Slate Money: Money Talks – "The United States is Doing Retirement Wrong"

Host: Felix Salmon
Guest: Teresa Ghilarducci (Economist, The New School)
Release Date: June 5, 2024

Episode Overview

This episode delves into the broken state of the American retirement system, why so many U.S. elders face poverty, and how models from other countries point to solutions. Host Felix Salmon interviews Teresa Ghilarducci, a leading expert on retirement policy and author of the new book Work, Retire, Repeat. Together, they dissect the failures of the 401k, the realities of elder poverty, and Ghilarducci's proposal for a "Gray New Deal" to restore dignity and security to American retirement.

Key Discussion Points & Insights

1. International Comparisons: Why U.S. and Japan Get Retirement Wrong

• Elder Poverty Rates:
  • U.S.: 23% of elderly live in poverty
  • Japan: 21%
  • Netherlands: 3%, France: ~5% ([02:00])
  • Both America and Japan have much higher elderly poverty than peer nations.
• Japan's Retirement System:
  • Suffer from high elder isolation, inadequate support, and scandals in longevity statistics ([02:38])
  • “Japan and the United States stand out…with having very high elder poverty rates… the Dutch are at 3% and the French…high fives.” — Teresa, [01:52]
  • Japan's approach: Automation in elder care due to labor shortages, but lacking robust pension support ([04:50])
• Social Context:
  • In Japan, stigma towards aging and preference for automation creates further social isolation.
  • Neither U.S. nor Japan’s issues stem from longevity alone — they stem from poor system design.

2. What Good Retirement Systems Do Right

• Elements of a Strong System:

  • Universal coverage and mandatory contributions ("money in")
  • Professional, pooled investment with low fees ("invest well")
  • Payouts structured as life-long, defined benefits (“annuity payout”) ([05:08])

• Failures of the U.S.:

  • U.S. rated C-minus, below Kazakhstan, on global pension system rankings ([06:45])
  • Reliance on individual savings vehicles (401ks) rather than pooled, risk-sharing plans

• Quote:

  “It’s really money in, money out… a well-designed pension system puts money in, invests it well, and pays benefits for life… We have not managed to do that in the United States.”
  — Teresa, [06:00]

3. The Problem of Individualized Retirement Savings

• Accidental Bequests & Longevity Risk:

  • 401k participants must self-insure against possibly living very long, leading to inefficient over-saving and stress ([07:03], [08:51])
  • Defined benefit pensions let the “dead subsidize the living” — pooling the risk

• Human Cost:

  • Managing a lump sum through old age increases anxiety, cognitive burden, and susceptibility to financial scams ([10:16])
  • “It’s like putting $10,000 bills on the lapels of old people… and give them a pamphlet on financial literacy.”
    — Teresa, [11:56]

• Empirical Evidence:

  • Individuals with defined benefit pensions (DB) have better mental health and lower stress than those needing to “manage down” a lump sum ([10:16])

4. The 401k System: A Failed Experiment

• Origins:

  • Created in the Reagan era as a tax shelter for corporate elites, not as a pension solution for the middle class ([13:09])
  • Rapid adoption but with unintended consequences

• Current Reality:

  • Formerly, 65% of households had access to a DB plan, now only 50% of workers even have a retirement plan at work ([16:07])
  • “Ted Benna… said, ‘I created a monster. It has failed.’” — Teresa, [15:18]

• Portability Myth:

  • Advocates touted portability with 401ks, but frequent job changes lead to “leakage”—early withdrawals, especially for women of color and lower-income workers ([18:39])
  • “The portability is actually really dangerous for people because of what we call leakages.” — Teresa, [17:58]

5. Elder Work and Retirement Realities in the U.S.

• The Fake Promise of Working Longer:
  • “The idea that we’re living longer – most of us aren't. The longevity gains go to the wealthy.” ([20:10])
  • High-stress, low-control jobs (Amazon warehouse, home healthcare, janitorial) are especially tough to endure into old age
  • “Most people… say, I didn’t retire, I was retired.” — Teresa, [21:43]
• Morbidity/Mortality Link:
  • Forcing people to work longer quickens their decline, perversely making retirement more affordable because people die sooner ([22:43])

6. The 'Gray New Deal': A Real Solution

• Core Proposals:
  • Elevate the dignity and desirability of being “gray”: Encourage retirees to enjoy leisure, socialization, and agency ([24:48])
  • “Gray and proud”—embrace the social status of aging
  • Economic leg:
    • Substantially expand Social Security (“throw more money at Social Security”) ([24:56])
    • Universal, government-facilitated, easy-to-access pension account for all, modeled on the federal Thrift Savings Plan ([27:33], [29:01])
    • Remove income caps on Social Security taxation for high earners ([26:00])
  • Political note: Even as some in Congress propose cuts, overwhelming public opinion supports strengthening Social Security.
• Quote:

  “We are a grown up country and we’re very wealthy… We can raise the payroll tax for Social Security… Lift the cap, get in more money.”
  — Teresa, [25:15]

7. The Thrift Savings Plan (TSP): An Overlooked Model

• Description:
  • Ultra-low-fee, robust government plan open only to federal employees and members of Congress.
  • “It is well designed, it’s really cheap … [and] if you take money out of it, you don’t get the same kind of benefit.” — Teresa, [29:06]
• Policy Proposal:
  • Open this plan, or a similar one, to all Americans as a public option ([29:30])
  • Even this individual account-style plan would be a massive improvement over the status quo
• Political Feasibility:
  • Bipartisan support for expanding a TSP-like plan already exists in Congress.

8. What Does Retirement Mean, and Why Does It Matter?

• Societal Perspective:
  • Retirement should not be a “failure to work,” but an earned, dignified phase of life ([24:48], [34:00])
  • U.S. “workism” causes shame around leisure in old age, unlike French or Dutch cultures, where elders enjoy visible social lives ([24:44])
• The Psychological Value of Retirement:
  • Retirement brings happiness, mental coherence, and opportunity for elders to construct a life narrative ([34:00])
  • “Retirement really made people happy… Time at the end of your life is… precious… [It’s] a time when people want to create a personal narrative.” — Teresa, [34:54]

Notable Quotes & Memorable Moments

• On U.S. Retirement Rankings (05:08):

  “The United States fell below Kazakhstan last year at about a C-minus…"

• On 401k System Failure (15:18):

  “Ted Benna… said, ‘I created a monster. It has failed.’”

• On Financial Predation (11:56):

  “It’s like putting $10,000 bills on the lapels of old people...and give them a pamphlet on financial literacy…”

• On Why Retirement Should Be Celebrated (24:48):

  “I'm trying to lift up…the status…of the word gray…this is just gray and proud, you know.”

• On What Individuals Can Do (36:59):

  “I'm going to tell you what you don't want to hear… Save 5% of your pay… for your future self.”

• On the Universal Need for More Retirement Income (25:15):

  “We are a grown up country and we're very wealthy… We can raise the payroll tax for Social Security…”

Timestamps for Key Segments

• Elder Poverty in Japan & U.S. vs. Europe: [01:52]–[04:50]
• What Makes a Good Pension System: [05:08]–[07:03]
• The Problem with Individual Accounts & Accidental Bequests: [07:03]–[12:00]
• Origins and Limits of 401k System: [13:01]–[16:32]
• Portability & Leakage Dilemma: [16:32]–[18:39]
• The Myth of Working Longer: [20:06]–[22:43]
• ‘Gray New Deal’ Proposal, More Social Security: [24:44]–[27:45]
• The Thrift Savings Plan as a Model: [29:01]–[30:27]
• Why Retirement is Psychologically Essential: [34:00]–[35:20]
• Pragmatic Advice for Individuals: [36:59]–[37:35]

Summary & Takeaway

Ghilarducci makes a powerful case: America’s retirement failures are not due to fate, demography, or individual error — they’re the result of flawed policy choices. By learning from European models, expanding Social Security, introducing universal government-facilitated pensions, and reframing retirement as an honorable life phase, the U.S. can restore financial security and dignity for older Americans. The road ahead requires both broader policy reform and a cultural makeover for how we think about elderhood.

Recommended for anyone concerned about aging, economic policy, or the future of work in America.