How to Fix America’s Retirement System With Martin Baily

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[137] – How can we reevaluate outdated components, implement innovative approaches, and revolutionize America’s retirement system?

In this episode, Jeremy Keil interviews economist Martin Baily about how we can fix America’s retirement system. He proposes practical solutions from reevaluating outdated components implementing innovative approaches, and identifying potential areas of agreement between political parties, to reforming Social Security, making informed decisions regarding annuities in retirement, and emphasizing the significance of long-term care insurance policies in retirement planning. 

Martin discusses:

  • What made him want to write The Retirement Challenge
  • What parts of our outdated retirement system we should bring back
  • What new innovations are needed with our retirement system
  • Where Republicans and Democrats can agree when it comes to fixing America’s retirement system
  • How he would fix Social Security
  • What types of annuities make the most sense in retirement
  • The importance of long-term care insurance policies in retirement
  • And more

How to Fix America’s Retirement System

Should We Bring Back The Traditional Pension System?

The traditional pension system, which was once the backbone of America’s retirement system, should be brought back.

Pensions provided a guaranteed income for life, which was a significant benefit for retirees. However, pensions have become less common in recent years, and many employers have shifted to defined contribution plans, such as 401(k)s, which place the burden of saving and investing on the individual.

What New Innovations Does Our Retirement System Need?

One innovation that could be beneficial is opening up the Thrift Savings Plan (TSP) to private investment companies. This would allow retirees to have more investment options and potentially higher returns.

Only about half of Americans have access to retirement savings plans like the 401k and 403b savings plans through their employers. Opening the TSP to private investment companies would give more Americans the opportunity to save for their retirement.

Additionally, annuities could be a valuable addition to the retirement system, as they provide a guaranteed income stream for life.

What Ways To Fix The Retirement System Can Democrats And Republicans Agree On?

Both parties can agree that Social Security needs to be improved. Small adjustments to provisions, tax rates, and benefits could help solve the Social Security problem without having to raise the retirement age.

Our Social Security system is already unfair to people at the bottom end because they get smaller benefits, but they also don’t get benefits for as many years because they tend to die much younger than people with higher incomes. Raising the retirement age would worsen this already unfair condition.

Many believe it’s logical to raise the retirement age because we’re lying longer, we’re healthier for longer, but that’s not true of everybody, and it’s particularly not true of lower income individuals.

How Can We Fix Social Security?

One idea Martin Baily proposed is to increase benefits for widows, who tend to have lower incomes than their male counterparts.

Another solution is to trim benefits at the upper end for wealthy individuals. Modest adjustments to provisions, tax rates, and benefits could solve the Social Security problem without having to raise the retirement age, which would be unfair to lower-income individuals who tend to have shorter life expectancies.

What Type Of Annuities Make The Most Sense In Retirement?

The biggest concern for many retirees is outliving their money or running out of money during their retirement. Annuities provide a regular payout over your lifetime, which makes the worst case scenario of running out of your retirement savings a little less daunting.

Fixed annuities, which provide a guaranteed income stream for life, are a good option for retirees who want to avoid running out of money in old age. Variable annuities, which are tied to the stock market, can be riskier but offer the potential for higher returns. However, variable annuities also come with higher fees and expenses.

Because of the reliability of fixed annuities, Martin believes financial advisors should direct their retiring and retired clients towards fixed annuities instead of variable annuities.

Why Are Long-Term Care Insurance Policies Important In Retirement?

Many retirees are holding onto their saved money instead of spending it during their retirement, as it was intended for. One of the reasons Martin Baily proposed is the fear of needing that money in the later years of their retirement in case they need long-term care.

That leads to the question: why don’t they invest in long-term care insurance?

Long-term care insurance policies are essential because they cover  the costs of long-term care, such as nursing home care or in-home care. These costs can be significant and can quickly deplete retirement savings, but purchasing insurance is unacceptably expensive.

We need to find a way to decrease the cost of long-term care insurance policies because they can provide peace of mind and protect retirees from financial ruin in the event of a long-term care need.


To learn more about fixing America’s retirement system, check out the resources below!

If you have any questions, feel free to contact us or our guest, Martin Baily, using the contact information provided below!


Connect With Martin Baily:

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About Our Guest:

Martin Neil Baily is Senior Fellow Emeritus in Economic Studies at Brookings. He is a Senior Advisor to the McKinsey Global Institute and to the Albright Stonebridge Group. Baily is the co-chair of the Financial Regulatory Reform Initiative of the Bipartisan Policy Center, and a member of the advisory panels of the Committee on Economic Development, and Macroeconomic Advisers. Dr. Baily earned his Ph.D. in economics in 1972 at the Massachusetts Institute of Technology. After teaching at MIT and Yale, he became a Senior Fellow at the Brookings Institution in 1979 and a Professor of Economics at the University of Maryland in 1989. He is the author of many professional articles and books, testifies regularly to House and Senate committees, and is often quoted in the press.



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