Money Talks: What Retirement Crisis?

Summary

Slate Money – Money Talks: What Retirement Crisis?

Date: February 3, 2026
Host: Emily Peck (Writer at Axios, Co-host of Slate Money)
Guest: Andrew Biggs (Economist at the American Enterprise Institute; Former Deputy Commissioner, Social Security Administration; Author of "The Real Retirement: Why Almost Everything You Know About the US Retirement System is Wrong")

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Episode Overview

This episode tackles the often-cited “retirement crisis” in America, challenging the commonly held belief that most Americans are woefully unprepared for retirement. Emily Peck interviews economist Andrew Biggs, who argues that the true retirement problem isn’t under-saving among households, but rather the looming funding shortfall in government programs like Social Security. Biggs provides historic context, dispels myths about 401(k)s versus pensions, and discusses policy comparisons with systems abroad. The discussion closes with practical advice for listeners and an optimistic message.

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Key Discussion Points and Insights

The Retirement Crisis Myth (02:14–05:58)

• Incentives Behind Doom-and-Gloom Narratives:
  Andrew Biggs explains that no group has an incentive to highlight positive aspects of the retirement system—financial firms want to sell products, media wants clicks with alarming stories, and policymakers push preferred agendas.

  "Nobody really has the incentive to tell you the more encouraging facts...there's really nobody has the incentive to tell you a different story than what you commonly hear." (Andrew Biggs, 00:51)

• 401(k) vs. Pension Realities:
  The narrative that 401(k)s are inferior to traditional pensions ignores two facts:
  • Pensions were never as widely available as people assume.
  • Far more people have access to and participate in 401(k)s today than ever had defined-benefit pensions.
    In 1975, only 40% of private sector workers were offered pensions and most never vested; today, about 72–73% are offered a retirement plan, 55% participate, and both employers and employees contribute, leading to dramatically higher retirement savings.

  "Retirement savings are far higher today than they were back in this golden age of pensions... it just tells you a very different story." (Andrew Biggs, 05:55)

Historical Comparison and Context (05:58–10:35)

• Poverty Among Retirees Then vs. Now:
  In the 1970s and 1980s, retirees were more likely to be poor. Only ~25% of new retirees had any private pension. Today, retirees are "a disproportionately rich part of the population," with retirement incomes at record highs across income levels.

  "Today retirees are a disproportionately rich part of the population, not just in wealth, but in income... retirees’ incomes today are at record highs. They've never been higher." (Andrew Biggs, 07:15)

• Longer Life Expectancy and Later Retirement:
  Concerns over longevity are somewhat overstated because increases in life expectancy are concentrated among higher earners. Overall, contributions to retirement savings have increased faster than longevity, and Americans are retiring about two years later than in the 1990s.

Are Rising Costs Threatening Retirement? (10:35–12:07)

• Healthcare and Housing Expenses:
  Despite higher costs, retirees spend roughly the same percentage of income on healthcare now (11%) as in 1984, because incomes have grown in step. Dire warnings about catastrophic costs (like nursing homes) ignore the data.

  "It's very easy to paint a dire pict[ure]... but a lot of times the discussion of retirement... has just enough data to be dangerous, but not enough data to be accurate." (Andrew Biggs, 11:35)

The “Real” Retirement Crisis: Social Security Funding (12:07–20:54)

• Social Security’s Looming Shortfall:
  The real threat is the underfunding of government plans. Social Security’s trust fund will be depleted around 2032, requiring ~23% benefit cuts without changes—a gap of $26 trillion over 75 years.

  "Social Security is underfunded by something like $26 trillion...That is where the real crisis is now." (Andrew Biggs, 13:02)

• Political Obstacles:
  Unlike other nations, the U.S. political system makes reforms extremely difficult, even if financial solutions are relatively straightforward (e.g., tax increases or benefit adjustments).

• Benefit Entitlement Myths:
  Americans’ belief they've “earned” benefits is widespread but mathematically unsustainable. Future retirees are projected to get about a third more in benefits than they paid in, making the system unsustainable without change.

  "The most unhelpful myth about Social Security is the idea that we've all earned our benefits...you're simply promising people far more in benefits than they paid into the program." (Andrew Biggs, 18:28)

Trump Accounts and New Policy Directions (20:54–26:19)

• Overview of ‘Trump accounts’:
  New federal savings accounts seeded with $1,000 for babies born 2025–2028—framed as a tool for compound interest and long-term investment. Some speculate they could become a privatized Social Security backdoor.

• Andrew’s View:
  He supports broadening ownership and investment but contends low-income Americans generally do not need more retirement savings (as measured by poverty rates post-retirement). He predicts these accounts will likely be used for things like home purchases or education rather than for retirement supplementation.

  "If these people were not saving enough, poverty would go up. In fact, poverty is going down. So the idea they need to save more is just weak." (Andrew Biggs, 23:43)

International Comparisons – The Australian Model (30:51–40:11)

• How Australia Handles Retirement:
  Australia mandates employer retirement contributions (12% of wages–“superannuation”) for all workers, plus a means-tested government “age pension.” This ensures robust basic coverage with increasing reliance on private savings as the system matures.
  The anti-poverty safety net is stronger and more targeted, while the system flexibly allows higher earners to save more.

  "If we were inventing Social Security from scratch today, we would almost certainly do something like this." (Andrew Biggs, 35:10)

• Potential for the U.S.:
  The transition would require massive employer participation and a different split in public/private responsibility, but would be more rational and equitable.

Personal Advice for Listeners (40:11–48:05)

• Saving Too Much?
  Many Americans, especially those with above-average incomes, are over-saving for retirement, leading to unnecessarily reduced standards of living while working.

  "You end up with more money than you really need. And then you start thinking, how do I avoid taxes on this thing?" (Andrew Biggs, 40:33)

• If You’re Behind:

  • Modestly increase paycheck contribution to retirement accounts (by 2–3%) to cushion possible Social Security changes.
  • Work an extra 1–2 years if possible: This means higher Social Security benefits, more savings, and fewer years needing income from retirement savings.
  • Data shows more Americans are working until later ages, countering the belief that “most people can’t.”

• Don’t Max Out Your 401(k) Unless You Truly Can:
  For most, especially those with median incomes or under, maxing out contributions is excessive and can reduce present-life quality needlessly.

  "Nobody making $68,000 needs to save $23,500 for retirement every year. If you did that, your retirement income will be so far above your standard of living when you’re working, it just—to makes no sense." (Andrew Biggs, 45:38)

  • Young and/or low-income workers are better off prioritizing present needs and ramping up saving later; economic models and real-life data both support this pattern.

Wrapping Up: Don’t Panic! (49:28–52:00)

• Retirement prospects are much better than the headlines suggest.
• Most Americans fear they won't have enough, but 80% of actual retirees say they are comfortable.
• The “crisis” headlines are, for the most part, part of a product marketing cycle.

  "Just understand that there’s a tendency to err on the side of... what they would see as caution. I would just see as pessimism.... headlines [say] ‘retirement crisis, this and that’... but they’re really not supported by the data." (Andrew Biggs, 51:22)

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Notable Quotes & Memorable Moments

• On the retirement “crisis” narrative:

  "There's always something. You pull at the string and the whole thing falls apart." (Andrew Biggs, 52:00)

• On advice for anxious savers:

  "Don’t panic. You might have to adjust things a little bit. But if I’m correct, most people will not." (Andrew Biggs, 49:38)

• On policy drift and political inertia:

  "It’s very hard to do things here...members of Congress would rather attack each other or just kick the can down the road than actually try to solve these problems." (Andrew Biggs, 16:51)

• On Australia's public/private system:

  "You're having the retirement savings done by the part of society that is good at saving for retirement, ... Governments are terrible at saving for retirement." (Andrew Biggs, 33:13)

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Important Timestamps

• 02:14 – Emily’s initial question about the “retirement crisis” and how 401(k)s compare to pensions
• 05:58 – Data on who truly had pensions in the past and why retirees are wealthier today
• 08:52 – Discussion of longevity, savings levels, and how most retirees are doing better than ever
• 12:22 – Social Security’s projected funding cut (23%) and the scale of the problem
• 18:28 – Deep dive into the “you earned your benefits” myth and implications for reform
• 20:54 – The introduction of “Trump accounts” and speculation on privatization
• 30:51 – Exploration of Australia’s retirement system and what the U.S. can learn
• 40:11 – Personal finance advice: oversaving, optimal habits, and Social Security delay
• 49:28 – Andrew’s final message: “Don’t panic!”

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Recap & Takeaways

• The so-called retirement crisis is largely manufactured by special interests and by misunderstanding historic and current data.
• The real challenge is political: fixing the underfunding in government programs, especially Social Security.
• Private sector savings, via 401(k)s and IRAs, have never been higher—and far more people are saving than during the “golden age” of pensions.
• Models like Australia’s, which split anti-poverty initiatives from contributory and private savings, may offer a sensible path forward.
• Ordinary savers are often needlessly anxious—a product of scaremongering and marketing. Most people, if rational and flexible, will be fine.

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For further details on Andrew Biggs' arguments and personal finance advice, see his book “The Real Retirement: Why Almost Everything You Know About the US Retirement System is Wrong.”

Transcript

[Emily Peck]

Hello, and welcome to Money Talks, a special extra podcast from Slate where we chat with brilliant and interesting people. I'm Emily Peck. I'm a writer at Axios and co host of Slate Money. And I'm here today with Andrew Biggs. He's an economist at the American Enterprise Institute, former deputy commissioner in the Social Security Administration, and for our purposes, most importantly, the author, most recently, of a book titled the Real Retirement why almost everything you know about the US Retirement system is wrong. Andrew, welcome to Money Talks.

[Andrew Biggs]

Well, thanks very much for having me. Great to be with you.

[Emily Peck]

So, I mean, I'm just going to start with like, a small question, which is why is everything I know about the retirement system wrong? And could you explain it in one sentence for our listeners right now?

[Andrew Biggs]

Well, the short story is that nobody really has the incentive to tell you the more encouraging facts. The financial industry has a product to sell. They want you to buy more of it, which is investments. The media, they have the incentive to write stories that you'll click on, and frightening stories do that. And to be honest, there are people in politics, in government who also either don't believe that private savings work or, you know, want to scare you into their preferred policy solutions. So there's really nobody has the incentive to tell you a different story than what you commonly hear.

[Emily Peck]

Okay, so, so we're going to get into Andrew's story, the story that you need to hear, the positive take when we come back. All coming up on Money Talks.

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[Emily Peck]

Slate money is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Listen to Washington Wise, an original podcast for investors from Charles Schwab to hear the stories making news in Washington right now. Host Mike Townsend, Charles Schwab's managing director for legislative and regulatory affairs takes a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement, savings, taxes and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors, and even the entire market. Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio. Download the latest episode and [e-mail] WashingtonWise or wherever you listen. So I guess we should just start kind of big, which is why I came to you in the first place a few months ago, because I had been told to write about the retirement crisis and I called you and you were like, well, actually there is no retirement crisis. And I was like, well, shit, that's the story I have to write, so what the hell? Here's my understanding, which I think isn't right or needs more explanation. My understanding is people have 401ks now. They don't have pensions the way they used to. And pensions pay you defined income in retirement. And your 401k, you're just saving. You don't know how much income you're going to actually have in retirement. It's scary. And you'll see a lot of stories that say most Americans don't have enough saved in their 401ks to make it through retirement. And you're saying that's not true.

[Andrew Biggs]

It's just basically not true at all. It's not often that I quote Stalin, but he had a saying. He says, a quantity has equality all its own. And so some people will compare a 401k where you have your account can go up and down with the risks of the market and say, well, clearly that must be worse than traditional defined benefits pensions where you had a guaranteed monthly benefit for life. But that doesn't tell you the whole story. I mean, part of the story is a lot more people have 401 s today than ever had defined benefit pensions back in the day. If you go back to 1975, when coverage from traditional pensions peaked in the private sector, less than 40% of private sector workers were ostensibly participating in a plan. Meanwhile, a congressional study at the time found that literally nine out of 10 workers who were supposedly covered by a defined benefit pension never actually collected a benefit from it because they had these very, very strict vesting requirements. So it was a pension that very few people were covered by and even fewer collected benefits from. As we've moved into 401s today, about 72, 73% of private sector workers are offered a retirement plan. About 55% participate. But with a 401k, both the employer and the employee contribute to it. With the old defined benefit pensions, only the employer did. So if you look at total contributions to retirement plans today, they're much, much higher than they were in the past. More people have 401 s and both employers and employees are paying in as a result of that. Retirement savings are far higher today than they were back in this golden age of pensions. So you really have to look past this sort simple narrative of 401k versus pension and actually get into the data which are not hard to find. And it just tells you a very different story.

[Emily Peck]

Let's go into the data first. If what you're saying is accurate and not as many people had pensions as we think that they did, how were people affording retirement back then?

[Andrew Biggs]

Well, part of the answer is they weren't. You know, if you go back to the 1970s, you know, or 1980s even, retirees were a disproportionately poor part of the population. You know, the stereotype of seniors eating cat food and all that kind of stuff. And it was never quite true then, but they were more likely to be poor than working age adults were. If you went to 1980, there's a survey done by the Social Security Administration where I used to work, where they asked new retirees their sources of retirement income. Only around a quarter had any benefits at all from any sort of private pension. And that was mostly right at the top of the income distribution. People below that, you know, they had Social Security. Some might have had a government pension, you know, the military, or they're working state and local government, but very, very few had these traditional pensions. That's one reason why they were poor. You know, they just, you know, the whole economy was smaller then, but the retirement system was not working as well. Today retirees are a disproportionately rich part of the population, not just in wealth, but in income. Their incomes over the past 40 years have grown much faster than those of working age adults. You know, partly it's because Social Security benefits are in fact higher. They're substant substantially higher in real dollars than they were in the past. But on top of that, many more retirees are getting benefits from sort of a private retirement plan, whether it's a 401k, an IRA, a traditional pension. Around 2/3 of retirees today are getting private pension benefits far higher than the past. We're also working longer, which gives us either, you know, additional income in retirement or it lets Us delay spending down our savings. So retirees incomes today are at record highs. They've never been higher. And I'm not just talking the average retiree driven up by a few very wealthy people. It just across the board incomes are very, very high.

[Emily Peck]

Just to keep going back to that old timey comparison, and you raised this, but people are living longer now. So even though retirees have more money, don't they need more money? Because life expectancy has gotten so much, you know, people are older, so the needs have changed. So even though perhaps people have more money, perhaps they need the more money. And there's still going to be an issue once they cross the 80 year threshold or things like that. I've seen some arguments like, well, things are okay until you hit 80 and then once you hit 80, it's going to get bad. And I sort of remember you saying, well, once you get 80, you don't need as much money because you're 80 and you don't, you're not doing as much, you're not as active. To which I say, look at the President.

[Andrew Biggs]

Well, sure, okay. There's a variety of different things going on there. Yes, we are living longer today than we did in the past on average. Not everyone is. So if you're thinking about lower income retirees, that's the people where, you know, there's the claim they're not saving enough. Well, you know, for reasons that we regret, they are not really living much longer today than they did in the past. So they don't in fact need more retirement savings.

[Emily Peck]

That's dark.

[Andrew Biggs]

It'd be great if they did. But I'm just, you know, it is, you have to, you have to look at the facts of it. But it's also retirement savings, they are much higher than they were in the past. Even when you account for the, the increase in longevity, total retirement plan contributions in the private sector here today are a bit over 9% of wages. If you go back to the 1970s when we're working with traditional pensions, they're less than 6% of wages. So we're essentially putting side 50% more, you know, 9 divided by 6, 50% more towards retirement than we were back then. We're not living 50% longer. So total retirement savings are just dramatically higher today than they were in the past. So yes, longevity is a challenge and it's certainly a challenge for something like Social Security, which hasn't really fully prepared for it. But on the household savings side, we're simply saving a lot more than we used to. We're also retiring about two years later today than we did in the 1990s. So people are adjusting to this. And that's why you don't see what people been predicting for 20 years, this retirement crisis. They keep saying it's going to happen, and instead of things getting worse, things just keep getting better. Right.

[Emily Peck]

I've also heard the argument that, yes, there's more savings now, but because of changes in how we pay for things like healthcare or housing, both costs have gone up a lot for older Americans. Like more of them have mortgage payments into their later years now. And health care costs have also gone up. The argument is, yes, there's more money in the retirement accounts, but they need more money to just meet these basic needs. Housing and health care.

[Andrew Biggs]

Well, if you look, think about health care. If you look in a consumer expenditure survey which looks at the spending patterns of U.S. households, seniors today spend around 11% of their incomes on health care. If you go back to the first year that that survey came out, 1984, seniors spent around 11% of their incomes on health care. And so essentially, yes, health care costs have increased. Retirees incomes have increased just as fast or faster. Again, this isn't super hard to figure out. It's very easy to paint a dire pict. Oh, you're going to end up in a nursing home. It's going to cost you $200,000 a year. Okay, how often does that happen? Answer Very, very rarely. So it's just a lot of times the discussion of retirement that you get either in the news media or in public policy circles, it has just enough data to be dangerous, but not enough data to be accurate.

[Emily Peck]

Okay. I want to talk about what I think is perhaps a real crisis. And maybe you'll disagree also, but I think you won't. 2030, that's the year that Social Security benefits would have to be cut by a lot. I didn't write down the number.

[Andrew Biggs]

Unfortunately, the best estimate that we have now is 2032 is when the trust funds would run out and the benefits had to be cut by around 23%.

[Emily Peck]

Okay, so 23% to Social Security benefits. I think it's fair to say that the retirees who get Social Security checks will freak out about that. And also fair to say that even if there are a lot of things you can do policy wise to sort of address this coming cliff, that there's like no political will to really do the hard things, either raise taxes or cut benefits. So that seems like an actual retirement crisis to me.

[Andrew Biggs]

That would be as the Title of my book, hence the real retirement crisis in the sense of. And you can. It' just the US you can look at countries around the world at what they call retirement savings gaps, the amount of money by which countries are short of what they need to provide retirement for their populations. In nearly every country, those retirement savings gaps are overwhelmingly on the government part. Whether it's Social Security or here in the US you have state and local government pensions. They're underfunded. Social Security is underfunded by something like $26 trillion. State, local government pensions, I don't know, about 4 trillion maybe.

[Emily Peck]

Wait, what? Just to stop you, what does it mean when you say it's underfunded by $26 trillion? That's an enormous amount of money.

[Andrew Biggs]

What that means is Social Security finances are traditionally measured over 75 years. The idea is, let's say you're a 20 year old kind of entering the workforce today, you're probably not going to live past 95. So they measured over a 75 year period. What the $26 trillion figure means is over the next 75 years, Social Security has promised $26 trillion more in benefits than it will collect in taxes under the current sort of tax formula. That far exceeds even the most dire estimates of the retirement savings gap. On the household side, and I think in the book I say quite a reasonable amount by which households have under saved is maybe $2 trillion, something like that. It's difficult to measure, but it is nowhere close to the amounts by which Social Security is underfunded. Other government pensions are underfunded. That is where the real crisis is now. Nobody thinks we're in fact going to cut Social Security benefits across the board by 23% in 2032. That's not what the law would require. The administration, the President at the time would have some leeway on what they had to do. Even if Congress said we're not giving you a penny more of tax revenues, which is unlikely, but even if they said that, the President could say, okay, we're going to reallocate money to prevent people falling into poverty and sort of cushion the blow. I wrote a paper in the past year with a lawyer in D.C. and we calculated that even if the trust fund ran out, you could pay 50%, the bottom 50% of retirees every penny. They've been promised cap benefits at around $2,200 a month per person. You wouldn't throw anybody into poverty. You know the system we balanced without tax increases. I'm not saying this is the solution. You want to have. What I'm saying is that this is a more survivable kind of thing than people think. The real problem, as you said, is not the finances, it is the political will. If we look around the world, you know, countries very much like our own, whether it's the UK or Australia or New Zealand or Canada, they face the same challenges of population aging that we do. They've more or less gotten on top of these problems. The reason we haven't is our political system. It's very hard to get things done. It's extremely hard. If you're in Canada, you know, the parliamentary system, you have the majority, you say this is what we're going to do, and we do it. It's the same in the UK or Australia. Here you have to get a Social Security reform bill through the House, then you have to have 60 votes in the Senate, then you have to have the president sign it, and probably you'll have to go to the Supreme Court for some reason or another. It's just if you look at big reforms, even something like the Affordable Care act, you know, Obamacare, he had massive majorities in the House and Senate and that got through by the skin of its teeth. It's just very hard to do. Yeah, it's very hard to do things here. And so it's partly it's our political system setup, the structures of what it takes to get things done, but it's also political polarization that members of Congress would rather attack each other or just kick the can down the road than actually try to solve these problems. It's not an easy financial problem to solve. I mean, if you're to fix Social Security just by raising taxes, that's the largest peacetime tax increase in U.S. history. At that point, especially if you hit high earners, they're tapped out, you're not going to get more money out of them. So then you have to say, well, what about all the other things we want to do? You know, if we. If you want Medicare for all working climate change or whatever, you don't have any money left. So it's not a small amount of money, but it's not that complex a problem to solve. It's really a lack of leadership, a lack of political will.

[Emily Peck]

And the choices that make the most sense, I feel, are the least politically palatable. Like you don't want to tell upper middle class retirees or people who are about to become middle class retirees that, oh, we're capping your benefits so that these other people don't fall into Poverty, like, traditionally, that's not what Americans want to hear at all. But at the same time, there's so much support. It's so interesting, Andrew, to think about it, because there's so much support for Social Security. At the same time, when you look at, like, the polling, young people under 30 especially, they don't believe that the program will even exist when they retire. So I feel like for politicians, that might even represent an opportunity to do something quite drastic.

[Andrew Biggs]

Sure. I think the most unhelpful myth about Social Security is the idea that we've all earned our benefits. I can find quotes from Joe Biden saying this. I can find quotes from Donald Trump saying, and, you know, clearly we all pay into the system. So in that sense, you've contributed towards your benefits. But if you look at Congressional Budget Office data for people retiring in the 2000 and 30s, right when the trust fund is going to run out, those people are projected to receive about a third more in lifetime benefits than they paid in taxes over their careers, including interest on their taxes. In other words, you're simply promising people far more in benefits than they paid into the program. Now, you know, you don't have to be that sophisticated a mathematician, is that you just, you know, that can't continue forever. But everybody thinks they've paid for their benefits, and so they have this moral claim, this feeling that is not simply, I want the money or I need the money, it's I deserve the money. And I don't blame people for thinking that, because that's what they've been told. But that's not what the data tell you. And unfortunately, the numbers are sort of intractable. You can't just, through rhetoric, convince the numbers to be different than what they are. So we do have to have a more honest conversation with people and say, look, we can't continue paying people directly dramatically more in benefits than they paid in taxes. Now, I mean, Social Security is a social insurance program. So, you know, within any sort of like, birth cohort of people or any group of people, some people are gonna get more, some people are gonna get less. Because we do want to supplement the people at the bottom to keep them out of poverty. But we can't pay everybody more. The two ends have to balance out. You can't be promising peoples a group a third more in benefits than they paid in taxes, because then the younger people, you know, they do have a justifiable fear. I mean, the system is not going to go away as long as we're collecting 12.4% of people's wages in payroll taxes, we will have money to pay out. But when you could keep paying people or keeping retirees more in benefits than they paid in taxes, that's like the toothpaste tube. You know, you squeeze on one end, it comes out the other. And the way that plays out is that the deal for younger retailers Americans is going to have to be worse because they're going to pay for their own benefits. But all these excess benefits that were paid to today's retirees, it's not supportable financially. It's just not fair either.

[Emily Peck]

I want to talk about Trump accounts. We are taping on a day where the Treasury Department announced more details about these accounts, which are savings accounts created by treasury that parents can put money into and that the White House is going to put money into for the next, coincidentally, hahaha, four years, they'll give a thousand dollars to every baby born from 2025 to 2028. They're billing this as like, I mean, I think Scott Besson said it was the most consequential policy announced ever or something really along those lines. And he said before, and he walked back the statement pretty quickly, but he said this is something that could be a backdoor way to privatize Social Security. And it's something I've been sort of wondering about because you have a lot of conversation about the cliff coming in 20. You have the reality of like, we can't keep going this way with Social Security. Then you have these new accounts which are really meant for people to get when they're babies and can be held until they retire. And you know, they're promoting them not as a safety net per se, but like as a way to, to discover the magic of compound interest and to get invested in the stock market. And Bessant did say that before he rolled it back. So I have been thinking and I wonder what you think, like, is that something that's like out there? People are talking about, is it a possibility when the time comes to reform Social Security that someone will say, well, we have these accounts, maybe we should change the way we, you know, make those bigger for people.

[Andrew Biggs]

The Trump accounts are interesting, I mean, since philosophically I believe in an ownership society, I think there's a lot of evidence to suggest that people becoming owners, whether it's of retirement savings or a homeowner, that is, that is healthy for people. But at the financial level, I mean, in my book, part of the argument I make is that there really isn't very much evidence that low income Americans need to save more for retirement. If those low earners should save more for retirement, what you would see is that as people retire, the poverty rate would go up because people discover they hadn't saved enough, their incomes aren't enough. What you see is in fact the poverty rate declines pretty significantly as people shift from work into retirement. So that just undercuts the idea that they don't need to or that they haven't saved enough retirement.

[Emily Peck]

I actually don't understand your point. So if, if people save more when they're working, they will have less when they retire. I don't understand.

[Andrew Biggs]

If you just look at the sort of the poverty rates of people just before they retire compared to just after they retire. Now, if they hadn't saved enough for retirement, you would expect poverty increase. Right, because they discovered, hey, I've stopped working, I'm not getting any wages or salaries, but I don't have any savings left. So therefore poverty would increase. What you see is in fact the opposite of that.

[Emily Peck]

Isn't that Social Security doing its job?

[Andrew Biggs]

Sure it is, but, and it's not just Social Security, it's a variety of things. But the point is that if these people were not saving enough, poverty would go up. In fact, poverty is going down. So the idea they need to save more is just weak. And yes, that's the Social Security replacement rate for somebody at the bottom of the income distribution is pretty high. They'll get the Social Security benefit equal. They're at 80% or so of their pre retirement earnings, so they really don't need to save more, which is why they don't save more. But then you have to say, okay, if we're going to have these Trump accounts, well, you know, high income people can save. They already are saving. So presumably at the margin. And the beneficiaries of Trump accounts will be low income people. I'm fine on making them into investors and giving them this start. What I suspect you're going to see is people are not going to hold it for retirement because they're not under saving for retirement. They will use it, say for a home purchase, for college tuition, things like that. I guess it's fine. But the idea to say this is the most consequential policy. It's very hard to, if you set these retirement savings accounts up today along with the plan saying, yeah, we're going to reduce Social Security in the future, that would be consequential because we're saying, look, we're going to make an effort to save more for retirement to make up for the fact that Social Security benefits are going to have to be lower.

[Emily Peck]

But don't you think that's sort of like what is happening? It's setting up a mechanism where that could be something that happens, I guess, is what the setting up the infrastructure to kind of find this, like, private market way to solve this coming Social Security crisis.

[Andrew Biggs]

And maybe they're thinking that, but I suspect that's not, in fact how this plays out, because you can't just pull the rug out from underneath people.

[Emily Peck]

Right.

[Andrew Biggs]

Any changes to Social Security benefits have to be very gradual. Just as, for instance, you know, Social Security retirement age today is 67 to get full benefits. You know, when the program started at 65, the increase from 65 to 67 was legislated in 1983. It started, I believe, in 2000, and it's just reached 67 today. So you've gotten an over 40 year kind of warning on this thing. Nobody really complains about it today. Everybody's adjusted. We're working longer. You can't set up these accounts and then say, oh, surprise, it's 2032. We're taking away your Social Security security benefits. Right. These things have to work together. So I think if they think this is going to fix the Social Security problem, I think they're kind of diluting themselves.

[Emily Peck]

Okay, I want to break. I have one more policy wonk question and then I want to just talk about things people can do and all of the personal finance stuff. That's always fun and you have great advice. I think.

[Andrew Biggs]

Foreign.

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[Andrew Biggs]

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[Emily Peck]

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[Andrew Biggs]

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[Emily Peck]

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[Emily Peck]

So the policy question I read your recent substack on this. The President recently talked about how the Australians do retirement. I don't think anyone in America actually knows what he's talking about, but you did. So I was reading your posts and what Australians do is actually really interesting. I feel like their program, the way you've described it, addresses some of like the big flaws with our retirement system, especially for people at the, for poor people, especially who you know, didn't work enough to really pay into Social Security at all and wind up on supplemental social insurance which is not a lot of money. But I'll just stop talking, explain the Australian system.

[Andrew Biggs]

Think about it just sort of in kind of qualitative general terms. If everybody was saving for retirement as they should, then the burden on Social Security would be lower. You'd still need it to help protect poverty against poverty in old age, but you wouldn't need as high benefits to be paid to middle income and upper income people as everybody would be saving. That's essentially where Australia started, where beginning, and this is around 1990, they set up a system, they call it superannuation, where every worker is offered a retirement plan on the job. Every worker signed up for that retirement plan and their employer contributes about 12% of their wages to that retirement plan. So you've got everybody virtually saving for retirement. At the same time. They set up a program to prevent poverty in old age and that's called the age pension and that provides, it's a means tested minimum benefit for seniors that is designed to guarantee you will not fall into poverty For a single individual. I think the minimum benefit is around $20,000 per year, but it's means tested. So if you're a higher income person, your benefits from this age pension are reduced. If you're a lower income, you still get it. So I think around two thirds of of Australian seniors are currently getting part of this means tested age pension and then they have their retirement savings on top of that. The key is that as the Australian system becomes fully mature, it's been running for, you know, 30 years or so, but it's, that's not quite a full career. What's going to happen is people's retirement savings through the superannuation system, these universal retirement plans, they're going to increase and so they're going to depend less upon this means tested age pension when they retire. The upshot of it, I mean there are a couple upsides. One is you're having the retirement savings done by the part of society that is good at saving for retirement, which is households and the private sector. As I said, retirement savings, you know, in 401ks have never been higher. Governments are terrible at saving for retirement, whether it's in the US or around the world. They promise things they don't pay for it. So you're shifting more of the burden of saving to the place that's good at saving for retirement. You're having government focus on what government does best, which is transferring resources to help people who really need them to prevent poverty in old age. So Australia has a much stronger minimum benefit, a much stronger anti poverty benefit than Social Security does. So you're doing what I think in common sense says is efficient. This division of labor where government does what only government can do, it doesn't try to do things it's bad at, like saving. We just simply have more of that going on by individuals, households, financial firms. But we're making sure everybody has the opportunity to do it on the job and we're making sure that people are signed up and the contributions are made just to give you just a quick number. So right now the Australian government, for this age pension, this anti poverty benefit costs about half as much as the Social Security retirement plan. If you go into the future, it's going to cost about a third as much. So people will say, oh well, it doesn't pay as much as Social Security, sure, but it leaves a lot more money on the table to fix Medicare, to avoid a debt crisis, to do whatever you want those federal resources to do. So I just think it's a much more elegant system. If we were inventing Social Security from scratch today, we would almost certainly do something like this.

[Emily Peck]

And so to be clear, so if I'm someone who makes $100,000 a year, my employer is paying an additional $12,000 ish a year into a retirement account. And then I can also decide I want to contribute, you know, whatever it is. $2,000.

[Andrew Biggs]

Yeah, you can contribute on top of that. And most Australians do when they have a tax incentive. But the core part from a sort of public policy standpoint is the combination of these mandatory contributions which come from employers, along with this means tested minimum benefit that covers most of what Social Security does and the way the benefits are paid out. The levels of benefits to people at different income levels are very similar to Social Security, but they're just more of it is coming from private savings at the top end. At the bottom end, more of it is coming from this government age pension, the anti poverty benefit.

[Emily Peck]

I think that's super interesting also because in this scenario I have my $100,000 income. 12% of my salary is going into paid for separate. I don't pay for it, they're paying for it. The boss is paying for it. I'm not paying a 6% Social Security tax anymore out of my salary. So I feel like that's great. Also, I don't see American employers agreeing to paying that much into people's retirement accounts. That's why we wound up with 401ks in the first place. They wanted to stop contributing to pensions.

[Andrew Biggs]

And just the historical correction is employers contribute about the Same amount to employers 401ks today as they did to pensions back in the day. The employer contribution hasn't really changed very much.

[Emily Peck]

And it wasn't, I mean my employer Contributes I think 3%, not 12%. Like that's.

[Andrew Biggs]

Oh sure. No, the Australian system, they'd be paying much more. My point is it's important to get the transition from pensions to 401ks. It didn't happen for the reasons people thought. 401 or pensions started to go away before 401ks were even invented. And the reason for that is in 1974 the government, federal government decided we've got to regulate these private pensions because they were terribly funded, employees weren't getting paid benefits. So they, you know, they increased the financial supervision. Once businesses had to actually fully fund these things, that's when they started to decline. 401ks came in really 10 years later and kind of picked up the slack and made up the difference. And I think they did it successfully. But this dynamic that employers wanted, 401k is to get rid of the pension. Just the timing and the history doesn't work. But just to go back to Australia, I mean if you're a lower income person, you know, it's the employer is making a contribution, the age pension. This means tested anti poverty benefit that's paid out of general tax revenues as income taxes. So lower income people are not paying very much of it. So this is a pretty progressive system and it simply has much stronger guarantees against poverty. I mean, it's one thing that bothers me about the way the Social Security reform debate works in the US is as soon as you mention changes to Social Security, you get some overheated rhetoric about poverty in old age, Social Security, safety net and so forth, keeping retirees out of poverty is inexpensive and it's really a very minor part of what Social Security does. If you look at people who are in the bottom 10% of the income distribution among seniors, these are the people who would be in poverty. They receive somewhere around 2% of total Social Security retirement benefit. What is going on is if you, let's say if you have a middle income couple retiring today, they will receive somewhere around $58,000 in combined benefits, a high income couple will get somewhere around $98,000 in benefits. That is far more than other countries pay. If you were in Canada or Australia or uk, the maximum benefits in those countries are one third to one half what we pay. So, you know, the funding problem we face is not keeping people out of poverty. It is running a pension system with increasingly generous benefits for middle and high income retirees, who literally are the richest retirees on earth. So if we focus reform and say, look, we've got to guarantee people that they're not going to retire into poverty, that's something the Australian system does do, which Social Security doesn't, that's very inexpensive to do. It really would not cost very much money at all. Once you do that, then you can have a more rational conversation about what the rest of Social Security reform should look like. How much more do we want to raise taxes to keep paying more and more benefits to middle and upper income seniors? Or do we want to scale that down and say to them, look, you're going to have to save more for retirement on your own and set up the means for them to do that. So just the understandings of what Social Security does and where its cost drivers are. If people don't understand that, it's really hard to have a very productive conversation about Social Security reform.

[Emily Peck]

Okay, well first, Andrew, I have to ask you this because I was emailing with you recently and I was just like, can you just tell me in the next hour like what people need to do to get ready for retirement if they're worried they won't have enough money? And you said a lot of people have too much saved for retirement. I, Andrew Bigs, have too much saved for retirement. Is that true? Am I making this up? Did I hallucinate that you told me this?

[Andrew Biggs]

No, no, it's. I mean, I. Yes, by any objective measure, it's a funny sort of dynamic over the course of your life. When you're younger, you're like, I'm never gonna have enough money for retirement. And again, look, I'm telling this from the point of view. I mean, I'm not, I work at a think tank. So you know, this is not sort of Jeff Bezos territory, but clearly upper middle class. But when you're young, you're like, I'm never gonna have enough money. Retirement, I haven't saved enough. Then there's like 1 nanosecond, you're like, yeah, I've got it, I'm on track now. And the rest is you just keep Saving like that because it's a habit and you end up with more money than you really need. And then you start thinking, how do I avoid taxes on this thing? You know, your, your focus has get to be different. I mean, it's when I've done some work on this in the past and you have a lot of Americans who have in fact oversaved for retirement. And that's one reason why you don't see seniors really spending down their retirement savings. This idea we're all going to run out of money. The typical household's net worth increases as they get older. It doesn't decrease. They just kind of hold on to their money. You know, that said, there are people who have under saved and they're getting on in their careers and they're saying, what do I do about it? And I think there's really a couple things you can do. One is, and this also holds if you're concerned that Social Security benefits might be cut. We don't know how the trust fund problem is going to get resolved. So there's some risk there. Just increase the amount you're saving out of your paycheck by a couple percentage points, you know, 2 or 3% more into your 401k. You will get used to the loss of income very quickly and that will help cushion things. Say if Social Security benefits are cut. Now, if Social Security reform is resolved, they say we're going to raise the payroll tax rate to keep paying full benefits. Well, you can dial back on the amount you're saving, but the basic point is to try to ensure against some of that uncertainty about how Social Security is going to get fixed. The second thing you can do is simply work an extra couple of years. And I understand not everybody can do it, but back when I was getting into the sort of the Social Security reform policy area, you know, late 1990s at this point, people were claiming Social Security age 62. Labor force participation among older Americans was really at record lows. And there was this idea, oh, Americans can't work longer. A lot of people were saying, we need to raise Social Security retirement age. But you had others saying they can't work longer due to health problems, lack of available jobs, age discrimination and so forth. One nice thing about getting older is you can look back and you know how that question was answered. The labor force participation rate for people aged 55 to 64 is today at the highest level on record compared to the 1990s. On average, we're claiming Social Security benefits. Two years later, the average claiming age today is 65. That increases your benefits by around 13% for the rest of your life. Delaying retirement doesn't just help you with Social Security. It also gives you an extra year or so to save for your savings to be, you know, grown by compound interest. And it shrinks the number of years those savings have to cover. Now, I know there's people out there say, oh, this will never work. It can't happen. I just say, look back on the last 30 years or so, and you can see the evidence that it has, in fact worked. And it's not just, you know, college professors teaching till they're 80 or something. This is a fairly widespread phenomenon. So if you can manage to work another couple years, if you can increase your retirement plan contributions by a couple percentage points, that can have a pretty dramatic effect on your prospects for retirement. Income security.

[Emily Peck]

Right. Because if you wait till 70. I know you said the average age was 65, but if you wait till 70, the Social Security payments are even higher, and then you've got those extra years with your money in the stock market growing and the contributions.

[Andrew Biggs]

It's just worth pointing out to people that the incidence of real financial want among seniors is really quite low. If you look in survey data, you know, Gallup generally asks people, the question is, do you have enough money not just to survive, but to, quote, live comfortably? About eight in 10 seniors say they do. When seniors are asked, would you consider your financial situation a retirement crisis or are you finding it difficult to get by? Less than 5% say that's what they're facing. So again, it doesn't mean we should ignore the 5%. We should be trying to fix that. But if you think we're all going to hell in a handbasket, it's not just a harder problem to solve, you're misunderstanding what the problem is. We do not have widespread savings shortages or widespread shortages of income among retirees. They've literally never been better off than they are today. We do have pockets of it, though, and we want to address those by looking rationally at what they the data show us.

[Emily Peck]

Incredible. So the advice usually is. Or that I heard when I was in my 20s and getting my 401k for the first time. It was like, take advantage of your employer match and also max out if you can. And your advice is not to do that.

[Andrew Biggs]

I mean, if you feel up to it, it's fine. I believe the maximum 401k contribution individual can make this year is about $23,500. And the median wages for an American are somewhere, I think around $68,000. Nobody making $68,000 needs to save 23,500 for retirement every year. If you did that, your retirement income will be so far above your standard of living when you're working, it just, it makes no sense.

[Emily Peck]

I mean, that's great. I mean it'd be nice.

[Andrew Biggs]

It's not great. Our point in life is not to maximize our retirement income. Our goal in life, as economists would have it, is you want to, to have essentially a smooth standard of living from year to year and from work into retirement. I mean, every economist sort of assumes this. So sure, it's bad if you reach retirement and your income drops a lot because then your standard living drops a lot. But if you've over saved for retirement, that means you had a lower standard of living during your working years. You might have said, hey, I can't send my kid to college or I can't buy a home, I can't start a business. Those are real costs as, as well. We're not just here to maximize retirement savings. So the idea that we should be maxing out the contribution doesn't make sense for very young people. You know, they've got other debts, they've got low incomes. You know, there is research from a collection of economists at Stanford. They concluded even with the government match, it often does not make sense for these young Americans to save for retirement. And the reason it because their incomes are so low, they're at a point in life where a dollar is really valuable to them. It's buying them the essentials. If you fast forward to when they're in their 40s, their incomes are a lot higher, well then they can afford to save more. And you see this exact pattern. Young people don't save very much for retirement. Once people get into their 30s, they start saving more and they tend to save more as they approach retirement. That's exactly what an economics techn textbook says they should do. But we're often chiding younger people or chiding low income people for not saving for retirement when they're in fact doing kind of what economics says they should do. So it's a, it's this sort of weirdo conversation we have.

[Emily Peck]

It's an interesting point to make, especially to go back just briefly to the Trump accounts, which the whole point is like start saving right away for retirement in addition to college. Obviously they're for that as well. But the message really is start saving now. Discover the magic of compound interest, et cetera, et cetera.

[Andrew Biggs]

If people want to do it. I think they should have the vehicle for doing it. I think everybody should have the availability of, say, a 401k at their workplace. The coverage gap, as people call it, is a lot smaller than it's claimed. But there's no reason why everybody shouldn't have that option. The same as if, look, if you want to save money for your child, that's great. I'm not against it, but. But the idea that this is some sort of magic, it becomes this kind of spreadsheet exercise. Well, take $1,000, compound it at 10% per year, and then there you go. Well, look, we're borrowing the money to fund these accounts. This is not new savings. We are essentially, the federal government is borrowing money with which it is purchasing stocks that belong to Americans today. And then they're being put in these accounts. You know, this is not increased saving on a national level. It's kind of redistribution of saving. And yeah, maybe that's good, maybe not, who knows? But it's just the idea that this is some revolutionary policy, I just think doesn't hold up. Something like what Australia is doing is saying everybody is going to be saving for retirement. Everybody's going to be offered a retirement plan of work. That's revolutionary policy because that has the potential really to fix the Social Security problem, to fix retirement income security problems, and to free up the resources so we can fix Medicare and not have a federal bankruptcy. That's revolutionary policy.

[Emily Peck]

Before we go, last question. Do you have, like, a message you would send out to the people who are anxious about retirement, to the people who think, I'll never have enough, I'll never be able to stop working?

[Andrew Biggs]

Well, the basic message is don't panic. I mean, you should think rationally about how much you're going to need in retirement. Get an estimate of how much you're going to get from Social Security. Often it's more than people think it will be. Inform yourself on how much the cost of living tends to drop in retirement. Instead of getting all worked up about it, just work kind of rationally or methodically in thinking about it. And you might have to adjust things a little bit. But if I'm correct, most people will not. They may fear that they're going to have not have enough from retirement, but they actually will be okay. And look, we know this from the data. If you go back 25 years ago, say in Gallup's survey, at that point, around 60% of Americans thought they would have enough money when they retired to live comfortably. Now, Gallup is Asking retirees themselves, do you have enough money to live comfortably? And 80% say they do. When you match that up, those people 25 years ago who thought they weren't going to have enough money, they're retired today and they're doing fine, they did it. So half of those people who thought they weren't going to have enough, it turns out they did have enough. So I'm not saying you shouldn't worry at all, but, you know, you should understand that retirement is something that's, you know, it's inherently worrying because you have to plan ahead for decades. You have to think about how long you're going to live and what kind of rate of return, you know, your savings and so forth. There's a lot of people out there who, who want to worry you. Headlines a retirement crisis, this and that. I see them every day. But they're really not supported by the data. They're really just not. The analogy I put it is if some pharmaceutical ad comes on the TV and they say you may have a so and so problem, guess what? We have the cure. You recognize this is a product they're selling?

[Emily Peck]

Yeah.

[Andrew Biggs]

And it doesn't mean the product is bad, doesn't make them dishonest, but they're going to product to sell. Similarly, if you hear, well, you're not saving enough for retirement, you should be saving more. Just understand that's a product they're selling, too. There is a tendency to err on the side of. They would see it as caution. I would just see it as pessimism. And you can see it consistently in these studies that predict a retirement crisis. There's always something. You pull at the string and the whole thing falls apart. So just understand that there's a tendency to be so scared. You should do your due diligence. But you know, there are much bigger problems for us to worry about than us.

[Emily Peck]

Andrew, thank you so much.

[Andrew Biggs]

Oh, it's my pleasure. Thank you very much for having me.

[Emily Peck]

Okay, that's our show for this week. Thanks to Jessamyn, Molly and Shayna Roth for producing. Ben Richmond is senior director of Podcast operations. Mia Lobel is executive producer of podcasts. And I will be back in your feed on Saturday along with Felix and Elizabeth for a regular episode of Slate Money. And until then, thanks for listening.

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[Andrew Biggs]

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