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Teresa Ghilarducci: To Fix Retirement, Expand Social Security

The labor economist and author discusses the country's retirement crisis, guaranteed retirement accounts, and what behavioral finance gets wrong.

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Over the next two weeks, we'll be taking a closer look at the state of retirement security in the United States, and we'll be featuring two very different perspectives on the topic. We're kicking things off with labor economist and retirement expert Teresa Ghilarducci, who will offer a progressive perspective. Ghilarducci joined The New School for Social Research as a professor of economics in 2008 after teaching at Notre Dame for 25 years. At The New School, she also directs the Schwartz Center for Economic Policy Analysis, which focuses on economic policy research and outreach. Ghilarducci has frequently testified before U.S. Congress on matters of retirement planning. She has also published numerous research pieces in economics journals and has authored several books. Her most recent book, Rescuing Retirement, is co-authored by Tony James, executive vice chairman of the Blackstone Group. She received her bachelor's and doctorate degrees in economics from the University of California at Berkeley.

Background

Bio

The New School for Social Research

Schwartz Center for Economic Policy Analysis

Books

The Retirement Crisis

"The Retirement Crisis," by Teresa Ghilarducci, The New School.

"Whose Retirement Crisis? Household Savings or Public Financing?" by Teresa Ghilarducci, Forbes, Feb. 20, 2018.

"America's Unusual High Rates of Old-Age Poverty and Old-Age Work," by Teresa Ghilarducci, Forbes, March 2, 2018.

"Working Longer Cannot Solve the Retirement Crisis," by Teresa Ghilarducci, Michael Papadopoulos, Bridget Fisher, and Anthony Webb, Schwartz Center for Economic Policy Analysis, Feb. 3, 2021.

The Defined-Contribution System

"How Defined Contribution Plans and 401(k)s Affect Employer Pension Costs," by Teresa Ghilarducci, ResearchGate, July 2006.

"Americans Haven't Saved Enough for Retirement. What Are We Going to Do About It?" by Teresa Ghilarducci and Tony James, Harvard Business Review, March 28, 2018.

"America's Retirement Savings Crisis Is Now. Here's How to Fix It," by Teresa Ghilarducci and Tony James, CNN Business, Sept. 15, 2020.

"Fixing the U.S. Retirement System," Written Testimony by Teresa Ghilarducci; Committee on Finance, Subcommittee on Social Security, Pensions, and Family Policy, U.S. Senate, May 21, 2014.

"Laying the Groundwork for More Efficient Retirement Savings Incentives," by Teresa Ghilarducci and Christian Weller, Center for American Progress, Nov. 18, 2015.

"Retirement Savings Inequality: Different Effects of Earnings Shocks, Portfolio Selections, and Employer Contributions by Worker Earnings Level," by Teresa Ghilarducci, Joelle Saad-Lessler, and Gayle Reznik, Social Security Office of Retirement and Disability Policy, 2018.

"The Inequitable Effects of Raising the Retirement Age on Blacks and Low-Wage Workers," by Teresa Ghilarducci, Kyle Moore, and Anthony Webb, The Review of Black Political Economy, April 26, 2019.

"Everyone Should Have the Retirement Plan Federal Employees Enjoy," by Teresa Ghilarducci and Kevin Hassett, The Washington Post, March 29, 2021.

"What if Low-Income American Workers Had Access to Wealth-Building Vehicles Like the Federal Employees' Thrift Savings Plan?" by Teresa Ghilarducci and Kevin Hassett, Economic Innovation Group, March 25, 2021.

Social Security

"A Nobel Laureate's Plan to Use Social Security to Fix the Retirement Crisis--and Why it Won't Work," by Teresa Ghilarducci, The New School's Retirement Equity Lab, April 19, 2019.

"Teresa Ghilarducci on Social Security Fixes to Protect the Poorest," by Teresa Ghilarducci, Bloomberg Businessweek, March 27, 2020.

Income Inequality and Women in Economics

"The Unique Disadvantage Older Women Face in the Workforce," by Teresa Ghilarducci, PBS News Hour, March 25, 2016.

"Women's History Month: Gender Pay Gap Contributes to Elderly Poverty Gap," by Teresa Ghilarducci, The New School's Retirement Equity Lab, May 1, 2017.

"Labor Market Discrimination: A Bleak Outlook for Older Women," by Teresa Ghilarducci and Kyle Moore, Schwartz Center for Economic Policy Analysis, 2017.

"How Big Firms Keep Wages Low," by Teresa Ghilarducci, Forbes, Jan. 21, 2019.

"Barring Women From Economics," by Teresa Ghilarducci, Forbes, March 31, 2019.

"Economists Weigh In on Covid-19 and Inequality," by Teresa Ghilarducci, Forbes, March 4, 2021.

Behavioral Finance

"Financial Literacy: Just Another Word for Financial Shaming," by Teresa Ghilarducci, Psychology Today, May 7, 2018.

"Go Ahead and Spend Your Children's Inheritance," by Teresa Ghilarducci, Advisor Perspectives, Dec. 17, 2020.

Transcript

Christine Benz: Hi, and welcome to The Long View. I'm Christine Benz, director of personal finance for Morningstar.

Jeff Ptak: And I'm Jeff Ptak, chief ratings officer for Morningstar Research Services.

Benz: Over the next two weeks, we will be taking a closer look at the state of retirement security in the U.S., and we will be featuring two very different perspectives on the topic. Next week, we will chat with Andrew Biggs, a leading expert on retirement security and resident scholar at the conservative think tank, the American Enterprise Institute.

Our guest today is labor economist and retirement expert Teresa Ghilarducci, who will offer a more progressive perspective. Professor Ghilarducci joined The New School for Social Research as a professor of economics in 2008, after teaching at Notre Dame for 25 years. At The New School, she also directs the Schwartz Center for Economic Policy Analysis, which focuses on economic policy research and outreach. Ghilarducci has frequently testified before U.S. Congress on matters of retirement planning. She has also published numerous research pieces in economics journals and has authored several books. Her most recent Rescuing Retirement is coauthored by Tony James, executive vice chairman of the Blackstone Group. She received her bachelor's and doctorate degrees in economics from the University of California at Berkeley.

Teresa, welcome to The Long View.

Teresa Ghilarducci: Thank you. Thank you for having me.

Benz: Thanks for being here. One question we have put to several of our guests on this podcast is whether we have a retirement crisis in the U.S. What's your take on that question?

Ghilarducci: I'm really surprised by the question. Of course, we do. Most people will not be able to really come near their preretirement standard of living. Meaning that if you are a middle-class worker, you have a great risk, more than 50% chance of being downwardly mobile into de facto poverty. And that has big political implications as well. I'm not the political scientist here. But tens of millions of people facing worse living conditions for the rest of their life will have a political consequence. As an economist, I know that it will mean less spending and less well-being in old age, and also means an increase in the elderly poverty rate. And that will hit cities and state budgets before it ever hits the federal budget. So, that's a couple of dimensions of the crisis.

So, it is beyond me why anybody even ask me that question. And you don't even have to ask an economist. Ask people about whether or not they expect to live comfortably in retirement, and the number saying that they expect to be comfortable is falling. Want any more metrics?

Ptak: I wanted to follow up by asking about maybe an argument that defenders of the current system for retirement planning would make, which is that they sometimes point to the fact that retirees, even those with very low income self-report their happiness levels as being pretty high. Do you think that's a good argument for maintaining the status quo? Or do you think it's bunk?

Ghilarducci: It's really specious. It really is measuring something else. And I've seen that statistic being pulled out of the hat, being pulled out of the social psychology literature. Let me just talk a little bit about the happiness literature and where that number comes from. It comes from social psychologists who have looked at cross-national and across time trends, levels of what is called subjective well-being. And what the social psychologists have found is this peculiar U-shaped effect of happiness. It's also been referred to in a cute way as a smile-shaped trend on happiness. And that means that when you are young--so that horizontal axis is just your age--when you are young, you are pretty happy. And what goes into subjective well-being is that you have a sense of control, you have a sense that things will get better, you have a sense of optimism, and you have what's called locus of control, or you have agency. As you get to be a middle-aged adult, you have a lot of crisis. You have a crisis of doubt. You have a lot of stress because you are taking care of so many people. You are striving a lot to succeed in your career. You are constantly disappointed that you are not making it in your career as well as you thought. Your expectations were so much higher than your reality. And so, the gap between expectations and reality is really nagging at you. But as you grow older, what you have and what your expectations are, grows together, and therefore you get a little bit more satisfied with your life. So, when you are young and when you are old, you are at a higher level of happiness than you are when you are middle-aged.

So, a lot of that reporting higher levels of well-being is just because people's well-being in middle age is so low. It doesn't have anything to do with what the benchmark level of happiness should be, or whether or not we can do a lot better as a nation to get older people to feel more relaxed and less stressed actually. We learn a lot about the differences of people in old age. And we do know that having a steady, even if it's modest, guaranteed level of income for the rest of your life really adds to well-being--so much so that it lowers cortisol level, and it can help reduce heart disease. We have really good data from the University of Michigan on what forms of your wealth and your level of wealth does for your cortisol levels and your stress disease. So, that benchmark that we don't have a retirement crisis because older people are happier than they are when they're middle age, is what I said: disconnected, just a specious argument.

Benz: We want to follow up on some of your specific ideas about improving retirement security. But before we get into that, I'd like to talk about some of the shortcomings in the current system. In your book with Tony James, Rescuing Retirement, you wrote about some of the key failings of the defined-contribution system that is now such a linchpin of our retirement system. Can you talk about some of the most important ones?

Ghilarducci: What I know that you know and what your listeners know, is that we can judge a retirement system based on its three major elements. And I'm so grateful, and I'm sure all the listeners out there are grateful, is that pensions are a lot simpler than healthcare. Because what you need for someone to have a steady stream of income for the rest of their life that can maintain their living standards is money. All you need to do is consistently accumulate wealth while you are working. You need to make sure that that wealth is managed as well as it could be, meaning that you get the maximum adjusted-for-risk rate of return that you can get with the less fees that you can pay, net of tax, net of fees. And you also have to have a really good plan for deaccumulation.

So, we should judge the world's pension systems on how well it helps people accumulate wealth, how well it manages that wealth, and how well does it deaccumulate so that people have a steady stream of income for the rest of their life. And on all three counts, the American system gets either a C, a D, or an F. Some people in America have a system that's really built for them, that they get an A, and A, and a B. Let's talk about the people where the system works the best. It's the very highest-income people who have steady, good jobs for their whole careers and whose employers or whose career gives them raises every year.

Let's take my job. I'm a lucky, tenured professor at a private university. I've only had two jobs my entire career. And when I moved from the University of Notre Dame after 25 years, I got a huge raise as an endowed chair at The New School. I'm not bragging. I'm just telling you that if that sounds rare and weird, it is rare and weird. A lot of the economists who write about personal finance have jobs like me. They are in good universities. Their careers are going well, and they have gotten raises their entire life. So, these are the creatures that are doing research on the retirement system.

There are other people who have good Ph.D.s in economics, and they worked for think tanks in Washington. They too have been blessed with a steady job and with rising pay. The system works really well for us. We have stable lives. We have been contributing every moment since we started working or contributing into Social Security with a real job. And we can work for as long as we want, and we enjoy our jobs. We can control the pace and content of our job. So, the system works pretty well for us. And then, the Congress has given us a tax deduction from which we can deduct our contributions from our taxes. Because we pay a high tax rate, the government indirectly gives us a lot of subsidy. Our employer also pitches in. We are going to live a long time and we are going to work for a long time. And we have products where we can deaccumulate in a steady way. So, yeah, the system works for us, but we are about 5% to 10% of the population.

Let's take half of the population that is more normal. They earn incomes below the median. They've probably had about eight or 10 jobs. Most of those jobs did not have a retirement plan attached to that job. These people had periods of unemployment. That is not an environment in which they could accumulate money. The only money that they have accumulated was their Social Security, because Social Security forgives periods of unemployment. And it follows you to every job no matter what your employer wants to do or not. It's mandated. So, the system is really bad at accumulation.

So, let's take those of us who have an accumulation. Many of us don't have employers that are very good at picking what investments we invest in. And besides, the employer doesn't really have a big stake in what those investment options are. They may go with a broker and that broker stuffs a lot of active funds or a lot of funds that sound the same. The employer doesn't want to give an advice to the worker about what to invest in. The lifecycle funds have helped, but they have a lot of fees attached to it and they have a lot of garbage involved in them. A lot of research has shown that these lifecycle funds are very, very high-fee funds. And since the employer passes on the cost of these funds and of management onto the worker, the employer really doesn't have that much incentive to keep the fees low or the choices really pristine. We have seen a bunch of 401(k) providers being sued precisely because there had too many choices and the choices are pretty bad. So, we are really bad at investing money for our investors. The system is voluntary, and the system doesn't have the right incentives in place.

And then deaccumulation, we get a big fat F. We have a system where we tell people that they should accumulate like a million dollars, and then manage it for the rest of their life. And this is the craziest part of our system. We are asking people to do a very complex financial job right when they are in their 60s. We tell them be careful, you might live until you're 90, and we ask them to manage their money into their 90s. Well, most Americans, most people, most humans start experiencing cognitive decline around their late 70s. So, we are asking our elders to basically pin tens of thousands of dollars on the lapel of their jacket, and then we put them on the bus and we hand them a couple of financial literacy pamphlets or some ads and AARP magazine and tell them to be real careful.

So, we have a system where the research shows makes older people really depressed and anxious. The HRS--that University of Michigan data I talked about--has data on people who have an equivalent annuity, like a defined-benefit plan, and people who are alike in every way except they have that equivalent amount in a 401(k) plan that they have to manage for the rest of their life. And they measure their cortisol levels and their stress levels, and they found that the person who has the guaranteed income for the rest of their life reports better mental health. So, we do poorly on accumulation. Half of the people don't have any retirement plan. We do terribly on investment choices, because most people have terrible portfolios that's not an appropriate one that would manage their risk or manage their return, and they pay too-high fees. And we have one of the worst systems in terms of deaccumulation. So, bottom line, it is bad for most people.

Ptak: One stopgap solution that has cropped up in response to a subset of the issues that you mentioned are multiple-employer plans, or MEPs, that allow small employers to field 401(k)-style plans. But isn't it really inefficient to operate so many small plans?

Ghilarducci: This is where Congress really bought the theory and hope, rather than relied on any evidence. There is very little evidence that small employers want to get together and pool their employees' funds to create a lower-fee fund. It looks good on paper. And in fact, even despite some of the problems with the Central States' Teamsters, there are a lot of union plans, who actually organize all the employers and force them to contribute to have really good results. There are many, many janitors out there or garment workers who would not have $150 per month extra if it weren't for these multi-employer plans. So, it looks good on paper. But small employers just aren't really equipped to do that kind of complex organizing with their competitors or arranging for a plan. So, we don't have any evidence that this means a lot of small employers are going to jump on to be plan sponsors.

Our system is fatally flawed, because it's voluntary, it's commercially run, and individuals run their own investments. Those three elements make it a very poor way to accumulate, invest, and deaccumulate funds.

Benz: One intuitively appealing idea is a big federally sponsored retirement savings plan, featuring really inexpensive index funds, similar to the Thrift Savings Plan for U.S. government workers. You recently wrote a Washington Post piece in support of expanding that concept to all workers. How would such a program address some of the shortcomings of the 401(k) system that we have today?

Ghilarducci: Well, you might be one of my first fans. Thank you. I think it's appealing too. I wrote that op-ed with a very unlikely writing partner. I don't think we would have ever even come across the room if we were in the same room together. My coauthor is a very smart economist, Kevin Hassett, who was the chair of President Trump's Council of Economic Advisers. He's a Republican. I'm a Democrat. But we came together as an economist, because we agree with you, that the Thrift Savings Plan, which is a well-managed suite of index funds, and now it's only available to tens of millions of federal employees, and because of the efforts of my old boss, former Senator Robert Kerrey, when he was a senator, it is now available to the military. It allows these employees to put in money, and they have very few choices about where to put it. They have some good advice on the web about where to put it, and then they leave it alone, and they can retire. Many of them also have Social Security.

All we have to do is just expand that system, that platform for all Americans. We can start with the ones that don't have any plan at all, which are half of workers, and they will have an easy automatic way to accumulate private funds for their retirement alongside their Social Security. And you asked me how many people that would affect? Hold on to your hat. Sixty-three million Americans right now who don't have a retirement plan would start saving for their retirement if they had access to the TSP account. I think that's pretty appealing.

Ptak: I wanted to talk about maybe other ways to incentivize retirement savings. We have something of a two-track retirement system in the U.S. You did a really good job of walking through some of those differences between the tracks. But one of them is where higher-income workers value and benefit more from tax incentives for retirement savings than do lower-income ones. And so, what do you think the system can do to better incentivize retirement savings for lower-income workers?

Ghilarducci: This is something that economists and experts of all political stripes and colors really agree that the current system is top-heavy. We spend $250 billion a year as incentives for retirement. But 70% of that $250 billion goes to the top 20%; 70% of that federal subsidy for retirement savings goes to the top 20% of all earners. And this 20% that most of this money goes to are the 20% that would probably save for retirement anyway. They welcome the $7,000 in basically indirect subsidies they get from the government, but they would probably save anything. And that means that the bottom 70% really get nothing.

Let me just give you an example. You have two people, and they both care about their retirements, they can see far into the future, they are really frugal, and they save 10% of their income every paycheck for their retirement. But the person who makes $20,000 gets nothing from the federal government because they hardly pay any federal taxes. And the person making $200,000 gets over $7,000 from the government. That's unfair, and it's also inefficient. And that offends all economists and all experts. So, we need to make sure that people, even if they make very low money that they pay low tax rates, that they get some help from the federal government. So, it's a really good idea. It's fair and it also would incent people to trust the system, be involved in the system, and it would actually incent them to save more.

We have plenty of data to show that if low-income workers have a match from their employer--and now, we are talking about a match from the government, indirect match from the government--that they feel like they are part of the system. And they will save the minimum for sure, but if that's their retirement account, they would also even save more. For decades, we've had low-income workers asking if they can buy more Social Security credits, especially women, especially women of color want to really boost their retirement plan. And the only place they know that is a Social Security system. Social Security system doesn't let you boost your credits beyond just working more for more pay. But having a supplemental plan is a way that you can boost your lifelong income. So, I think it's a great idea, and if we rejigger our--this is where I get in trouble with the industry. So, please don't make me say something that will generate hate mail. But there is really a way that we redistribute that tax incentive, that $250 billion, so that it helps more people in the middle class.

One way we could do it is not spend more money, even though we are in the season of spending lots of money. But if we didn't want to blow the budget, we could just cap the amount of contributions to retirement accounts per year that get a deduction, maybe to $5,000, $6,000 a year. Now, very high-income people could spend, could contribute tens of thousands of dollars and have that written off their taxes, and then we could use some of that money to give refundable credits rather than wait for the deduction. Fortunately, that was actually a campaign promise for Joe Biden. So, I suspect that we will see a lot of proposals along those lines.

Benz: Well, to follow up on that, we have a new Congress and a new presidential administration. What should be their priorities, in your opinion, with respect to improving retirement security? If you were advising them on some quick wins they could score on the retirement front, where would you suggest they start?

Ghilarducci: The tax code is the easy one. I would provide a refundable tax credit for anybody who contributes to a retirement account. And also, can I speak to the governors also? We don't have to just do this at the federal government. A lot of the states that have income taxes, like Kansas, they have a pretty big income tax. Kansas and California, New York--they just pass through the rules from the federal government. They could give a refundable tax credit. They don't have to make it as regressive as the federal government's tax rate. So, we could have governors, state legislatures, and Congress and the President really help make that tax code that we just talked about much more fair.

The second thing to do is to add access to the TSP plan for the 68 million workers who don't have anything at work, have that open as a platform for people to save. Those are the two big ones. And the other one is to put more revenue into Social Security. So, I guess three--I get a trinity.

Ptak: Well, that's a good segue, because we wanted to talk about Social Security next. The Social Security Trust Fund is expected to run out in 2034 or so based on projections. You've argued that it's not enough to merely shore it up so that it can deliver promised benefits, that it should actually be expanded. Can you discuss the broad outlines of why we need such an expansion, which you discuss in your book?

Ghilarducci: Oh, yes. I'm working with a bunch of policy nerds. And we have looked at the numbers. And we've found that if we expand Social Security, we can solve poverty in this country among the elderly. The OECD, the international Organization for Economic Co-operation, or the gang of rich nations, has the U.S. poverty rate for people over 65 at 22%. There's only one country in the OECD that comes even close to us and that's Japan. And they are doing everything they can to end the poverty problem in Japan. We are not really focused on ending that. The official poverty rate, because our poverty line is just so low, is around 8%. But if we raise the minimum benefit in Social Security, it would not cost very much, but it would bring up the bottom and bring people above poverty. So, people would still be in need, but we can expand Social Security to bring up the very poorest among us.

I can talk about, if you like, how we would pay for that and what we can do to make sure that promised benefits are paid in 2034.

Benz: Yeah, that would be great.

Ptak: Sure, go for it.

Ghilarducci: OK great. So, the most popular way in terms of what economists look at in terms of whether or not it will disincent economic activity or make labor more expensive, you want to avoid all that. You want to bring in more revenue into Social Security, but not discourage employment. So, the best way to bring in more revenue and not discourage employment is to raise the earnings base. So, every year I do a New Year's special blog for Forbes. It's become what I do on New Year's Day. And that is to calculate how long it takes the very richest, very highest-paid people among us to pay off their Social Security for the whole year. And Jeff Bezos is hardly asleep on New Year's Day. Right around the time he rings in the new year before he wakes up for breakfast, he's already paid his Social Security bill. Some of the highest-paid executives in this country have paid off their entire year's of Social Security tax by the time they go back to work after the New Year's weekend. So, if we raised their bill to pay Social Security, and they paid Social Security throughout the year, it would not disincent their employment or disincent their work effort. We would have no economic loss and we would have a lot more money in the Social Security system. And with that money, just raising the base from what it is around $140,000 now to just have everybody pay their FICA tax throughout the whole year, we could expand the system at the very bottom so there is no more elder poverty. And we could pay promised benefits in 2034 and 75 years beyond that. So, that's a pretty good trade-off, no economic loss, and we solve poverty and pay promised benefits.

Benz: One other fix to Social Security that often gets tossed out there is that full retirement age for Social Security benefits should be increased. It's currently 66 and will go up to 67 for people who were born after 1960. You are not in favor of raising that age. Can you talk about why not?

Ghilarducci: First of all, raising the retirement age is a euphemism for cutting benefits. When we started gradually raising the retirement age about 15 years ago, what that meant is benefits were cut by 5% to 10% for every year that you collected benefits. Now, Congress hoped that cutting benefits at early ages, all ages before age 70, would incent people to claim later. And people are claiming later, but it's not because of the Social Security cuts. They are claiming later, because they are a lot more educated and are keeping their jobs a lot. But what we have found is that there's an unintended consequence in cutting Social Security benefits. In fact, the full retirement age is really irrelevant. The full retirement age is age 70 in this country, because that's the age at which you stop accruing bigger benefits. So, in this country, you can start collecting very reduced Social Security benefits at age 62 and you get your maximum benefit at age 70. And if you collect at 62 and not age 70, your benefit is about 36% less and that's 36% less for the rest of your life.

Now, if you’re average, the fact that you are collecting money for eight years from 62 to 70 rather than waiting till 70, you should be, if you’re average, be about even, because you've collected benefits for eight more years. But in fact, the system is not even, and people aren't even. By the time that you reach 65, the people who collect at 70 get much more than they would have if they had collected early because they are the higher earners.

So, let me go back and answer your question simply. Yes, I'm against cutting benefits even further. I already told you at the top of our conversation that most people will be downwardly mobile into retirement. And many people who are middle class--millions, millions who are middle class--will be poor adults. Their major source of income is Social Security. So, there is nothing reasonable about cutting benefits even further for people who are going to be poorer than when they were working or in poverty. So, there is no room for cutting the major source of benefits for low-income people.

There are many more ways to encourage people to work longer that doesn't fall on a penalty for older people. We could eliminate age discrimination. We could raise the pay for older workers, so they don't have to collect their Social Security early just to supplement their low pay. Congress did not intend Social Security to supplement low wages of low-wage employers. Congress did not intend for Social Security to be a supplement for low wages of low-wage employers or to encourage low pay for older workers. But in fact, that's what Congress did. You know that over 60% of older people who work in home healthcare also collect Social Security, it's their way of supplementing their low pay in that industry. So, there's a lot of industries that actually depend upon older people not getting by just on Social Security and having to go to work to supplement the Social Security benefits that were cut back in 1983 in the guise of raising the retirement age.

There is one other aspect of raising the retirement age that we have to be aware of, and that’s that it creates a racial income gap between blacks and whites. We know that blacks, especially older black women and men, face a lot of discrimination because of their color and because of their age. And so, if you cut their Social Security benefits, you are disproportionately affecting older nonwhite retirees and workers. So, in terms of trying to close the racial wealth gap or making this country more fair to nonwhite workers, raising the retirement age would be going in the opposite direction.

Ptak: I wanted to go back to something you might have referenced a little bit earlier, which is one of the linchpins of the fixes outlined in your book Rescuing Retirement, which is the idea of a guaranteed retirement account that would feature mandatory contributions from employer and employees. Is it reasonable to think of that as a portable pension?

Ghilarducci: Yeah. And in fact, it's very similar to what we talked about before, which was the TSP for all plan. If everybody could have access to the TSP plan, they could have a guaranteed retirement account. The principle of a guaranteed retirement account or a TSP plan is that everybody has a way to save for retirement. They don't have to wait for the good graces of their employer or be lucky enough to have an employer with good graces. No longer would be voluntary and up to the employer whether or not they wanted to have a good plan or not, everybody would have a plan just like everybody has Social Security.

What you could do in your guaranteed retirement account, and that can be managed by the Thrift Savings Plan. I know that's a lot of acronyms. But it's basically your account is your guaranteed retirement account, and it's managed by a federal government agency. What that would mean is that you could throw money into that account, and it would not be for emergencies, it would not be to buy a house, it would not be to send your kid to college. It would be for your retirement, just like Social Security is, and the rest of your money you could put to those purposes. And it would supplement your Social Security with private sector investment. So, it would not take away from the private capital available in this country and would also give people a lot of control over whether or not they want to save a lot and have a really good retirement, or save just a minimum so that they can maintain their living standards.

It also, as you pointed out, has the best feature of being delinked from the employer. It could be a portable plan that follows you into the Uber driver seat if you are a gig worker for a while, or it stays there even if you are unemployed for a while, or it follows you from job to job. And I'm telling you the biggest fan of this plan would be employers that no longer have to provide that part of workers' social insurance. I had--I'm not going to tell you the name of the company--but I was in a room for a day and a half with pension managers of the biggest corporations in this country. And they confessed to me that even though they provide the best plans in the whole country, these are really rich companies that care about their workers, they provide an 8% match to their employees, they know that their employees will only be with them for about 10 years. And when they leave that company and go someplace else, they take a lot of that money and buy a new truck or buy a new house or move with that money that that money leaks out. And all their effort to help provide retirement security for their employees goes out the window. They want a national plan. They don't want to waste the dollar that they spent for their employees' retirement money, and they feel that the system forces them to waste money even though they care about their employees. So, I think employers would be a big fan of a system that delinks their employment to the security of the employee they are only going to have for a fraction of that person's life.

Benz: I wanted to talk a little bit about behavioral finance and financial literacy. It's conventional wisdom that one of the keys to better financial outcomes is teaching financial literacy and helping investors avoid bad behaviors. But you have said that you think that framing puts too much of an onus on individuals that we really need to address financial wellness structurally. Can you talk about that thesis?

Ghilarducci: I really love that question because you are asking me a two-part question. It's like asking an atheist about whether or not they think God exists and whether or not God is a good idea. So, let's talk about financial literacy as this great force. And you are asking me, if I think it exists, is it possible to exist, and you are asking me if I think a system based on everybody being financially literate would be a good system.

Let me talk about the first part, which is easy, because that's not my opinion. It's just really based on studies about whether or not giving the state-of-the-art financial literacy lessons to people really affects their behavior. And good researchers, and these are people from Harvard and everywhere, are finding very limited effects of telling employees and schoolchildren about compound interest and how important it is to save for the long term. They are finding that the information helps people understand what's going on, but it doesn't help them get the institutions they need to save for the long term. It might help young people in learning about credit card interest rates. There are lots of areas financial literacy probably does help. It might help people not buy a house they can't afford and that may help people choose to go to a state school with lower tuition rather than a private college. But financial literacy has very little effect on retirement savings outcome. So, that's the first part, is I just don't think financial literacy that can effect on any kind of scale. The retirement crisis exists.

Now, I'm going to go to the other part of your question. Do I think a system that's based on individuals who have started to learn financial literacy in kindergarten would be a good thing? I think it would not be a good thing. We have a 40-year-old experiment with a do-it-yourself system. And what that does is it really sets people up to be ashamed of themselves and to blame themselves when they really are blameless. I've had so many people write to me to say, "I have always worked hard. I have always known that I have to save for my retirement. I'm now 55 and my husband had a heart attack at 57. I had to leave my job. I always tried to get a better job, but my education and my employer wouldn't pay me more. And my kid needed something from me. I did everything I could, but basically, life intervened and I was not able to save enough.” And they come to me with a great deal of frustration and shame that somehow they didn't make it work because the world told them that they could make it work. And I know I'm feeling a little bit emotional here, but I think it's so unfair for the financial literacy people or the behavioral finance people to give the message to people to say, there's something wrong with your brain, or there's something wrong with the way you make decisions, that you care more about the present than you do the future, when in fact, we should have a system that really works for the people that we have, rather than telling the people that we have that they are wrong. We have a faulty system. We don't have faulty human beings.

Ptak: Female economists like you are quite rare. Just 14% of full professors and Ph.D.-granting departments were female in 2019, which is well below the percentage of women professors in business and finance. What are the contributing factors in your view?

Ghilarducci: Oh, boy, did you hit a chord. Because it was the same percentage as it was when I started my career a couple of decades ago. Biology, chemistry, physics, even finance have done a lot better in including women rather than in my profession, Ph.D. economist. And I think one of the contributing factors in it would be Janet Yellen, who is now our Treasury secretary, who's really shattered a glass ceiling, will be the first to tell you because she did research after Trump fired her from being the Federal Reserve chief. She actually devoted her time to look at that exact same question. She found it was just rank hostility toward women in the profession.

We have documented bulletin boards in the profession where women candidates for assistant professor jobs are twice as likely to be described in adjectives that refer to their looks and are twice as unlikely to be described in adjectives that refer to their methodology or to their data. We have found that women economists in seminars are interrupted twice as much as men are and twice as fast. Economists are pretty rude, and they interrupt a lot. But men can start their seminar and talk for a good five to 10 minutes before they are interrupted. Women are most likely interrupted within the first five minutes. So, much of that is actually in the hostility of the incumbents. The men dominate the field and men don't want women in their field.

I was the first woman to be tenured at the University of Notre Dame in the economics department in the over 150 years that school had an economics department. And I'm one of 4% of women-endowed chairs in the academy in economics. When I was at Notre Dame, I was on a floor with my department, and the chair of my department asked if I wouldn't mind getting rid of the women's restroom on my floor and to give that over to the men. And I would have to walk two floors down to go to the only remaining women's restroom. And I said to him, "I really can see why that's unfair, that you have to share the bathroom with a lot more men. But I have another solution. Why don't we hire half the department to be women?" And he never asked me again. But it was just this feeling that the men were entitled to jobs in the economics profession. These economic professions are really an important one in this country. We make a lot of policy. We have some power. And power is hoarded by the people who have a privileged position. And thank you for asking me. It's usually women who ask me that question. Thanks a lot for being open minded and sensitive to the issue.

Benz: Shifting over to discuss women and money more broadly, when you look at the data on women and financial wellness and wherewithal, it seems like caregiving obligations seem to explain a lot of the disparities in income and net worth. First, do you agree that that's a central issue, a central part of the problem? And if so, what do you think is the best way to address it?

Ghilarducci: It looks like caregivers have to take more time off from an inflexible labor market that doesn't pay for leave. But it's not the care or the people that need our care that are the problem. It's the gender division of labor that's unfairly allocating care work to women that's the problem. So, it's not the care work or the people who need care, but it's the way that care work is allocated. So, that's kind of a distinction and it's a way to answer your question with a yes. The fact that care work does not accumulate pay and care work does not accumulate retirement assets, does add up, and it affects the bottom line by the time that you retire.

Also, it's the low pay for women, because they are women, and even single women who have no dependents also have low pay. So, it's the wage gap that's really based on just discrimination--not skills, effort, or responsibility--that also adds up and leads to women to be 10%, 15% behind a man who has equal education. And let me talk to you about student debt. We don't vary tuition based on what we think that students will get in the labor market. So, a woman and a man who has the same major, and who has the same amount of debt coming out of college, and maybe has the same grade point average and goes into the same field, that woman will likely be paid 10% less because of her pay, which actually means that her student debt is more of a burden. So, the inequality in wealth and debt and accumulation really starts early because of sex discrimination.

Ptak: You've said that financial advisors are largely geared toward the top 5% in terms of incomes and savings. That's obviously driven by business considerations and where they can earn a living. It's more remunerative to help financially well-off people manage their money than it is to help less-wealthy ones. How can the financial-services industry better serve lower-income people without a lot of financial wherewithal?

Ghilarducci: I really like financial advisors, especially the ones that can make it as a fee-only. And they are really worried about that, that they know that they aren't serving the people that really need it. And they also are really worried that they have to give financial advice to older people who can't cognitively really grasp what they are saying. I think a secret ballot among financial advisors would reveal a lot of truths and a lot of fault lines in our system. And those are two of them.

I think the financial advisor industry needs to be a lot more regulated. And the best players in the field would agree with me. And financial advisors should be like lawyers, where some of the bigger, best firms, and the best of group band together and give pro bono work to lower-income people. I have this fantasy when I retire to create a nonprofit that will organize a lot of financial advisors to open up a card table outside of a bank or a payday lender, and give financial advice on the spot to broad sections of the population that really need to be protected, and really need hope and a plan about how to live their financial lives. So, that's my suggestion that everybody who is a financial planner give 5% to 10% of their time to people who can't afford it.

Benz: And I know a lot of them do that already, but it would be great to see even more. Teresa, this has been such a great conversation. We so appreciate you taking the time out to be with us to share your insights.

Ghilarducci: They were really intelligent questions. So, thank you for asking me.

Ptak: Thanks so much.

Ghilarducci: OK. Bye-bye.

Benz: Thanks for joining us on The Long View. If you liked what you heard, please subscribe to and rate The Long View from Morningstar on iTunes, Google Play, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is, S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we'd love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. Morningstar and its affiliates are not affiliated with this guest or his or her business affiliates unless otherwise stated. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with and governed by the U.S. Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis or opinions or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)