Tuesday, February 01, 2005


The Illogic of Social Security Reform

There are two components to retirement savings:
  1. Saving/investing enough money to have a comfortable retirement
  2. Ensuring one has a stream of income (an annuity) for life's necessities, like food and shelter, in the event one's retirement savings get wiped out by illness, disaster, market crashes, etc.
Social Security was designed to cover option #2: insurance against having one's savings wiped out by disaster. Originally designed to protect against a 1929-style stock market crash, it also helps protect against 1970s-style inflation destroying your retirement fund's savings.

Privatization advocates essentially want to force all US citizens to invest in the stock market, to "empower" them as part of an "ownership" society. This is illogical on its face: although government has an interest in making sure people purchase a minimal annuity to keep them off welfare in their old age, government should not force people to invest in riskier ventures like the stock market.

Far from getting government off people's backs, privatization advocates want the government to order people to open Individual Retirement Accounts and fund them with a fixed percent of their income. Why should government order me to purchase a smaller annuity while placing a larger percentage of my money at risk in the stock market?


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