Is there a retirement crisis?

Andrews Biggs and Sylvester Schieber argue that there isn't.  Their figures for retirement income include what workers saved for themselves, as well as what they'll receive from the government-mandated "retirement" program we call Social Security, in which a lot of money is taken from the worker throughout his career, not invested, and partially redistributed to him at below-market interest rates according to whatever Congress decides will garner the most votes.

We'll never know how much the workers could have saved for retirement without these career-long expropriations from their paychecks.  As is usual in this sort of analysis, the answer probably is that the more prudent among them would have saved a ton and invested it in a reasonably diverse portfolio, and had a fine nest-egg upon retirement, while the less prudent would have found that an uncaring and unjust society conspired against them to ensure that they either never saved or lost it all later.

So Social Security continues to redistribute money from ants to the grasshoppers, or (if you prefer) from the lucky to the unlucky, while nevertheless serving as a vehicle to transfer wealth from the needy to the wealthy, which you have to admit is a neat trick.  All it requires is selling the program as forcible retirement savings (which is what it takes to get votes to implement it) but administering it as a current subsidy of old retirees by young workers (which is what it takes to delay the day on which you acknowledge that it's flat broke, so that you'd be forced to discontinue it and take your political lumps).  This rhetorical gambit reminds me of how industrial society is simultaneously causing global warming and global cooling.  The important takeaway is:  the government must always intervene to prevent a catastrophe!  Unless, of course, voters decide to cut it out.

9 comments:

Grim said...

... an uncaring and unjust society conspired against them to ensure that they either never saved or lost it all later.

As opposed to the current system, in which a 'caring' and 'just' society conspires to ensure they never have the opportunity to save the money, nor obtain a job that would pay them enough to save anyway.

But they will have health insurance! Even if, during their youth, savings for retirement might have been a much better use of the money than purchasing a metallic plan that doesn't kick in until you've met a five-figure deductible.

E Hines said...

Studies like these--either Biggs and Schieber's or Ghilarducci's, for instance--almost never address two things.

1) Retirees' income (from B&S' construction or G's) needs to be compared to the expenses they face in addition to (instead of?) the incomes being "replaced." In nearly all cases, their income falls relative to their expenses, and it more often than not falls in absolute terms, too, as pensions fail, retirement savings get consumed, and so on.

2) Social Security, as originally constructed by FDR and his cronies, was a supplemental income source; families were expected to support their own aged in retirement, instead of being dragooned into supporting utter strangers on the other side of the country. The...evolution...of SS is especially pernicious given the collapse of the working:retired ratio between then and now and as projected into the nearby and intermediate future.

Eric Hines

Grim said...

I think you can say "mutation," which is the same thing as "evolution" except lacking the (really quite badly) misplaced connotation of progress.

Texan99 said...

I'd like to see society's role in "ensuring the opportunity for savings" limited to forbearing from taking people's money away for one or another forced savings program, whether or not it's initially (and dishonestly) sold to them as a savings program for themselves.

Beyond that, it's up to people to live within their means and save. There is not now, and never will be, an outside social or government function that can make them do it. All there can be is redistribution to protect them from the consequences of not doing it--and unfortunately, that's a disincentive. So I agree, it's neither caring nor just.

E Hines said...

I don't have a problem with mandating a (retirement) savings program that has the savings under the sole control of the saver, for the sole use of the saver, and that is funded solely from the saver's resources.

Absent that, too many people out of ignorance or laziness will simply create themselves as burdens on our Judeo-Christian obligation to sustain them.

Of course, all that would be greatly facilitated were I to get my way on taxes....

Eric Hines

Texan99 said...

No social or political arrangement can prevent people from turning themselves, out of ignorance or laziness, into burdens on our Judeo-Christian obligation to sustain them. The only thing we can control is what we're willing to do or pay to fulfill that obligation.

E Hines said...

True enough. But we can greatly mitigate the burden before it's created without trampling overmuch on liberty.

Eric Hines

Texan99 said...

I wish that were true, but I can't imagine how it would be.

Ymar Sakar said...

Of course there won't be. ACA will kill them off, sooner or later. What did people think the LEft was going to do with the 75 year olds? Send them to Liberia to work health care?