Retirement policy wonks don't usually get
hate mail. But in 2008, Teresa Ghilarducci, an economics professor at the New School for Social Research, proposed replacing 401(k) plans and their income tax break with a mandated government savings plan for all workers. The blowback from some Tea Partyers was so intense that the school's chief of security gave her his cell phone number.
The plan called for mandatory savings of 5% of salary, with the government handling all investment decisions, guaranteeing a rate of return above inflation and ultimately paying out the retirement money in a lifelong annuity. It's pretty radical. Conservatives hate it. She
continues to advocate for it, though she won't comment on whether she has discussed it as one of the
cadre of economists advising Hillary Clinton in her presidential bid.
Ms. Ghilarducci knows her own retirement plan is on track because, unlike today's savers in 401(k)s, she was forced to save, and save a lot from the start of her career. Just out of grad school at the University of California at Berkeley, she landed an assistant professorship at Notre Dame. The university's retirement plan is a 403(b), cousin to the 401(k) defined-contribution savings plan. It came with a crucial twist that has made all the difference to her retirement security: Participation was mandatory. You had to put in 5% of your salary, and Notre Dame kicked in another 10%.
That 15% savings rate is about three times what an unsuspecting millennial today will save in a 401(k). The typical
salary deferral rate when new employees are automatically enrolled in plans is 3%, and if there is a company match, it might be half of that rate. It is extremely rare in the
land of 401(k)s to find an employer doubling the contribution of the employee, let alone at a 10% rate.
“I was a stupid 26-year-old who was simply the recipient of a great deal," said Ms. Ghilarducci, 57, who in 2008 moved to the New School, where she is a professor of economic policy analysis. She said her approach to investing the money was one many economists would have taken ("We're typically very
risk-averse”). She put one-third in stocks, one-third in bonds, and one-third in
fixed annuities.
“I was aware at a young age that how much I saved was far more important than exactly how I allocated it." she said. "But that's what saving more buys you — the ability to not have to take as much risk.”
She lucked into another boon. Her annuities were offered through TIAA-CREF, a low-cost provider of annuities and investment funds for the academic world. Participants in the company's fixed annuities have seen their accounts grow at a risk-free 4% annual rate over the past decade.
Ms. Ghilarducci also has a simplified employee pension plan, or
SEP-IRA, with TIAA-CREF. She funds that with self-employment income from her consulting work and books. (Her
next book, "How to Retire With Enough Money — And How to Know What Enough Is," is due out next year; she has written or edited six others.) That pot is 40% in stock index funds and 60% in a core bond index.
Ms. Ghilarducci's second husband, Richard McGahey, 64, whom she married in 2013, was a professor at the New School until recently. This month he begins work at the Institute for New Economic Thinking, established after the financial crisis with funding from George Soros. The couple's melding of assets is "pretty typical stuff" for people who were both previously married, each with a child from the earlier marriage, she said. They view "each other's assets as each other's assets," and if one of them dies an untimely death, the assets each accumulated before their marriage will be inherited by each of their children.
Ms. Ghilarducci said if she didn't have access to TIAA-CREF she'd park her money in Vanguard index funds.
“It's against my religion to invest in actively managed funds,” she said. "I suspected they were fishy when I was younger, and now we have plenty of evidence that passive [investing] is better."
About 15 years ago, Ms. Ghilarducci started to focus on getting to retirement in fighting shape.
“It was a pure money play,” she said. “I lost some weight and am devoted to my seven-minute workout app and weight training at the gym." It's not about vanity, she said, "but the money I hope to save if I can avoid illnesses such as diabetes and osteoporosis.”
After doing some intensive research on long-term care insurance, she decided to pass. She cites the high premiums on the policies and
new research that suggests that budget-busting extended care will be needed by fewer elderly people than previously thought.
“Pushing for Medicare to expand to cover long-term care is my best bet, and honestly, it's everyone's best bet,” she said.
Many retirement experts and myriad online tools suggest aiming for retirement income that can replace 70% to 80% of your pre-retirement income. Ms. Ghilarducci, who has based her plan on living until 92, is out to
replace 100%.
“I anticipate an older me will be more fragile and more tired,” she said. "Cleaning the house or walking home after dinner might not be in the cards. I'm concerned that the 80-year-old me will need a fully escorted life where I pay for services I don't need today.”
Ms. Ghilarducci won't say just when she plans to retire, because “nobody should ever signal to an employer their retirement plans.” She knows not everyone is in her position. As a tenured professor, “10 years from now I can choose the pace and content of my work.” Outside of academia, she doesn't assume many people can make up for a savings shortfall by working longer, calling it a “fantasy world.” She notes that illness and layoffs — and new jobs after layoffs at much lower salaries — often come into play.
What isn't as clear is where she and Mr. McGahey will live in retirement. They currently live in Newport, N.J., a quick ride across the Hudson River to New York. The high cost of everything in the New York metro area, and particularly health care, is a worry. Ms. Ghilarducci said they have begun to talk with friends, only half jokingly, about some sort of communal-living arrangement in which they can all support each other and have access to services. Before she and her husband decide where to settle down, though, they want to see where their respective kids, both 25, wind up living.
In the meantime, she'll keep saving, and advocating for what she has called "a
rescue plan for the American retirement income security system."
