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A warning on realities of work, retirement

Alicia Munnell.Justin Saglio for The Boston Globe/Globe Freelance

Alicia Munnell has never been one to sugarcoat her opinions. As a top economist at the Federal Reserve Bank of Boston in 1991, she shook up the New England banking industry by documenting discriminatory lending practices.

As an official in the Clinton administration, she opposed the balanced-budget amendment because it would cut Social Security and defense spending. And as a researcher, she warned that government insurance designed to protect workers and their pension plans wasn't adequate to cover funding shortfalls faced by struggling companies.

Now approaching 72, Munnell remains unapologetically blunt and this time her target is the US retirement system. "The idea that people can retire at 62 and walk around holding hands on the beach, it's not realistic," she said.


Munnell, director of Boston College's Center for Retirement Research, has completed a new book that concludes the golden age of retirement is over and Americans must adjust their practices and expectations. In the book, "Falling Short: The Coming Retirement Crisis and What to Do About It," Munnell and her co-authors argue that retirement security in the 21st century means working longer, saving more, and passing fewer assets on to heirs.

The book, to be released Dec. 12, serves as a clarion call for new thinking and policies on retirement, including making it easier for workers to save and shoring up Social Security, which, in less than 20 years, will be unable to meet all its obligations.

If nothing is done, the book warns, "millions of retirees will find that they are too old to return to work and have little in savings — and no one to turn to for help."

Munnell, who has run BC's retirement research for 15 years, has studied pensions and Social Security since the 1960s. At that time, these benefits provided the foundation for retirement, contributing to a steady decline in the age people stopped working.


Demographic and economic changes weakened the old supports. Birth rates have declined, meaning there are fewer new workers to pay the costs of Social Security. Without changes, actuaries estimate that by 2033 the program won't have enough money to cover promised benefits, requiring the government to cut payments to recipients or raise taxes.

Companies also have abandoned traditional pensions, which offered workers income for life, based on earnings and years of service. In 1983, nearly two of three workers with retirement plans enjoyed a traditional pension; in 2013, less than one in four depended solely on such pensions, according to the Center for Retirement Research.

Meanwhile, the percentage of workers relying only on 401(k) plans during that period multiplied six times, to 71 percent from 12 percent. The typical household approaching retirement, however, had saved only $111,000, equivalent to $400 a month in income, according to Munnell and her co-authors, Charles Ellis, an investment specialist, and Andrew Eschtruth, associate director of the retirement research center.

"People are not going to have enough money when they stop working," Munnell said in an interview in her Boston College office. "We need to fix this. It's really important."

Ellis approached Munnell about a year ago about writing the book after seeing people make investment mistakes that threatened their chances for secure retirements. But Ellis said he didn't know enough about Social Security and retirement to write it alone.


"One name that obviously comes up is hers," said Ellis, adding that Federal Reserve Chair Janet Yellen even vouched for Munnell.

Alicia Munnell, now at the Boston College Center for Retirement Research, has been writing about Social Security and retirement for nearly five decades.Justin Saglio for The Boston Globe

Munnell, who earned her doctorate in economics from Harvard University, gained a reputation as a firebrand in the late 1980s as director of research at the Boston Fed, where she was among the few women in top positions. She recalled high-level evening meetings ending with cigars passed around. She lit up, even though she didn't smoke, to show she could fit in.

But she wasn't afraid to point out inconvenient truths and stand her ground. She was the lead author of a study that found systemic racial discrimination in mortgage lending among the region's banks, which led to federal and state investigations into dozens of banks.

But it hurt her chances to become president of the Boston Fed when Richard Syron left in 1994. Banks and other interests upset by her work opposed her appointment and the Boston Fed's board ultimately named Cathy Minehan, who retired in 2007.

Munnell, who had left Boston for the Clinton administration, remained in Washington, serving first as an assistant secretary of Treasury and later as a member of the president's Council of Economic Advisers. When she returned to Boston in 1997, she accepted a teaching job at Boston College. A year later, with a federal grant, she helped launch the Center for Retirement Research.

"Falling short" is Munnell's 23d book. The slim volume, under 130 pages, excluding footnotes, attempts to give families basic information about the challenges of retiring. Among the first steps they can take to improve the chances for comfortable retirement is plan to work longer, raising the issue with employers and updating skills.


By delaying retirement until 70 from 62, individuals can increase Social Security checks by 76 percent, she said. Working longer also delays spending retirement nest eggs while providing more time to save. Munnell and her co-authors propose raising the earliest age for collecting Social Security to 64 from 62.

"People need to understand that one of the most potent levers is staying in the workforce," she said.

One of the book's more controversial recommendations is to use reverse mortgages, which allow seniors to take equity from their homes to pay for retirement. When they die or leave the home, the property goes to lenders.

Critics argue that these complex products target desperate seniors, who quickly burn through equity to cover long-term care costs and end up losing their homes because they can't pay taxes and other expenses.

Jack VanDerhei, research director at the Employee Benefit Research Institute, a think tank in Washington, said Munnell's book doesn't thoroughly consider the most appropriate steps for people based on their income and how long they might live.

For example, the costs of retirement are so high that reverse mortgages don't always make a significant difference, he said. The number of middle-income retirees who will avoid running short of money increases by just 6 to 8 percentage points by tapping home equity, according to the institute.


So it may not be worth it for many seniors to take this risk, leaving them without a house to pass to their children, VanDerhei said.

But many retirees have few other sources of money and regulators have improved oversight of these products, said Munnell, who has advocated for reverse mortgages for several years (In 2012, she invested in and joined the board of Longbridge Financial, a New Jersey reverse mortgage company). For retirees who have enough savings to cover homeowners' insurance premiums and property taxes, reverse mortgages may be a good option, she said.

Munnell has been writing about Social Security and retirement for nearly five decades, and has no plans to stop working. She said she recognizes her book makes proposals that workers and policy makers may not want to hear. But the reality is retirement for this and coming generations has changed.

Workers are increasingly on their own and denying that — and failing to take steps such as working a few more years — will only lead to serious problems in the future.

"I'm less of a bomb-thrower the older I get," she said. "But if I see something I don't agree with, I still speak out."

Related coverage:

Why you shouldn't use retirement savings to pay off debt

Spending retirement cash can be fraught with tricky calculations

Retirement savings strategies for every age

Deirdre Fernandes can be reached at Follow her on Twitter @fernandesglobe.