An op-ed in the New York Times proposing a new government-guaranteed annuity system highlights what I think is the greatest problem with Social Security. I don’t think the greatest defect is that it’s a Ponzi scheme as many aver. By definition it needn’t be a Ponzi scheme as long as outlays are limited to revenues. IMO the greatest problem is that for too many people there is just no level of frugality which will enable them to save enough that they can live off the proceeds for however long they live after they’re unable to work.
I have a speculative question. Add a wrinkle to Drs. Hu and Odean’s proposal linked above. Assume that contributions into such an annuity plan were mandatory and add to it a means-tested federal supplementary contribution to such a plan as a substitute for Social Security. What would be the advantages and disadvantages of such a system over the present system of retirement income?
A hip-shot reaction to the idea suggests to me that such an approach has a number of advantages over the present system but has the disadvantage that it might encourage idleness. What do you think?
There you go again with that mandatory word. While that is the best way to make it work, it is not politically feasible. I do think it would work. It sounds somewhat similar to what a number of the Asian countries do for retirement.
I was looking at data on poverty rates back to the 1930s. Charity did not work that well. Savings for the poor were minimal. With our two tiered society, and I expect this to worsen, it might be the only way to have a workable retirement for most people. That, or we just learn to accept old folks eating cat food and living in sheds.
Steve
FICA is mandatory. It doesn’t seem like a major barrier to me.
I wonder if you have to work instead on cost of retirement.
If the US had stacks of low cost, low crime, apartments a lot of things would change. Heck, if you could give kids today a place of their own with fast internet for $500, you’d free up a lot of money.
What was the term … deadweight loss?
How many ways will we suffer as we try to keep everyone’s real estate high?
“FICA is mandatory. It doesn’t seem like a major barrier to me.”
And when was it instituted? Times have changed.
Steve
If the US had stacks of low cost, low crime, apartments a lot of things would change. Heck, if you could give kids today a place of their own with fast internet for $500, you’d free up a lot of money.
Five years ago, I lived in an apartment complex with high speed internet for $300 a month. The problem is, so did a lot of undesirables. That’s the problem with low-cost living arrangements. The people who live there are the people that can’t afford much of anything else.