Is the “Work Until You Drop” Strategy Failing? Why the Modern Retirement System Is Broken and How to Fix It

The Truth About Retirement Inequality: Why Working Longer Won’t Save Your Nest Egg (And What Will)

Discover the harsh reality behind the “work longer” myth in Teresa Ghilarducci’s Work, Retire, Repeat. Learn why the 401(k) experiment has failed the majority of Americans, how ageism and inequality deepen the crisis, and what policy changes are needed to secure a dignified future for all workers. Don’t wait until it’s too late to understand the forces shaping your financial future—continue reading to explore the four critical steps that could ease the retirement squeeze and protect your golden years.

Recommendation

US stock and home values reached record levels in 2024, a boom that created the impression that all is well in the American economy. The reality is more troubling than the headlines indicate, economist Teresa Ghilarducci writes in this sobering text. While the upper echelon of American workers is doing well, the teeming masses are left behind, with little or nothing in their nest eggs, and constrained to working low-paying jobs into their 70s. Ghilarducci offers some prescriptions to address the problem, including more public support for the retirement system. Anyone considering retiring one day will appreciate this important insight into a possible future.

Take-Aways

• US workers face a retirement crisis.
• For most Americans, “retirement insecurity” is a reality.
• Many Americans don’t have the option to delay Social Security benefits.
• Contrary to conventional wisdom, retiring improves health and happiness.
• Wealthier, better educated Americans are likely to outlive their poorer, less educated peers.
• The admonition to work longer is based on a faulty premise.
• The Nomadland effect ripples through the job market.
• Low-wealth older voters have been politically marginalized.
• Four steps could ease the retirement squeeze.
• There are more ways to improve retirement security for Americans.

Summary

US workers face a retirement crisis.

Many workers in the United States are woefully unprepared for retirement. Among lower-wage workers in their 50s, most have no retirement savings, and those who do have a nest egg of an average of just $42,000. Middle-income workers — those making $48,000 to $137,000 in 2020 – have median savings of $101,000.Even among those making more than $137,000, the Social Security earnings cap for 2020, more than one-quarter had saved nothing for retirement.

“Astoundingly, the COVID-19 recession is expected to double the number of high earners who end up in poverty in old age.”

Given the harsh math, many Americans have no choice but to keep working well past the age of 65. And for workers in low- and middle-income jobs, the choice is not an ideal one. The physical and mental toll from those kinds of positions often means that workers die sooner and therefore have shorter retirement periods to fund.Researchers and economists generally have concluded that Americans should work longer; rather than retire at 62 or 65, they should keep going into their 70s. However, this seemingly common-sense advice doesn’t do much to boost workers’ wealth. Instead, it simply reduces the number of non-working years they must fund.

For most Americans, “retirement insecurity” is a reality.

A formal retirement system is a fairly recent development. The Social Security program was created in the 1930s as a safety net that would allow older Americans to avoid poverty. Then, in the late 1970s, 401(k) plans began to emerge as a way for Americans to fund their retirements. In the 1980s, those plans moved to the fore, with clear implications for wealth inequality. The new market-based retirement plans favor high-wage workers who can afford to save — and who reap larger tax benefits from saving.

“The US retirement system is broken. Most elders need to supplement their meager retirement income with work.”

The retirement system has shaken the ground under the feet of many older Americans. The 401(k)-based scheme benefits wealthier savers, but it’s a commercially operated system that requires those unschooled in investing to make sound decisions and to avoid panic selling during market crashes. Because many workers haven’t mastered those skills, the result is that many face retirement insecurity and have little choice but to work longer. And when workers stay in the labor force for an extra five years or so, employers benefit. They have a larger supply of employees to choose from and therefore can keep wages low.

Many Americans don’t have the option to delay Social Security benefits.

Among Americans aged 62 to 70, just 11% have enough wealth to maintain their standard of living without working. The slice of workers atop the income ladder can afford to retire comfortably. Some continue working — generally because they enjoy their jobs and because they can do them without significant physical strain or emotional stress. For the other 79% of Americans in this age group, things are bleak. Some 51% have retired but must pinch pennies. And an additional 28% have no choice but to keep working in their older years.

“Most people won’t have enough money to retire, and most people are forced into retirement before they are ready.”

The Social Security system rewards retirees for delaying retirement until 70. But nearly all Americans who keep working past age 66 are also collecting Social Security. Their finances are just too precarious for them to have the luxury of foregoing their pension benefits. Another factor working against older workers is that the experience premium has dwindled. While older workers once collected wages based on their experience, that’s no longer always the case.

Contrary to conventional wisdom, retiring improves health and happiness.

Research about retirement has reached some questionable conclusions about the benefits of working longer. One study published in 2008 reported that those who worked longer enjoyed better health and stronger social connections than similarly aged people who had retired. It’s just the sort of academic finding that gives credence to the idea that Americans should keep working to 70 and beyond. But there’s an obvious fallacy at play: Many people in their 60s are essentially forced to retire by deteriorating physical health or diminishing cognitive skills. So by definition, people who continue in their careers are healthier and happier than those who retired.

“People in higher socioeconomic classes work longer and are in better health. But the work did not make them healthier.”

Research from Europe, which has a more robust retirement safety net than the United States, shows retiring improves health for retirees, and not only for those working in physically demanding jobs. For instance, a study in the Journal of Happiness Studies examined outcomes for retirees in 16 European countries and the United States, and it determined that those who had retired had better happiness and well-being ratings, while those who kept working had poorer health and happiness rankings.

Wealthier, better educated Americans are likely to outlive their poorer, less educated peers.

From a public policy perspective, Americans have tolerated later retirement ages because of the idea that Americans are living longer. Alicia Munnell, a prominent retirement researcher at Boston College, estimates that the typical retirement lasts for 20 years.In that context, a few extra years in the work force won’t make a big dent in most Americans’ retirement years.

“Class is a significant factor explaining an individual’s longevity.”

But the author comes to a different conclusion. She finds that the typical retirement length is just 12 years. Ghilarducci’s own mother illustrated this trend. She worked until 72, enduring a long commute and paltry pay, and then died at 84. But the raw numbers don’t tell the whole story. When it comes to the length and quality of retirement, there’s significant variance by race and gender. For instance, the average Black man retires at age 62.5 and dies at 75.3. The average non-Black woman retires at 64.3 and dies at 82.5. There are similar divides by class and educational achievement.

The admonition to work longer is based on a faulty premise.

It’s a straightforward notion: Americans who missed out on the opportunity to fatten up their 401(k) plans simply can stay on the job longer. A Morningstar column reflected this received wisdom with the title “Working Longer Can Be a Win-Win.” The reality isn’t so cheerful. In truth, many older workers are settling for low-paying jobs without benefits. So they’re making less than they used to, and they’re not contributing to their retirement savings.

“Working longer means dying sooner after retiring; thus, a small amount of money covers a shorter retirement time.”

Many older Americans are forced to make less than optimal decisions. They might begin collecting Social Security early, a move that reduces their benefits for the rest of their lives. Or they might begin taking withdrawals from their retirement plans to support themselves. And older bodies are less resilient to the physical demands of work, so it’s not uncommon for workers in their late 60s and early 70s to need surgery for carpal tunnel syndrome or other overuse ailments so that they can keep working.

The Nomadland effect ripples through the job market.

Nomadland, first a book by Jessica Bruder and later a movie starring Frances McDormand, illustrated the stark lives of older Americans living on the edge. The story focused on workers in their 60s. They had been decimated by the Great Recession, and they lived in vans or campers while working low-paid, physically taxing jobs at Amazon distribution centers. The real-life story took place against the backdrop of a difficult economic reality. The typical benefit for an American who takes Social Security at age 62 is just $1,130 a month, or $13,650 a year.

“Good pensions are fading fast from the American economic landscape.”

The tight budgets and brutal working conditions illustrated by Nomadland might be easy to dismiss. Why should a younger worker care about people in their 60s and 70s subsisting on reduced Social Security benefits and minimum wages? In fact, the trend of older workers hanging on affects everyone. When Americans in their 60s and even 70s are forced to take low-wage jobs, they essentially crowd out younger workers and allow employers such as Amazon to keep wages low and benefits skimpy.

Low-wealth older voters have been politically marginalized.

Why aren’t pension benefits more generous? The obvious objection to larger pension payouts is that they’re expensive. But the unspoken reality is that low-quality pensions exact a societal cost, too. Paltry pensions intensify wealth inequality and burden government programs. So even though skimping on pensions seems like a fiscally responsible move, it can backfire in the long run.

“Bad pensions can create high political costs as populations age and wealth gaps grow.”

At first glance, it seems as if older Americans have the political clout to demand pension reform. Fully 27% of American voters are older than 65, and 65% are 45 or older. And older Americans who are registered to vote are more likely to turn out for elections. But there’s nuance behind their apparent power. West Virginia, for example, has the nation’s oldest electorate. But West Virginia voters also are comparatively poor, and they’re less likely to turn out for elections. In this unintended way, older voters who would demand pension reform but are poor become marginalized.

Four steps could ease the retirement squeeze.

• Encourage employers to hire older Americans — Employers tend not to hire workers over 50 because they run up big health insurance costs. An obvious solution: Lower the Medicare eligibility age to 60. This would let private employers off the hook without significantly burdening the system.
• Raise minimum wages and encourage unionization — Many older workers are in low-paying jobs. Those modest wages make sense for workers with children because of the earned income tax credit. But older workers are less likely to have dependents and therefore less likely to qualify for the credit.
• Offer job training to older Americans — The US economy is churning out high-paying positions for skilled workers, but many older Americans are being left behind. The nation needs a formal initiative to teach older workers new skills.
• Address age discrimination — While older workers are technically protected from age discrimination, in reality, it is alive and well. A societal shift is needed to address rampant ageism.

There are more ways to improve retirement security for Americans.

• Fund more generous pension plans — The United States could offer workers a better public pension without breaking the bank. Bigger payouts could be funded simply by ending tax breaks for higher-wage workers, who pay nothing to fund Social Security beyond a certain level — $137,000 in 2020.
• Look to other countries for guidance — The United States is alone among developed nations in operating a heavily privatized and financialized retirement system. Nations such as the Netherlands, Israel, Australia, and Denmark have designed systems that are fiscally sustainable while offering more generous benefits. These hybrid plans combine public and private components, and they’re far more evenly distributed. While just 44% of American workers receive retirement savings as a perk of employment, those levels are 88% in the Netherlands and 85% in Denmark.
• End the “working-longer consensus” — The notion that Americans can just keep working to 70 and beyond is misguided. The United States is supposed to be a place of income equality and racial justice. However, the uneven outcomes for retirees based on race and class undermine that vision. When people are forced to work into their 70s to support themselves, something is wrong. America needs a more generous retirement safety net.
• Create a “Gray New Deal” — Reforming the American retirement system requires acknowledging the obvious: This system works well for those among the top 20% of wage earners but not for the bottom 80%. There are many instances in which workers simply don’t have access to defined contribution plans, either because their employers don’t offer the plans or employees earn too little to contribute. This Darwinian scheme is costly in the long term. After all, when older Americans can’t support themselves on their pensions, all sorts of unwanted outcomes ensue, including older workers staying in the labor force and keeping wages down, and older workers flooding the health system with unnecessary costs.

About the Author

Teresa Ghilarducci is a professor of economics and policy analysis at the New School for Social Research in New York City. She writes a regular column for Forbes’ #RetireWell blog.