How To Retire With Enough Money: And How To Know What Enough Is

Teresa Ghilarducci

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 employees armed with all the w4 tools available were taking advantage. 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

Today, “most workers have saved less than $30,000 towards retirement,” says Ghilarducci. The DIY retirement experiment, she asserts, has clearly failed.

Personal responsibility: “it’s up to you”

Ghilarducci walks a fine line when it comes to the question of personal responsibility in retirement planning. On the one hand, she places responsibility upon society as a whole. “Just as our car-dependent society and the availability of cheap sugary and fatty foods contribute to the obesity crisis, so the financial environment contributes to the retirement-security crisis,” she says. “It isn’t the faulty American character that causes us to have less in retirement savings than we need.”

And what is America’s financial environment? Compared with other wealthy nations, says Ghilarducci, the U.S. requires its workers to pay more for medical care, child care, and education. It provides less affordable help for the disabled and elderly, and less access to affordable public transportation. In this environment of high essential expenses, Americans are also the recipients of constant invitations, through superbly effective ad campaigns, to indulge in consumerism. “Asking people to save money in America is like asking them to give up chocolate. Spending – and its partner, credit – is deeply ingrained in American life.”

On the other hand, Ghilarducci does acknowledge that there is more than the larger scene involved in American retirement today. The individual has a role to play too. “It’s actually possible to visit Hershey, Pennsylvania, and not eat chocolate. And it’s possible to live in America and not overspend.” In the same vein, she calls out to the individual to take initiative when it comes to retirement. “The retirement crisis is a national problem, and as it currently stands, the government isn’t close to fixing it. For now, the stark truth is that it’s up to you to pull yourself out of the hole we’re all dug into.”

Social Security in retirement? Not enough

According to Ghilarducci, most people need 70-80% of pre-retirement income to live comfortably post-retirement. Part of that income will be in the form of Social Security, which American workers can start receiving as early as 62 – with a 43% benefit cut – and as late as 70 – for a full benefit.

  • Low-income earners (less that $40,000 per year) get 90% of their pre-retirement income.
  • Middle-income earners (from $40,000 to $118,500 per year) get 40-50% of their pre-retirement income.
  • High-income earners (over $118,500) get 29% of their pre-retirement income.

For most people, those who are middle-income earners, Social Security will not be enough to provide a comfortable retirement. In addition to it, a retirement savings nest-egg is needed – one big enough to provide an income equal to 20-30% of pre-retirement income.

Working in retirement? Risky business

With so few Americans having saved a nest-egg for retirement, many have to pursue employment in their senior years. The irony here is that while high-income earners live longer, are more likely to be welcome in the work place as seniors, and are less likely to need to work in retirement, low-income earners suffer worse health as they age, are more likely to need to work, and often have to accept employment in low-paying retail and service businesses in which age-discrimination is rampant. There are no guarantees when it comes to employment for seniors.

What to do?

Ghilarducci encourages readers of all ages to become proactive about their retirement. “The younger you are when you start saving, the easier the task is, because of the power of compounding. But if you’re older than 45? Older than 50? The road ahead is harder, but the point remains: The best day to start planning and saving for your retirement is today.” What does she advise?

  • Downsize now, and start living on 70% of your income.
  • Pay off your debts! Including your mortgage.
  • Budget and track expenses.
  • Take care of your health.
  • Invest.

Invest in Retirement Savings (and beware of “the Guy” & fees)

Although Ghilarducci gives a failing grade to the 401(k) DIY retirement effort, she encourages workers who have the option of a matching program at their place of employment to take full advantage of it. For investing in general, she has a word of caution about “the Guy” – or financial planner. “Many Guys are essentially in sales, with a working knowledge of financial terms. Many couldn’t pass a basic financial literacy test.”

Ghilarducci recommends the services of fee-only certified financial planners who charge upfront but offer long-term savings through greatly reduced fees. She also advises passively managed funds rather than actively managed funds. Historically, they do better, and they are less whittled away by fees.

And how much should you personally save? There is no one-size-fits-all strategy, but Ghilarducci offers strategies for a few different scenarios. She also recommends the AARP retirement calculator as well as the variety of financial calculators provided at .

Civic involvement

Teresa Ghilarducci calls upon readers to engage politically to change the financial environment in America. She proposes a replacement of the DIY retirement-through-401(k) trend with a Guaranteed Retirement Account (GRA). The nationally-run program would involve:

  • mandatory deductions of 2.5% matched by the employer (for a total 5%)
  • hiring professional fiduciaries to invest the money in low-risk, low-fee funds
  • a guaranteed 3% rate of return adjusted for inflation
  • virtually no early withdrawals

“Most of us are simply not equipped to be pension-fund managers for a pension plan of one,” says Ghilarducci.  Her proposed GRA addresses the problems of irregular and insufficient voluntary 401(k) contributions that are the norm in America today, and for those who have no skill in pension-fund management, the GRA would ensure that service at the hands of professionals.

What do you think?

After reading How To Retire With Enough Money, I personally feel a surge of determination to provide my older self with the gift of financial security. Many people who read personal finance blogs are the very ones who have succeeded with what Ghilarducci calls DIY retirement. Some of you started young and will retire early. Others, like me, had a wake-up call mid-life and are now trying to pay off debt and turn things around. Whatever your history of or proficiency with personal finance, we welcome your comments. What do you think? Were traditional pensions better than 401(k) matching programs? Is the GRA a good idea? Are personal finances more dependent upon “financial environment” or the individual? We’d love to hear what your thoughts on how to retire with enough money.

24 comments on “How To Retire With Enough Money: And How To Know What Enough Is

  1. Awesome post, Ruth! I personally think much of the problem exists because we have become, both as individuals and in government, too comfortable with living above our means. It’s a serious problem and one that contributes greatly to the lack of sustainable retirement income. Self-discipline and choosing to live on less means more money in savings, both in and out of retirement.

    1. I see many similarities between the debts of governments and the debts of individuals. And you’re right. In both cases, we’ve been far too comfortable. I realize more and more that discomfort can be the biggest blessing possible.

  2. I think it all starts with education no matter what age you are. We certainly need to do a better job of educating our children on all topics related to personal finance. A GRA sounds interesting, but who would manage it? Like Social Security would there be an issue of mismanagement or money running out? I don’t think there is an easy answer, but starting with increased knowledge on the topic is a good place to start.

    1. It is a real challenge to offer effective education in personal finance. So many just glaze over when the topic arises. In times of crisis, people actually start to take it all seriously – you and I both know that from personal experience. Ghilarducci writes about Social Security as a program that is strong and well-run. She assures that the GRA, like Social Security investments, would be managed by financial professionals – not the government.

  3. Everybody’s ‘retirement number’ will certainly be different based on their needs, circumstances, and variables that are unique. Understanding these things and how they fit together for you is very important. Thanks for the great post.

    1. Thanks, Mr. Money Beagle. People appreciate guidelines when it comes to their “retirement number”, but you are right about each person’s circumstances being unique. I think that some people leave their heads in the sand because they find it all so overwhelming.

  4. Great Post, Ruth! I think it is more up to the individual to prepare for retirement. It’s all about a shift in thinking and spending habits. Even with pensions, if there is no behavioral change one would always be in debt and a dollar short when they get in to retirement. The government does bear some responsibility but, hey, we all know what their books look like ahahhaa!

    1. Thanks, Cava. I agree with Ghilarducci when she says that society as a whole has played a large role in creating the retirement crisis, but whether or not that’s the case, it is clearly, as you say, up to the individual to prepare. The good news is that we all have so much potential to change our situations. I think that most people don’t really believe that.

  5. This sounds like a great read! It’s definitely going on my list.

    I’m in my early 40s, and concerned that we haven’t been saving enough, but hopeful that we have time to catch up. I wish my 20-something self had understood the power and importance of compounding…

    1. Thanks, Amy. Don’t we all wish that we could have a few words with our 20-something selves! In your early 40s, you really do have time to catch up. I was in my late 40s when we started, and we’ve made more significant progress than I would have thought possible. Here’s to 2016 being a year of real progress for you!

  6. I love the open and honest recognition that our society DID make a drastic change into a DIY era of retirement planning, and that it’s been a FAILURE. There are lots of resources and education available, but it doesn’t seem to be enough.

    It’s not individuals who are failing, it’s us as society that is failing.

    The stress, anxiety, pain, and depression which is a reality for millions of people caused by money is what inspired me to build Tip Yourself. We believe that the problem of money can be addressed at a fundamental relationship level through a positive mindset spurred through small moments of positivity.

    There’s obviously a lot more to it, but this post really hit home. Thank you Ruth!

  7. Thank you for your thoughtful comment, Mike. It is so important to be aware of the rampant pain associated with finances in our times, and to approach it with compassion and a belief in change. I’m interested in learning more about Tip Yourself. Thanks again.

  8. I live in a neighborhood of mostly retired, mostly lower-income individuals whose main sources of wealth are paid for houses (worth anywhere from $50-$100K), and their income is social security. While they certainly manage, I can tell that finances continue to be a source of stress for many.

    I think the problem will only be exascerbated for those who have lived on higher incomes their whole lives.

    While I’m still a strong believer in the power of individuals to make wise life choices, I agree that most people don’t have the systemic advantages required to do so. Especially because it is difficult for those earning less than say $40-$50K per year to get ahead financially.

    Perhaps my perspective will change after this upcoming year, but when I drop my employer health coverage, we’ll be paying $4-$6K for healthcare premiums with a $3-8K out of pocket max. Health costs alone may constitute 30% of our income if we get unlucky. Now, this isn’t a huge concern personally, but I can see why many of average incomes believe it’s hard to get ahead. It’s because average incomes aren’t enough to get ahead if you also get unlucky.

    1. Hannah, I’m always heartened when the uber-money-wise (which I definitely consider you to be) can see beyond their own circumstances and extend compassionate understanding.
      I agree with you when you say the problem will be worse for those accustomed to living on higher incomes throughout their working lives. Some of them will be in for a shock. The good news is that by taking proactive steps now, like choosing to live on 70% of their income – or better yet, less – they have the power to set themselves up for a secure transition to retirement.
      It will be very interesting to see how you find life on a radically reduced income. Looking forward to reading your story as it unfolds.

  9. I have trouble with this, “I’m incapable of managing my affairs and i demand others do it for me” mindset, like we’re children or something. The info about how to do it is out there. If people choose not to grow up, be adults, and assume responsibility for their lives, then why should I be forced to do it for them?

    Frankly, I’d be embarrassed and ashamed to admit such stuff in public, but to each their own

    1. Thanks for your comment, StudMuffin. I think that many in the personal finance bloggosphere would agree with you. My question to you is this: How, as a society, do we respond to those who haven’t been able – either through keeping their head in the sand or through a complete lack of know-how – manage their affairs so that they’re set up for retirement and old age? Really interested in knowing your thoughts.

      1. It’s not my problem. If you think my life has been a bowl of cherries with no adversity, you’re wrong. Granted, many of my woes were self-inflicted, but I certainly had no control over having a special medical needs child and a few other things.

        But ya know what? Life offered me a challenge and a choice. I either had to grow up and rise to the occasion or not. I chose to roll up my sleeves, get to work, step up to the plate, and be a man about it.

        If it’s good enough for me, it’s good enough for others.

        1. Thanks for answering. I would never assume anyone’s life has been a bowl of cherries, and it sounds like you have risen to more significant challenges than most of us have had to face. You say, “It’s not my problem” – but I think that social issues are everyone’s problem. If they don’t directly impact you, they indirectly impact you and everyone else if they’re left to fester. I hear your frustration – and there’s lots to be frustrated about. I just think the “It’s not my problem” approach leads to whole ripple effect of problems.

    1. It IS complicated! The whole question of where the individual has to step up and to what extent society – including through government – needs to step in is very difficult to determine – and there’s a lot of debate surrounding it. One thing is for sure though – as individuals, we are wise to be proactive – no matter what society should or shouldn’t do.

  10. Fascinating review! I agree with many of the author’s points. While ultimately we are each responsibility for ourselves, we are all part of a larger context, a system which is not doing its people many favors in this realm. I have been interested in the history of FIRE, and this book sounds like it contains some great information.

    1. We ARE all part of a larger context, and the range of impacts that context has can’t be disregarded. Interesting that you’re pursuing the history of FIRE. It’s still something that only a very small minority are making a reality – but people like me can learn a whole lot from that minority.

  11. Determining what will be enough in the future has been a struggle. I have small 401k with my company that they contribute to using a safe harbor plan but I have no idea what I could be doing (within reach) that would make a difference. I know every dollar make a difference now but when you have $191,000 in debt looming over you it’s hard to prioritize saving for retirement. If I want to to retire at 50 but live to be 95 I’ll need $1,800,000 after taxes. A cool two million bucks?

    1. Thanks for commenting Mrs. Lewis. If you are maxing out on your 401(k) matching plan, you’re doing the right thing according to Ghilarducci (and pretty well everyone else). Next, she would say that it’s best to tackle that debt as much as you can while maxing out the match. Retirement at 50 might be possible – and it might not. If you’re going to live until 95, another few years in the workforce might not be so bad : ) The thing is to navigate with eyes wide open to the reality and trajectory of your circumstances. I’m cheering you on to kill that debt!

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