FighterHayabusa

Actually what I was going for with this question was that it is possible to make a sustainable pay as you go pension system by making the benefits linked to a weighted percentage of the proceeds from the taxed, and that our system is not entirely unlike that since we can, and likely will, change the course from the current unsustainable one. I think pensions outside of government are a bad idea - but also entirely different animals.

I'd like to address these anyway with some problems I would have with a laissez-faire, free market approach to retirement:

- It takes some degree of sophistication to plan and save for your retirement. You can explain the concept of compound interest to some people and they will just never get it.

- Even sophisticated investors get taken in by bad investments, or investments that are too good to be true.

- It takes a lot of discipline to stick with an investment program during a downturn, many smart people buy high and sell low. This behavior is likely to get worse if the consequences are made worse.

- gambler's mentality - putting off saving for retirement can lead to high risk attempts to get rich quick in order to catch up, the worse the consequences, the more this mentality will surface.

- I think the ability of people to learn from their mistakes is overestimated, and that once you're old without a lot of time left, that lesson learned isn't worth much anyway.

- The ability of charities to help all of these mistake makers is overestimated, especially during a downturn.

- Social Security in the U.S. is not generous at all, and most would agree it will probably get less so in the future. Despite the prospect of living on less than a minimum wage job, an alarming percentage of people are putting off saving for retirement until it's too late or are underfunding their accounts.

- The economic benefits of Social Security are underestimated - this tax does not go into a hole, it gets spent, arguably increasing market returns for those of us that frugally sock money away.

I hope we will be able to see a shift toward a free market / Social Security hybrid where a portion of the tax goes into your own investment account. It will not be the "Social Security is a Ponzi scheme" people that make it that way, but rather sensible moderates that don't turn people off with their divisiveness.

jungle

Try to keep the comparison fair. SS does not invest or save, so to compare it to any normal private or state pension is unreasonable. It was a system that started with 40 members paying in for every retiree, as the demographics changed it is moving toward two or three paying in for every retiree. Clearly unsustainable.

As far as the pitfalls of investing you can look at the history of SS as a template for utter failure, and you can see failures in many state pensions because they have failed to remain agile.

The premise that government must be involved in collecting and disbursing money in a system that is ever changing in payout, feels no need to pay out at their whim, and confiscates your lifetime input if you die prior to payout is just too draconian in so many ways that it would be criminal to offer such a system as a private investment or pension manager.

If you really feel the need for government management in your life, why not a system like a mandatory 401k? The holder would keep the money in his name in an account that would allow investment options, with a penchant for safety as the holder aged. This would keep theft to a minimum and guarantee at least something to the holder. The current system is based on a failed model and can only survive with vast tax increases and severe cutbacks in benefits for most.

FighterHayabusa

Not really THAT severe. It's sustainable paying 78% of benefits at the current tax rate. When it get fixed it will probably be some combination of tax increases and benefit cuts and everyone will wonder what all the fuss was about.
The forced 401k idea I LOVE, but it has proven to be a hard sell.

jungle

Forgive me if I find it hard to believe that figure, it is presented by people that have shown a complete disregard for budgetary restraint and complete disrespect for honest disclosure.
What I find most difficult to understand is why anyone believes that such a group could manage anything given their track record. Anyone can miss once in a while, but it is hard to find such a consistent loser. Just look at the record on so many of the programs.

Spreading the risk over many private firms would be far safer and they would have to comply with legal constraints, something completely lacking in the present system.

I have to wonder if you would sign any contract that allowed the other party to change the terms at will with no recourse on your part. You wouldn't really do that would you?

FighterHayabusa

Do you have a credit card?

jungle

Only for emergencies, and I can cut it up anytime I so desire. I am not forced to do business with that bank.

FighterHayabusa

I still don't think Social Security is all that bad. It's not unsustainable because it's overly generous, or because of a wasteful bureaucracy, but simply because of a changing demographic which is impossible to predict accurately. The CBO (which is not known to do politicians any favors) says it will run for 30 more YEARS without changes. Think about it, the last major change was in '83, and it can last until 2041 - if 60 years with no changes is really horrible, then your standards are awfully high.
After that, simple accounting changes to benefits and/or tax and/or caps are all that are needed - not drastic overhauls or dumping of the entire thing. The alarmists have obvious ulterior motives, and they are not doing themselves any favors by exaggeration. Frankly there are bigger fish to fry.

jungle

Actually the changing demographic and the near vertical rise in payouts has been predicted for at least a decade. You may try to paint a rosey picture, but that was then and this is now. Recent gross reductions in revenue have caused the tipping point to arrive 14 years early.
There is no reason to exaggerate, the facts are there for anybody to see, I suspect less than 5% of us give a damn.
I have no ulterior motive, in fact I have never planned to get a dime out of this, as any good financial planner will tell you.

Remember just a few months ago THEY said the economy was just dandy!

There are bigger fish to fry, and if anyone wants this type of management in their lives, go for it, but don't go in blind. There is no free lunch and Santa Claus died a long time ago in the same accident that killed the Easter Bunny.

FighterHayabusa

from:
Whaples, Robert (2006) "Do Economists Agree on Anything? Yes!," The Economists' Voice: Vol. 3 : Iss. 9, Article 1.
oh the horror! Anything but the retirement age! (sarcasm intended)

jungle

A lot of us will die before we see a dime from this program, there have been a few age increases already. Means testing is next, along with higher taxes and lower benefits, the writing is on the wall in yard high letters. It makes little difference to me, but don't whizz on my back and tell me it is raining.