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Retirement Planning Beyond the Basics

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I make people depressed.

The average 55-year-old has about $40,000 in their retirements account, but they need $1 million. A tiny fraction is all set, so what do the rest of us do? The standard advice focuses on the puny individual: pay off your house, get rid of debt, get a mate with an income, work past 67 and reduce your spending -- a lot. Adding insult to injury with more good advice -- get on the South Beach diet and exercise. Yawn. More depression.

Here is some good news I learned recently from Federal Reserve and SUNY economists Mariacristina Denardi, Eric French, and John Bailey Jones.

For middle-class people in their 70s and 80s, big government programs save the day. Not only do middle-class retirees get most of their income from Social Security, the program most people think serve the poor, Medicaid, serves the middle class more than it helps the impoverished elderly.

Seventy percent of nursing home costs are paid for by Medicaid, and 60 percent of people in the middle of the income distribution, the elderly middle class, get an average $3,300 from Medicare, whereas the poor who more often qualify, only receive an average of about $2,200 per year. Why? Because the poor die sooner. (A middle-class male in bad health at age 70 has about 7.1 years to live; a low-income male in good health has about the same life expectancy.) Class swamps health.

Bottom-line retirement advice: Do what you can as a consumer and saver, but don't ignore voting for Social Security and Medicaid; they do a lot more to secure old age income than anyone thinks.