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Most middle-class workers were already headed for an impoverished retirement — then came the coronavirus pandemic to speed up dawning of that gloomy tomorrow. So says economics professor and retirement security expert Teresa Ghilarducci in an interview with ThinkAdvisor, in which she discusses her new policy proposals to solve the acute retirement-security problem.

The labor economist, who teaches at The New School for Social Research, has long focused on the need to fix the U.S. retirement system, which she labels not only “broken” but “a disaster.”

In the interview, she argues that the pandemic has hurt older Americans’ retirement in big ways, especially that of laid-off workers who, for example, withdraw money from their retirement savings, fall into debt or receive Social Security benefits earlier.

Co-author of “Rescuing Retirement” (2018) — her co-writer was Tony James, executive vice chair of The Blackstone Group — Ghilarducci taught at Notre Dame for 25 years before joining The New School faculty in 2008.

She often testifies before Congress, and her pension-reform proposal, a Guaranteed Retirement Account, was named by The New York Times “one of the defining ideas of 2008.”

In the interview, she is optimistic that a Joe Biden presidency will welcome ideas to repair and reform the nation’s retirement system. Hence, she’ll waste no time in proposing her sweeping new package of policies to the upcoming administration and Congress.

The policies were generated by research conducted by the Schwartz Center for Economic Policy Analysis, of which Ghilarducci is director.

They address both the coronavirus-induced recession and long-term reform, the latter including establishment of an Older Workers’ Bureau at the Labor Department in light of the “growing and permanent presence of older workers in the labor force.”

ThinkAdvisor recently held a phone interview with the professor, who was speaking from New York City. Part of the conversation revolved around her suggestions for how financial advisors can help clients whose parents find themselves needing money. There are, she says, “warning signs” for not making such a gift.

Here are highlights of our interview:

THINKADVISOR: How will Joe Biden’s presidency affect Americans’ security in retirement?

TERESA GHILARDUCCI: The Biden leadership bodes really well for the status of retirement security. There’s no question that Biden and the Democratic Party thought deeply about this and proposed some workable solutions.

Such as?

They had many pages of detailed plans about how to expand Social Security and shore up Medicare, as well as lowering the Medicare age, which would be extremely helpful to workers in this pandemic. The Republican platform had nothing about retirement security except their 2016 statement that basically said we need to cut Social Security benefits.

How has the coronavirus pandemic impacted older people’s potential retirement income?

It accelerated the downward-mobility trend of most middle-class older workers, who, even before the pandemic, expected to be poor or near-poor in retirement.

How did it do that? 

Older workers have lost their jobs and are leaving the labor force at a faster pace than younger workers, which hasn’t happened in 50 years. [One aspect is that] older workers are much more exposed to severe illness if they go to work because of the nature of the coronavirus.

How chiefly does job loss amid the pandemic hurt their retirement?

In four main ways: They draw down whatever little retirement wealth they have in order to bridge the [gap] before they collect Social Security. They go into debt. They collect Social Security at earlier ages. And because they’ve lost their jobs, they don’t accumulate retirement wealth as they’d expected.

Is your proposed pension-style Guaranteed Retirement Account — which would mandate employees and employers to contribute 3% of wages for income supplemental to Social Security — a solution to this problem?

It’s part of it. We’re proposing to the incoming Congress and President [Biden] a comprehensive package of solutions generated from research we’ve done at [The New School’s Schwarz Center for Economic Policy Analysis]. Some policies deal with the short-term effects of COVID-19 and the recession; others address the long-term trends and are part of comprehensive reform. One of [the latter] is the GRA, for sure.

What are the salient policies?

The first is that we have to extend unemployment benefits to everybody, especially older workers because they take [more] time to find new jobs. The second is to lower the Medicare age to 50. Third, we need to mandate paid leave. That’s [already in effect] if you have a COVID-19-related disease, but we should have paid leave for all workers.

What other policies?

The fourth is to enforce age-discrimination laws, which got whacked in the Trump administration. Then we have a policy to expand the [emergency] tax credit to older workers. Sixth is the GRA. And the 7th is to have an Older Workers’ Bureau in the Department of Labor. In 1917, a Women’s Bureau was established to deal with the growing and permanent presence of women workers in the labor force. We now have a growing and permanent presence of older workers in the labor force.

Why does that require a bureau?

Older workers have [particular] needs and vulnerabilities that require special attention by the Department of Labor.

Where will the money come from to fund all these policies?

Employers could pay more in corporate tax. There was a lot of lost revenue from the Trump tax cuts of 2017, which didn’t grow the economy as was promised. There was little new investment and very little in wage increases because of the corporate tax cuts. Therefore, we could reinstate those sources of revenue that we lost in 2017.

Do you think that’s possible with a Republican Senate?

It’s possible. If all the Democrats vote with Biden and there are a few Republican senators who understand the pressing need to raise revenue to keep people employed, sure, I can see that.

What are your thoughts about the delayed stimulus package?

It’s just a matter of time [till a deal is reached]. Economists are completely in agreement that we need the stimulus. It doesn’t matter if you’re a left-wing economist, a right-wing economist — whether your wings are green, yellow or purple — it’s standard economic policy that in a recession like this, we need stimulus. The Republican senators will [base their vote] on what their election outlook is in the next couple of years. [Compared to the Democrats], there are more Republicans up for reelection in 2022. So they may want to put helping out the economy on their records.

A question you wrote about recently that’s relevant to older people’s coping with the recession concerns adult children giving money to their needy parents. What do you suggest?

Ethicists tell us we have an ethical obligation [to give money] to our relatives that are closest to us. But there are some warning signs not to give money to your parents if you’re in certain circumstances.

Like what?

First you need to answer the question: Can you afford to give your parents money? You need to [work from] a budget. It’s probably not good to borrow money to take care of them because that means you’ll reproduce the problem for your own kids. You shouldn’t give money to your parents if they got into their situation because they had no budget or if they have a gambling or drug problem. By giving them money, you’d just be an enabler.

What if a parent asks for money urgently because, say, they can’t pay their rent?

If you can afford it and it’s an infrequent request, absolutely [give them money]. But if they frequently ask you because they’re living a lifestyle that’s unsustainable, then giving them money would clearly enable that self-destruction.

How else could the client respond to this request constructively instead of giving money?

They could try to help their parents get on a more sustainable path by helping them create a budget. Instead of giving them cash, they might help them with kind assistance, like spending time with them or dropping off groceries.

Any suggestions for how financial advisors can help clients whose parents ask them for money?

A financial advisor can really be helpful if they disabuse the client from thinking that it’s a loan. It is a gift. Then they can help them decide if this gift will fit into their budget. Money given to your parents isn’t an asset like something you give now and get back later. A financial advisor should help set the client straight about that and make them realize that it’s a gift.

Is there anything else an advisor can do?

Tell the client that if they’re [inclined to] give their parents money, to look at their budget to see whether they’ll be on track for their own secure retirement. I think that one thing that most of us go to financial advisors for is to make sure we won’t have to go to our own kids for money.

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