Solutions to key challenges of modern retirement

The brief golden age of retirement is over, but investing legend Charles Ellis outlines solutions to a potential crisis

By Mary Beth Franklin

Jan 12, 2015 @ 12:01 am EST

Just 30 years ago, most American workers were able to stop working in their early 60s and enjoy a long and comfortable retirement. That brief golden age is over, declares the new book “Falling Short: The Coming Retirement Crisis and What to Do About It” (Oxford University Press, 2014).

Charles Ellis, founder of Greenwich Associates, and co-authors Alicia Munnell and Andrew Eschtruth of the Center for Retirement Research at Boston College, point to increasing life expectancy and health care costs as the key challenges to modern retirement.

Social Security is replacing less of pre-retirement income, traditional pension plans are being supplanted by 401(k)s with modest balances, and employers are dropping retiree health benefits.


“Our retirement income systems are contracting just as our need for retirement income is growing,” they write in their book, which traces the history of the retirement system, the shift in responsibility from employers to individuals and the magnitude of the coming crisis.

“Millions of workers will be in serious financial trouble when they retire unless we enact two changes,” Mr. Ellis said in an interview. “All 401(k) plans must adopt best practices, such as automatic enrollment and automatic escalation features with "opt-outs' at every stage; and we have to help folks understand the major benefits of working longer.

“With these two changes, millions of older Americans will be lifted from old-age poverty into secure finances in retirement,” Mr. Ellis added.

On the 401(k) side, he hopes to use his influence with retirement plan providers such as Fidelity Investments, the Vanguard Group Inc. and T. Rowe Price Group Inc., and human resources organizations to encourage clients to adopt or expand automatic 401(k) features.

On the individual side, Mr. Ellis, who at 77 works about 60 hours a week, wants to spread the message about the value of staying in the workforce.

With decades of experience as an investment manager, author and teacher at Harvard and Yale, he said he feels compelled to raise public awareness. And even though his investing credentials are exceptional, he said he also needed to team up with a retirement expert to round out the narrative.

Mr. Ellis asked his friend Janet Yellen, chairman of the Federal Reserve Board, for a recommendation. She suggested her former colleague, Ms. Munnell, a onetime member of the President's Council of Economic Advisers and assistant secretary of the Treasury for economic policy.

Mr. Ellis, Ms. Munnell and Mr. Eschtruth, an expert in federal fiscal policy and social insurance programs, outlined how to solve America's retirement challenge by optimizing existing systems, including shoring up the long-term finances of Social Security.

What was Mr. Ellis' biggest surprise in working with his co-authors?

“I had not realized the delta of claiming Social Security at 62 and waiting until 70,” he said. “It's a 76% increase!” He ventured that few of his colleagues in the investing world know that.

For those whose full retirement age is 66, collecting Social Security benefits at the earliest age, 62, results in a 25% reduction in benefits. Those who wait until the latest age, 70, receive an extra 32% in delayed retirement credits.

There is a 76% difference between claiming benefits worth 75% of the full retirement age amount at 62 and 132% of the full retirement age amount at 70.


Mr. Ellis said most people who continue working through their 60s have an important chance to save money, as the expenses of child-rearing are behind them and the higher health care costs of old age remain distant in many cases.

“You could save the full amount and invest it, boosting your 401(k) balance by 100% or more,” he said. “Put it together with larger Social Security benefits, and ... more than 10 million people could go from not so good to OK.”

For financial advisers, encouraging clients to delay retirement could result in bigger account balances, Mr. Ellis said. Also, he favors following required minimum distribution guidelines when it comes to drawing down retirement savings.

The book has drawn praise from investing experts.

“This excellent book nails the changes and incentives needed to restore an aging generation to fiscal health,” personal finance columnist Jane Bryant Quinn wrote. “Every voter and policymaker should read it.”

Questions about Social Security? Find answers in my ebook at

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