>>>>>> PANELIST: Robert D. Reischauer wrote:
(It is worth noting that people accept the uncertainty inherent in arrangements like IRAs and 401(k)s, in part, because they also expect to receive an inflation protected basic pension from Social
Security.)
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I do not believe that this is an accurate depiction of the reasons why those retirement vehicles are so successful. I, as well as others I work with, contribute to these programs because a) it shelters money from current taxation while providing growth of capital, in the case of 401k, up to $10K can be sheltered; b) in my view, and those of others I work with, SS will be only a meager portion of retirement benefits, so to get ahead wealth have to be created by saving/investing and compounding of capital.
In any case, if the reason was that IRAs and 401k resources are "play money" to attempt at striking it rich because SS will be there to support me if I/we fail, then why do these programs offer low risk/low yielding instruments that people widely pick, or why would I bother investing in mutual funds when I could get a better return by picking individual stocks.
In reality, my IRA and 401k are the only resources I count on for retirement. SS is not going to be there for me; and if it is, it will be used to offset the high taxes that the ss scheme will require to provide that benefit for me and others. Then, we will be robing from Peter, the young workers, to pay Paul, us and treasury bond holders; why do we want to do that to our kids?
>>>>>> PANELIST: Robert D. Reischauer wrote:
If history is any guide, individual accounts, even if invested in the same assets, will generate highly variable pensions for cohorts only a few years different in age.
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But, so will any other scheme.
* If the current system is kept intact, benefits will have to be lowered, a lower benefit when compared to the current generation of recipients.
* When payroll taxes are raised to cover the shortfalls of the system, future generations will get even lower returns on their $$$.
* When income taxes are raised to cover the debt to SS, our benefits will be taxed higher; thus, reducing the net gain of receiving that benefit.
* Under the fully-funded system you support, during economic downturns, the formulas for defined-benefits will be adjusted to cover the shortfalls; thus, making the group of beneficiaries under the system receive a lower benefit than other before or after them.
The notion of government assuming the risk is bogus because the government does not create wealth, it taxes it from taxpayers, so the risk will continue to be in the back (and pockets) of workers.
What a fully-funded privately owned system will do is to provide the freedom and security to all workers that cannot be achieved by any government run system. Workers will be rewarded by their hard work, not a formula; and they will be able to retire when they deem it appropriate, not when the formula so dictates. Workers will be owners of the private economy, not dependent on the whim of politicians and burdens on the economy.
