When academics are ready to fix a problem, hold onto your wallets.
“America’s middle class faces a growing retirement crisis,” Christian Weller and Teresa Ghilarducci write in an issue brief for the Center for American Progress (CAP). “More than half of all working-age households are expected to be at risk of having to cut back their standard of living—often making painful adjustments—when they retire. “
“There are several reasons for the ever-larger looming crisis, but people’s inability to save enough money is a key obstacle to achieving more retirement security. On average, Americans need to save between 10 percent and 20 percent of their salaries each year outside of Social Security to ensure a secure retirement. Yet nearly one-third of working-age Americans have no retirement savings or pension, and less than half of all private-sector workers participated in a retirement plan at work in 2013, the last year for which data are available.”
Weller is a senior fellow at CAP and a professor at the University of Massachusetts. Ghilarducci is director of the Schwartz Center for Economic Policy Analysis at The New School for Social Research.
The problem as they see it is threefold:
- “First, existing savings incentives can be overwhelming and incredibly complex.”
- “Second, savings incentives often benefit higher-income earners more than middle- and lower-income earners.”
- “Third, even as the savings incentives fail to prepare households adequately for retirement, the public loses out on increasingly large amounts of tax revenue that otherwise would have been collected without these tax breaks.“
In remarks at CAP, Ghilarducci repeatedly referred to the contributions Americans make to plans such as IRAs as “subsidies,” “tax expenditures,” and “money on the table.”
In a panel discussion at CAP on the day before Halloween, Ghilarducci’s characterization of individual savings plans was echoed by New York University Law professor Lily Batchelder who characterized employee retirement accounts as “sort of like the government dumps the subsidy into your 401K.”
That academics view individual earnings as government subsides is problematic enough, especially for the individuals. Even eerier, that notion has taken hold in the U. S. government, particularly during the current presidential administration, where Batchelder served as deputy assistant to the president and deputy director of the National Economic Council.
Ghilarducci is an economic advisor to Hillary Clinton.