"1. Would personal accounts place an unacceptable amount of risk on some individuals who are ill prepared to bear this risk?"
Response
This sounds paternalistic. Under a system of private accounts there also should be a minimum means tested supplemental benefit to assure a minimum standard of living even if a person's personal account failed entirely. Hence, the risk put upon the individual would be that of having to live their elder years at the very minimum benefit level. This risk would constitute the moral hazard against a choice to invest in wild schemes in the hope of striking it rich.
Dr. Reischauer asks:
"2. What would happen to the social assistance now provided by Social Security under a system of personal accounts? After all Social Security is the most effective and least controversial anti poverty program that the nation has. It helps boost the retirement incomes of those who had low earnings during their working years, survivors, spouses with limited attachment to the labor force, and divorcees."
Response:
I would suggest that Social Security is wrapped in an idealized aura of good feelings because for so many years it was the golden goose that laid the golden eggs. But if Social Security is not "controversial" it is because it is least understood. As an anti-poverty program, it may be achieving its goal at the expense of the American Dream. Its income redistribution operates for the most part only within the middle class itself, creating a barrier to economic advancement for those within the middle class.
As for the other concerns about survivors, spouses, etc., these issues can be addressed within the context of a system of individual accounts.
Dr. Reischauer asks:
"3. Would administrative costs eat up a large portion of the returns in a system of personal accounts? Could such a system avoid excessive complexity?"
Response
I don't believe a cost comparison between the existing wealth transfer Social Security system and a fully funded, wealth creation system of personal accounts is justified. We're talking apples and oranges here. A system of private accounts that generates wealth probably will cost more to administer. There should be government regulation of this aspect of a new system to assure reasonable costs.
Dr. Reischauer asks:
"4. And would such a system be politically sustainable?"
Response
I don't know how to respond because of its potential breadth. Can you be more specific?
Dr. Reischauer writes:
"I think the answers to these questions make personal accounts an inappropriate way to provide American workers with a secure source of basic retirement income upon which other types of retirement income-like pensions and personal saving-should be built."
Response:
Social Security is not secure for me or for my children.
Dr. Reischauer writes:
"Worker already have ample opportunity to invest for their retirement through tax advantaged vehicles such as 401(k) plans and IRAs that offer individual control. Everyone should take advantage of these saving instrumnents."
Response:
For many and perhaps most young people, this is highly unrealistic. Census Bureau figures show a decline in real median incomes for all age groups under age 45 in a comparison of figures from 1973 and 1997. And this decline exists even with two income families, to many of whom much additional expense is also incurred just to allow both spouses to work and to care for their children. Perhaps this is why, even in these so-called good times of the late 1990s, bankruptcy rates have soared. In fact, bankruptcy filings have more than doubled since 1990.
Finally, I want control of my own destiny. If I am going to fail, I want to do it on my own. I don't want to feel the helplessness I have felt regarding Social Security.
Plans for collective investment of payroll funds promise only to yield the meager amount of Social Security benefits that have been promised. This is presently the only money available for most younger people to provide for their retirements. There is no more for saving, and there is no pension. But 10+% of payroll should be enough to begin to fund a decent retirement.
