Soon-to-be retirees should keepthree crucial pieces of advice in mind, Munnell says.

Most retirees' eagerly anticipated golden years will betarnished by insufficient income and a consequential declinein standard of living unless consumers and policymakers getcracking now to avert this bleak scenario.

So says Alica H. Munnell, professor of managementsciences at Boston College and director of its Center forRetirement Research, who, in an interview with our sister siteThinkAdvisor, discusses three critically important pieces of advicefinancial advisors can give clients who are nearing retirement.

Munnell served on President Bill Clinton's Council of EconomicAdvisers and was the administration's assistant secretary of theTreasury for economic policy. Before that, for two decades sheworked at the Federal Reserve Bank of Boston, where she held theposts of senior vice president and research director from 1984 to1993. Munnell, who has a doctorate from Harvard, joined BostonCollege, in Chestnut Hill, Massachusetts, in 1997.

Known as something of a firebrand in her Boston Fed days, theforthright Munnell argues now that the way to fix the Social Security funding dilemma is by raisingtaxes.

For better or worse, it was Munnell who influenced the Obamaadministration to scrap certain Social Securitystrategies in 2015. She contended they were unfair becausethey allowed the affluent to “milk the system,” while lower-incomeworkers had no idea the provisions even existed.

Munnell has long given clarion wake-up calls on the loominggloomy retirement picture. Her most recent book, co-authoredwith Charles. D. Ellis and Andrew D. Eschtruth,is “Falling Short: The Coming Retirement Crisis andWhat to Do about It” (Oxford University Press 2014).

In 2016, she testified about expanding retirement savings to theSenate Finance Committee.

The Center for Retirement Research recently published a brief Munnell wroterevealing that when millennials reach retirement age, they'lllikely be in worse shape than savings-deficient late baby boomersand Gen Xers.

She writes: “At a time the retirement system is under pressure,”millennials “are much less prepared for retirement than earliercohorts.” In the interview, she talks about why.

Indeed, one reason is that the percentage of millennialsparticipating in employer retirement plans is “sharply lower forboth men and women … This lack of a savings vehicle is a particularconcern given that individuals who do not have a workplaceretirement plan rarely save for retirement on their own,” shewrites.

ThinkAdvisor recently interviewed Munnell, speaking from heroffice near Boston. She not only discussed problems facing retireesbut offered a few solutions, including how to improve 401(k) plans,which, she opines, “are not doing as good a job as possible.” Hereare excerpts from our conversation:

What's the solution to the Social Security fundingdilemma?

ALICIA MUNNELL: Policymakers should fix SocialSecurity by raising taxes. Money doesn't come from heaven. It'sgoing to have to come from someplace, and it should be done on therevenue side. We need to maintain benefits. People don't haveanything else other than 401(k)s, and a significant portion of thepopulation doesn't even have those.

What's your plan?

Tax increases can be done in a progressive way — [thatis], a less harmful way to the average worker. If you includehealth insurance in the employer-provided health insurance taxspace, it will make the rate lower. If you raise taxes on theemployer side, you can raise [this] money.

So you think both employees and employers should betaxed.

There's a philosophical reason, in addition to a humanitarianreason, not to put all the burden on today's workers. We don't havea trust fund because we gave it away to earlier generations. Thatwas probably a good policy decision, but there doesn't seem to beany reason why yesterday's policy decisions for people who foughtin World War I and were harmed by the Great Depression need to beborne by the average worker.

To what extent will President Trump's tax cuts, whichincrease the federal deficit, put pressure on reducing SocialSecurity benefits?

The rhetoric is already there: We have deficits; their source isthe entitlement programs; we need to cut back on them.“Entitlements” isn't a word I like. It makes it seem that peopleare putting claims on something to which they're not reallydeserving. In the case of Social Security, people put in money overtheir entire lifetime, and they essentially get a pension for thosecontributions. It's a forced savings program — not agiveaway.

On Jan. 16, House Minority Leader Nancy Pelosi said thatSpeaker Paul Ryan will “slash Social Security and Medicare withinweeks” and that President Trump is “readyto ram it through.” She's “terrified,” she said. Yourthoughts?

Speaker Ryan has back-pedaled on that. His December 2017statement was very much saying that it was on his agenda for 2018.But his most recent statement, on Jan. 12, acknowledges thepolitical reality that they're not going to be able to do anythingon that front in 2018. He needs bipartisan cooperation to do it. Hesaid he doesn't see a pathway to entitlements this year.

So he's postponing it.

He's postponing it, but that doesn't mean he's not going to goafter it.

Do you still advocate taxing contributions to pensionplans, as you did when you were in the Clintonadministration?

I'm not convinced that the favorable tax treatment of retirementsavings does much to increase retirement savings. This deservessome attention. For one, most of the benefits go to higher-incomepeople who would have saved already.

What do you suggest instead?

It would probably be fairer — and we'd likely get thesame outcome — to have credits instead of deductions sothat all the benefits aren't given to higher income people. Recentacademic work has shown that automatic provisions are more powerfulthan tax incentives. So it's not clear that we're buying much withfavorable tax treatment.

Your brief, “Will Millennials Be Ready for Retirement?,”released Jan. 23, doesn't paint a rosy picture.

The state of the millennials is shocking. They're more educatedthan any other generation, but their labor-force participation islow, their earnings compared to the median is low, percentageparticipating in employer-sponsored retirement plans and percentagecovered by employer-provided health insurance are both way belowGen Xers and baby boomers. And millennials tend not to relocate tofind better jobs.

Your paper talks about millennials' “lack of wealth intheir 30s.” Why do they have less money than Gen Xers and babyboomers had at the same age?

They've had a very bad labor force experience and have hugestudent loan burdens. Those two things have caused many fewer tomarry and then buy their own homes. So millennials have ended upwith a very low net-worth to income ratio compared to 25- to35-year-olds in the late baby boomer or the Gen X generations. It'sreally a striking story.

What are your thoughts about 401(k) plans? Can theystand to be improved?

Yes. They need to work as well as they can because they're hereto stay, and they're not doing as good a job as possible. That canbe remedied by making them automatic in enrollment and inescalation of the default contribution rate, as well as fixing thedecumulation side by providing an income mechanism within theplan.

What should be done to help people that don't have a401(k) plan?

Half the workforce isn't covered by an old-fashioned pensionplan or a 401(k) plan. We have a huge coverage gap. That should beremedied at the federal level with an automatic IRA-type provision.[But] some states have [already] undertaken their owninitiatives: Oregon has a system up and running.We need to cover the uncovered.

The Bipartisan Budget Act of 2015 did away with someSocial Security claiming strategies, such as file-and-suspend,which let people collect benefits based on the work record of aspouse who has deferred receiving their own growing benefits till afuture date. I understand you were influential in the Obamaadministration's decision to eliminate the strategy. How did that,and ending other strategies, help the governmentfinancially?

About 10 years ago, we put out a series of briefs that includedthree provisions that were unfair and a misuse of Social Securityfunds. They were, sort of, hilarious. The first was a provisionthat you could claim benefits at 62; and then at 70, if you decidedthat was the wrong idea, you could pay back all your benefits withno interest and then get a much higher benefit. It was justoutlandish.

What were the second and thirdprovisions? You could claim benefits first as aspouse and then as a worker. It allowed married couples to come outway ahead. The third was that you could claim [file] andsuspend.

And what action did you take?

We wrote the three briefs, with indignation, saying that theprovisions were outrageous. So instead, The Center became, sort of,the darling of all the financial planners in the country. Wethought, “Oh God, we've really set the world back.”

How did the government respond to thebriefs?

Fortunately, the first provision, the Social SecurityAdministration eliminated with an administrative ruling, and thenin 2015, the two others were finally eliminated. So they're gone.They allowed the savvy to, sort of, milk the system, whereas theunsophisticated didn't have any idea about [those provisions].That's not what Social Security is about — it shouldn't befull of twists and turns that enable the clever to come outahead.

What's your best advice to financial advisors on howthey can help clients nearing retirement?

There are three important things. I'll say them in the order inwhich they come along in life: Control spending in your 50s; delayclaiming Social Security as long as you can; think of your house assomething you can use to help support yourself in retirement.

Please elaborate.

Once your kids leave home and your college educationresponsibilities are over, control your spending because you wantto keep it at a level that's sustainable once you stop working.Maybe you can take a trip to Paris, but just be careful not to letspending get out of control.

What's the bonus for delaying to file for SocialSecurity?

This is crucial. If you take benefits at age 70 rather than at62 [the minimum age], the monthly benefit is 76% higher. You'llhave that base income that's inflation-adjusted and goes on for aslong as you live. If everybody would claim later, the wholeretirement picture would look a lot better.

Is waiting till 70 of help to thegovernment?

No. It really doesn't matter for the government because, onaverage, the amount of money you'll get is about the same. You'llget a higher benefit, but you'll get it later. The government gainsa little if you keep working because you pay payroll taxes andincome taxes. But basically the benefits are actuarially adjusted.So on a lifetime basis, you get the same amount at 62 as at 70. Butif you wait, you'll have a much larger monthly benefit if that'swhat you need once you stop working.

Please discuss how one's home is an asset that can beused for income in retirement.

For most middle-income people, their house is their largestsingle asset. They've really put [a great deal] of money into it bypaying off a mortgage over their lifetime, and so they could drawon it one way or another.

Why don't more retirees do that?

The problem is that people hate the idea of tapping their homeequity. So somehow we need to find the magic potion that will makethat socially acceptable because given the level of financialincome people will have, they're going to need this additionalresource.