Do-It-Yourself Retirement System a “Disaster”—Is Mandated Savings Model the Answer?

America’s retirement system—expecting people to voluntarily save money for 40 years while making sound investment choices—defies human behavior and should be changed to a mandated savings model, writes an economics professor from the New School for Social Research in a New York Times opinion piece who calls the current system a “ridiculous” approach to retirement. 

In order to maintain living standards in old age, those approaching retirement need roughly 20 times their annual income in financial wealth, says the retirement policy expert. In reality, most of those nearing retirement age have much, much less. 

Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. 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.


To maintain living standards into old age we need roughly 20 times our annual income in financial wealth. If you earn $100,000 at retirement, you need about $2 million beyond what you will receive from Social Security. If you have an income-producing partner and a paid-off house, you need less. This number is startling in light of the stone-cold fact that most people aged 50 to 64 have nothing or next to nothing in retirement accounts and thus will rely solely on Social Security.

Like the nation’s wealth gap, the longevity gap has also widened. The chance to work into one’s 70s primarily belongs to the most well off. Medical technology has helped extend life, by helping older people survive longer with illnesses and by helping others stay active. The gains in longevity in the last two decades almost all went to people earning more than average. It makes perfect sense for human beings to think each of us is special and can work forever. To admit you can’t, or might not be able to, is hard, and denial and magical thinking are underrated human coping devices in response to helplessness and fear.

The coming retirement income security crisis is a shared problem; it is not caused by a set of isolated individual behaviors. My plan calls for a way out 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… Just as a voluntary Social Security system would have been a disaster, a voluntary retirement account plan is a disaster.


The do-it-yourself pension system has failed, she says, because individuals aren’t capable of doing as good a job with investments as professional investors and money managers. 

Read the full piece at the New York Times.

Written by Alyssa Gerace