thing that we've talked about is that if people come to retirement with just 50, 100 150, 200 thousand, that they may want to spend that first and delay collecting Social Security. Can we talk a little bit about Social Security and how important it is for both Bridget and Henry? Tony, I'll start with you, is that a good strategy?
Tony: So so it's a really excellent strategy. I'd like to make a point to start off with and that is that Social Security is the foundation of every retiree’s retirement plan. It provides a guaranteed inflation index lifetime income - it's really really great. Now the best thing about Social Security is that if you are able to postpone claiming from age 62 until 70, your lifetime benefits increase by 76 percent. Now, what is even better is that if you have money in your 401k plan you haven't actually got to work until 70 to benefit from the higher Social Security benefits payable at age 70. What you can do is use your 401k plan to bridge the gap from when you retire to when you claim benefits.
Teresa: One thing that I noticed about our retirement system is not really what the individual does while they are working, but the fact that they risk losing their job or losing hours and therefore they're saving in a defined contribution plan gets really spotty. Sia, how much of a problem is today's workplace for workers like Bridget, who has a defined contribution plan, or even Henry, if they if they change jobs.
Sia: Well this is the same problem that we kind of touched upon before, that many jobs do not offer a retirement plan. So if you change jobs frequently during along a portion of your employment, you will not be covered. And of course in between jobs you will lose the opportunity to save and you will lose income so maybe you even have to take money out of your retirement savings to spend during your unemployment time. And that's one of the biggest drags.
Tony: So this is a problem with Excel spreadsheets. So an Excel spreadsheet model of saving for retirement shows that you carry on working without a gap from age 50 until age 66 - your wages increase every year. Now, many people, they face periods of unemployment in their 50s. They may be forced into premature retirement. When these things happen, the spreadsheet model really falls apart.
Teresa: Yeah, I mean we've been working for years together and with other people on creating a better system and creating a system, as you say Tony, that builds on to Social Security. So when I'm thinking about the risks that both Bridget and Henry face as they get older, because they're pretty young now - 30s 40s. When they reach about 50, what we've thought about and are advancing is that everyone would have an expanded social security system, that on top of their Social Security, would be a pre funded retirement account so that people wouldn't have to worry about those little gaps in working at all and whether or not they invest well during those gaps.
So we've proposed something called a Guaranteed Retirement Account where everyone who works from the very beginning of their work life would have to contribute. Let's start out low - one and a half percent for themselves and the employer would contribute one and a half percent. That could be increased if the employee wanted it or the employer wanted it. And they would accumulate money regardless of the type of employer they had. So we at SCEPA, at our ReLab, have talked about something really bold and that is to have a national system that has everyone in a pension system regardless of what their employer wants and regardless of the risk in the labor market. And the money would be invested professionally, and the money would be given out in a lifetime annuity. People wouldn't have to go out into the private life insurance market to get a lifelong income. Is there anything you want to add to that proposal, Sia?
Sia: So this is maybe one of the greatest aspects of Social Security, that no matter where you work or how long you work, you keep contributing to that system and you are guaranteed to receive income in retirement. So our plan, GRA, expands this and gives you the opportunity to participate whenever you want, wherever you are.
Teresa: Yeah. Tony anything to add?
Tony: I have had a couple of comments. So the first comment is that this is a proposal which has actually been implemented almost word for word in the UK. And it worked. So they have gone from a system in which coverage was very, very patchy and money leaks out to a system where coverage is almost universal.
The other comment is that the GRA really addresses many of the systemic flaws of the current system. So first of all, it addresses the problem that many people don't have access to a pension at all. Secondly, it addresses the problem of leakages. And thirdly, it addresses the problem of high fees and inappropriate investment allocations. So I look at my 401k plan menu and I have the opportunity of investing in this fund and that fund and the other fund, and I have a PHD in economics and even with my PHD, I haven't a clue and I really wonder how the average man or woman in the street manages.
Teresa: Well thank you everyone, this is all the time we have today. You can go on our website and learn more about our bold retirement reform plan, the Guaranteed Retirement option. And I hope that we’ve talked about how Bridget and Henry’s stories aren’t just an individual story, but they really do describe a lot of what American workers face.
— BRIGHT SPOT —
Teresa: Thank you to Sia and Tony for joining our expert roundtable and thank you, Bridget and Henry, for sharing your stories.
And now it’s time for our final segment. This is where we feature the “bright spots” of retirement: the stories that are giving us hope for retirement reform.
Today, I’m going to talk about what’s happening in Oregon.
Oregon is one of nine states that have enacted reform to help their residents— their private sector workers mainly — get a better retirement system. Oregon is in its second year. It was the first right out of the gate to start a plan and it has already enrolled 32,000 private sector workers that did not have a pension at work. Eventually, the system should cover half a million private sector workers in Oregon that don't have a retirement plan and probably won't have a retirement plan throughout their careers.
The Oregon plan is a step in the right direction. The problem with the Oregon plan is that it just works in Oregon. An Oregon worker might go to Iowa, where they don't have a state plan, and he or she will have to start from square one and have to save on their own. So we really need a national system. But what these state plans are showing us is that the people want change and we need a bold national solution to our very spotty, our very cracked and broken retirement system.
— CREDITS —
Teresa: Thank you so much for listening to Episode 1 of Reset Retirement. You can find us on Apple Podcasts, Spotify, or wherever you find your podcasts.
This podcast is brought to you by the Retirement Equity Lab at The New School.
It was produced by Bridget Fisher and Anna Low-Beer and edited by David Fuchs, with music from Podington Bear and Lee Rosevere.
We hope you’ll subscribe and join us for our next episode where we ask, “Can I live on Social Security alone?”