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Restructuring Retirement Risks

Restructuring Retirement Risks
by David Blitzstein, Olivia Mitchell, Stephen Utkus
Reviewed by Steven Siegel

What will our retirement systems look like some 25 years from now when I hopefully will be contemplating retirement? What resources will be available if things do not quite turn out the way I hoped? Driving back from a recent weekend trip to Iowa City with my wife, after she gave a poetry reading at the Iowa Writer's Workshop, I was deeply obsessed by these questions.

Our extended weekend began with arrival at a cozy two–;room bed and breakfast on the outskirts of Iowa City. The lovely photos on the Internet of the well–;appointed rooms and beautiful five–acre surrounding oak tree woodland belied a harsh reality we were not aware of-the other "guests" of the bed and breakfast were the nanogenerian, invalid parents of our hostess, Diana. With long–term care running around $300 per day and no insurance, Diana, close to retirement age, had been forced to choose between providing extensive, round–the–clock care herself or face financial ruin. She chose the former and the excessive strain showed. After describing how she lived in 30– to 45–minute increments during downtime from attending to her parent's health needs, she plaintively asked me, "Is this any way for society to care for its retirees?"

The editors of "Restructuring Retirement Risks," a new collection of papers that examines retirement risks, would no doubt understand the import and immediacy of her question. As they write in the opening chapter of the book, "Indeed, retirement security is the central policy issue of our time: it can no longer be shunted off to the side."

David Blitzstein, Olivia Mitchell, and Stephen Utkus, the editors of this impressive collection and all affiliated with the Pension Research Council of the Wharton School at the University of Pennsylvania, have gathered together an outstanding set of papers from top–notch thinkers in this area. The papers, which are a must–read for serious students of retirement systems and a good introduction for those not as familiar with the issues, explore the stresses being placed on those systems and ever–increasing uncertainty as Baby Boomers begin to move into retirement.

Having experienced firsthand the elimination of a defined benefit plan at a previous employer, I found the papers in the book dealing with the overall decline of defined benefit plans particularly enlightening. On the flip side, with the continuous decline of DB and rise in DC plans, the future of DC plans is well charted in Sarah Holden and Jack Vanderhei's paper "The Role of 401(K) Accumulations in Providing Future Retirement Income." Their research indicates that while income replacement rates under these plans combined with other sources can be high for many workers, those workers will need to be disciplined and continue contributions on their own if they have long breaks of service. Perspectives on pooling pension risks and future management of retirement risks are taken up in other papers including one on what many consider the elephant in the room–retiree health benefits. To many, including myself, there can be no comprehensive retirement solutions until healthcare is fixed.

So, while I am still obsessed with what retirement will look like 25 years from now, it is good to know that many of the nation's leading retirement thinkers are willing to put forth creative solutions as represented in these papers.