If there’s anyone ready for retirement, it’s Alicia Munnell. She founded and has been running the Center for Retirement Research at Boston College since 1998, making it one of the leading nonpartisan think tanks examining how American workers can thrive after they leave their jobs.
“I’m very proud of this center,” Ms. Munnell said. “We have great people and really good academics who really care.”
She served on former President Bill Clinton’s Council of Economic Advisers and was assistant secretary of the Treasury for economic policy in his administration. Previously, she spent 20 years at the Federal Reserve Bank of Boston, where she rose to become senior vice president and director of research.
Ms. Munnell, 82, is retiring at the end of December, when Andrew Eschtruth, the center’s deputy director, will take over. Before she departs, she talked about her career and the projected shortfall that would leave Social Security, the cornerstone of the American retirement system, unable to pay full scheduled benefits after 2033. These are edited excerpts from the conversation.
People suggest fixing the shortfall in funding for Social Security benefits by getting rid of the wage cap — the cap limits the amount of earnings subject to the Social Security tax (in 2025 the limit will be $176,100). You’ve written that wouldn’t be enough. Why?
I worry that young people think Social Security won’t be there for them, and nothing could be further from the truth. We have a system where the costs are higher than the revenues, and if nothing is done, benefits would have to be cut by 21 percent. But the good side of that is that almost enough money is coming in to pay 80 percent of the benefits. This whole argument is whether we keep the benefits at 100 percent and raise more revenues, or should we cut benefits.
I’m very much on the side of keeping benefits at the current level, which means you have to get more money. It sounds easy to ask, “Why not have rich people pay for the shortfall?” But the link between contributions and benefits is really important.
Is the problem that wealthier people would pay significantly more into the system without getting increased benefits?
The reason Social Security has survived is that everybody buys into it, and everybody gets something from it. You could say, “We want Bill Gates to pay the payroll tax on all his earnings up to multimillion dollars,” but then we’re not going to give anything in return. I worry that breaking that link changes the fundamental nature of the system. Raising the cap to around $300,000 captures about 90 percent of total earnings, and then you need some other changes to maintain the current benefit levels.
Another suggestion to cope with the projected shortfall is to raise the age for collecting Social Security. Would that work?
Proposals to delay the full retirement age are based on the notion that life expectancy has increased. Life expectancy has increased, but primarily for those in the top half of the income distribution. People with lower levels of education, minorities, particularly Blacks and other vulnerable groups, haven’t seen the gains in life expectancy over the last two, three or four decades.
I’m actually for increasing the full retirement age for those who can work longer. For people in the top half of the income distribution, you could figure out what their benefits would average and index it to their monthly earnings, then phase in a big increase in the retirement age for people in the top 10 percent of earnings, a smaller increase for people in the next 10 percent, graduated on down so there would be no increase for people below the average. It would make benefits more progressive and make the system fairer.
Social Security is called the “third rail” of American politics, and retirees are potent and active voters. Is it realistic to think that sometime after 2033 Congress would cut retirement benefits?
Raising revenue would be politically a very hard thing to do, because it means raising taxes now for something that won’t happen until 2033. But I think it’s harder to conceive of the situation where Congress would allow across-the-board cuts to retirement benefits.
People love this program and are willing to pay for it. I think if you just be straight with the American people about what needs to be done, there would be support for fixing it. This tendency to postpone solving the problem makes a lot of people nervous about a source of support that they rely on very strongly.
While nearly two-thirds of all workers can access a workplace retirement savings plan, just 45 percent of them participate. And 10 years or less before retirement, the average 401(k) balance is less than $250,000, which won’t provide much retirement income. Should we return to employer-backed pensions?
The debate about old-fashioned pensions versus 401(k) plans is somewhat of a diversion. If you take a snapshot of the private sector at any moment in time, half the people working do not have any retirement plan at work. So in my view, coverage is the most serious issue. For people who do have coverage and continuous coverage, the 401(k) system works fine. The old-fashioned ones, where your benefits were based on your highest final five years of earnings, are not a very satisfactory way to construct a pension in an environment where you have a very mobile work force.
The key point is that we need to make sure every worker has a way to save for retirement in the workplace. Otherwise, people don’t save. When we look at people aged 55 to 64, who are right in the middle of the income distribution, the money in their 401(k)s and I.R.A.s is close to $240,000 on a household basis. That is not enough. For people who have constant coverage, their balances really accumulate over time. But many people work for a company that has a plan and then have another job where they don’t have coverage.
You’ve written that the key is working as long as you can. Even now, you’ll be staying on for a year as a senior adviser. It would seem that you certainly practice what you preach.
Yes, I’m 82, but I know that I have just a wonderful job, an easy job, a job I love. So it’s fun for me to work. Other people have hard, physically demanding jobs or work in an organization where they’re being forced out, so I am not advocating this for everyone.
You’ve been involved with economics your entire career. What attracted you to it?
I was not that serious a person for many years. In fact, I got married my junior year at Wellesley, and I felt like my classes were interfering with my social life. And then, somehow, at some point, I settled down and changed.
When I got my first job, somebody said, “This is a dead-end job.” And I thought, that’s fantastic, that’s just what I’m looking for. Then I went to Washington in the ’60s and worked at the Brookings Institution, where people were interested in all the things that were happening in the world. And it turned my head — I thought, oh my God, this is wonderful. This is important. I care. And so I changed.
Financial planners stress that people need to have an idea of what their retirement lifestyle will be. Do you have plans?
If you’re talking to somebody who’s retiring at 65, you can ask them really earnestly, “What are you going to do?” But I’m retiring at 82, so do you have to keep doing serious things or can I watch Netflix during the day and become a better cook? I just don’t know if I may want to go back to my roots and be frivolous again.
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