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Funding Retirement Savings

July 26, 2012 3 minute Read by John Prestbo

As more and more of the U.S. population is made up of people aged 65 and older, increased attention needs to be paid to how well they are able to support themselves for the rest of their lives. This is a policy issue of utmost importance because most of our senior citizens are woefully underfunded for retirement. How can we boost U.S. economic growth to 4% annually if this growing segment can’t afford to buy stuff? The situation was illuminated for me by an article in The New York Times by Teresa Ghilarducci, an economics professor at the New School for Social Research. About three-fourths of the people nearing retirement age in 2010 “had less than $30,000 in their retirement accounts,” she wrote. “Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.” Social Security and other entitlements are issues in the presidential campaign, but the focus is on circumscribing their ballooning growth. Cutting benefits, raising co-pays and eligibility ages are the ideas being tossed around, not how to create the means by which people can accumulate the wherewithal to live for 25 or 30 years without a paycheck. Ghilarducci proposes a plan “that would create guaranteed retirement accounts on top of Social Security. These accounts would be required, professionally managed, come with a guaranteed rate of return and pay out annuities. This is a sensible way to get people to prepare for the future. You don’t like mandates? Get real. Just as a voluntary Social Security system would have been a disaster, a voluntary retirement account plan is a disaster.” This idea seems to resemble parts of President George W. Bush’s proposed individual retirement accounts. Or maybe not; I’m no expert. In any case, it is the sort of idea that should be thought through and debated. The problem is real, and getting worse with each turn of the calendar.


Author

John Prestbo
John Prestbo

2012 Economic Growth Fellow

John Prestbo is retired as editor and executive director of Dow Jones Indexes. Previously he was markets editor at The Wall Street Journal. He has co-authored or edited several books over the past 30 years. The most recent is “The Market’s Measure: An Illustrated History of America Told Through the Dow Jones Industrial Average,” published in 1999 by Dow Jones Indexes. His column, Indexed Investor, appears on the highly regarded “MarketWatch” business and finance website. He received his bachelor's and master's degrees from Northwestern University.

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