It is difficult to give a succinct introduction to Teresa Ghilarducci. A labor economist and expert in retirement security, Ghilarducci’s career has included her twenty-five years as a professor of economics at the University of Notre Dame, her two appointments by President Clinton to the Pension Benefit Guaranty Corporatioin advisory board, and her current position as director of the Schwartz Center for Economic Policy Analysis. Dr. Ghilarducci, deeply concerned by the looming retirement crisis, has written How To Retire With Enough Money: And How To Know What Enough Is, a concise, single-sit read of 116 pages.
DIY era of retirement planning: a failure
Retirement in America has a history. The retirement crisis, already in evidence with the number of elderly living in poverty, did not develop without context. Ghilarducci takes a look back to the 1960s until the mid-1990s, a period of time when 75% of full-time American workers retired with a pension plan. Mandatory deductions were made throughout their careers and were supplemented by contributions from employers. The money was invested and managed by professionals, ensuring workers a guaranteed income after retirement.
The 401(k), originally used by high-income earners for a tax break on money set aside for retirement, gained popularity in the late 1990s. Employers found it cheaper to provide 401(k) matching programs than traditional pension plans. Furthermore, risk was shifted from employer to employee. The Do-It-Yourself era of retirement planning had begun, and it depended upon the employee to:
- voluntarily save
- have sufficient savvy to find low-risk, low-fee investments
- keep his/her head through the ups and downs of the market