When I'm Sixty-Four: The Plot against Pensions and the Plan to Save Them

385 Pages·2008·1.85 MB·English

by  Teresa Ghilarducci

When I’m Sixty-Four

When I’m Sixty-Four
The Plot against Pensions and the Plan to Save Them
Teresa Ghilarducci
PRINCETON UNIVERSITY PRESS Princeton and Oxford
Copyright © 2008 by Princeton University Press
Published by Princeton University Press,41 William Street,Princeton,New Jersey 08540
In the United Kingdom:Princeton University Press,6 Oxford Street,Woodstock,
Oxfordshire ox20 1tw
All Rights Reserved
Library ofCongress Cataloging-in-Publication Data
Ghilarducci,Teresa.
When I’m sixty-four:the plot against pensions and the plan to save them/Teresa Ghilarducci.
p.cm.
Includes bibliographical references and index.
ISBN 978-0-691-11431-6 (hbk.:alk.paper) 1. Pensions—United States. 2. Social security—
United States. I. Title.
HD7125.G465 2008
331.25'20973—dc22 2007045942
British Library Cataloging-in-Publication Data is available
This book has been composed in Minion Pro
Printed on acid-free paper.∞
press.princeton.edu
Printed in the United States ofAmerica
10 9 8 7 6 5 4 3 2 1
For William O’Rourke

Contents
Introduction 1
Part I
The Attack on Retirement
Chapter 1
Hope for Retirement’s Future 7
Principles for a Pension Rescue Plan 8
The Successes of the U.S. Retirement System 10
Three Beliefs That Threaten the Pension System 17
Individual Retirement Accounts: Current Reform Ideas Fall Short of a Vision
toSuccessfully Preserve Retirement 23
Conclusion: Retirement’s Future 25
Chapter 2
The Collapse ofRetirement Income 26
What People Need in Retirement 26
What People Think They Know: Retirement Income Expectations 28
Predictions of Retirement Readiness 30
The Five Parts of a Retirement Wealth Portfolio: Four Are Failing 32
Distribution of Retirement Income and Distribution of Retirement Readiness 42
Women Face Special Pension Circumstances 44
Pension Futures for Workers with Moderate Incomes 53
Conclusion: Failures of the Current U.S. Retirement Income Security System 56
Chapter 3
When Bad Things Happen to Good Pensions—Promises Get Broken 58
Defined Benefit Pensions and the Road to a Middle-Class Retirement 59
Diminished Defined Benefit Plans 60
The Paradox of Overall Pension Stagnation 66
viii Contents
Workers’ Demand for Defined Benefit Pension Plans 72
Why Workers Don’t Like Defined Benefit Pension Plans 78
Lump Sums and Defined Benefit Plans: A Cure that Creates the Disease 80
box 3.1.The Story of Lump Sum Payouts 82
Why Firms Like Defined Benefit Pensions 84
box 3.2.The Story of the Miners’ Union’s Pensions: How Secondary Markets
AreTransformed 87
Employers Who Do Not Sponsor Defined Benefit Plans Prefer
401(k) Plans—or Nothing 90
Legacy Costs: Defined Benefit Plans Do Not Kill Companies 92
What Should Government Policy Do? 95
Policy Options 96
Conclusion: When Bad Things Happen to Good Pensions 101
appendix 3.1.The Pension Protection Act of 2006 103
The Pension Protection Act: Destroying the Defined Benefit System as the Way
toSave It 108
The Effects of the Pension Protection Act of 2006 112
Conclusion: The Pension Protection Act of 2006 115
Chapter 4
Do-It-YourselfPensions 116
Trends in 401(k) Plans 117
Advantages and Disadvantages of Defined Contribution Pensions 118
Longevity, Investment, Financial, Inflation, Political, and Poverty Risks 122
box 4.1.Investment Management Fees: The Politics and Profits 128
Causes of the Shift to 401(k) Plans 130
box 4.2.Are 401(k) Plans Cheaper Than Defined Benefit Pension Plans? 133
Conclusion: Do-It-Yourself Pensions 136
Chapter 5
The Future ofSocial Security 139
How Does Social Security Work? 139
Issues in Social Security Financing 143
box 5.1.Why Did the Greenspan Commission Get It Wrong? 150
The Personal Savings Account Plan 154
box 5.2.Advance Funding Retirement 156
Motives for and Likely Effects of Personal Savings Accounts 157
Fixes that Maintain Social Security’s Basic Structure 164
Political History of the Social Security Program 169
Contents ix
The Debate over Social Security: Some Things Never Change 172
What Is New in the Social Security Debate? 175
Conclusion: The Future of Social Security 178
Part II
What Is Good about America’s Retirement Income Security System
Chapter 6
The Short History ofOld Age Leisure in America 181
Retirement Leisure by Generation 181
Repositioning the Retirement Idea 186
Praising and Promoting Work 188
Can the Elderly Work More? 190
Affordability: Are Pensions a Form of Fiscal Child Abuse? 191
America’s Unique Pension Debate 192
Policy Implications of Repositioned Retirement Norms 194
Conclusion: Old Age Leisure in America 195
Chapter 7
The Distribution ofRetirement Time:Who Really Gets to Retire? 197
The Value of Time and the Link between Paid Work and Health 198
Who Has the Most Retirement Time? 201
The Difference between Survivors and Nonsurvivors 210
Is Retiring Earlier Really the Ticket to Retirement-Time Equity? 212
Equalizing Retirement Time with Disability Insurance 215
Conclusion: Who Really Gets to Retire? 215
Chapter 8
Working:The New Retirement’s Effect on the Economy 217
box 8.1.Age Is in the Eye of the Beholder, the Researcher, the Lawyer, and the
Retailer 218
Older Americans Are Working More 219
The Quality of Older Workers Jobs: More Push than Pull Gets
the Elderly to Work 223
How 401(k)s Destabilize the Economy 226
Pension Surprises and Work 230
Conclusions and Policy Implications: The New Retirement 233