Retirement Income for the Poor

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Our friend Teresa Ghilarducci has come up with a terrific way of improving retirement income for low- and middle-income elderly people, who increasingly risk poverty in old age as pension systems collapse and 401(k) plans are a proven failure. The idea is to allow everyone to buy into the federal employees’ Thrift Savings Plan, with some kind of government match, especially for poor people.

For more than a decade, Ghilarducci, an economist and retirement expert at The New School, has been promoting variations on what she dubbed Guaranteed Retirement Accounts (GRAs). These would be portable accounts partly subsidized by government for lower-income people.

The idea was ingenious, but failed to gain political traction. This idea is better.

More from Robert Kuttner

Federal employees are among the last group of workers with a reliable pension plan. If you work for the U.S. government, you are automatically enrolled in the Thrift Savings Plan. Five percent of your pay goes into the plan, matched by the government. The assets are invested on a pooled basis in one of five plan options, and the management fees are almost nonexistent—about 0.04 percent compared to around 1 percent for conventional individual retirement accounts.

If others could join the Thrift Savings Plan, with government matching contributions, nearly everyone could have retirement accounts well into six figures by the time they hit retirement age. Many conservatives like this, because they like the idea of everyone being a capitalist.

Ghilarducci’s co-author on this plan is Kevin Hassett, a well-established conservative economist who chaired Donald Trump’s Council of Economic Advisers. (Hassett also published a book in 1999 promoting stock bubbles, incautiously titled Dow 36,000. This forecast was overtaken by two stock market crashes. The Dow is now over 34,000. You might call Hassett prescient. Barring another crash—he was 22 years early.)

There are a couple of key details in the Ghilarducci-Hassett plan still to be worked out. First, these accounts would only begin accumulating serious money after a few decades, but people nearing retirement during the next 20 years are still risking poverty. In the meantime, they need more income. Topping up Social Security checks, as Sen. Elizabeth Warren has proposed, is a good interim step.

Second, even with the incentive of a government match, most poor people simply have no spare money to save. Ghilarducci’s earlier GRA plan had the government reimburse individual contributions to these plans, using refundable tax credits, for people with incomes up to $40,000. This new idea needs to do the same, or the participation rate among those who need it most would be far too low.

It’s great that Biden is focusing on long-term care and the caregiving infrastructure. Let’s not forget about plain old poverty among the aged.

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