Investment? Social insurance?
- Date: Tue, 25 May 1999 23:06:05 -0400 (EDT)
- From: "Steven H. Johnson" <info@sscommonsense.org>
- Subject: Investment? Social insurance?
What would we say of a rule that required every would-be motorist
to have on deposit when they start driving the full cost of
medical treatment for the victims of any accidents they might
have?
What would say of a rule that required every new home buyer to
have on deposit the full cost of replacing the home, should it
happen to catch on fire and be burned to the ground?
We'd say that the effort to apply an investment model to what is
obviously an insurance problem is not such a smart thing to do.
In the early years of a cohort's retirement, most members of the
cohort are still alive. Financing the early years by using an
investment strategy is not such a bad idea.
In the latter years of a cohort's retirement, though, some members
will have died, others will still be alive, and no one in advance
can predict which will die early and which will live a long time.
So, in the latter years of a cohort's retirement, the attempt to
apply an investment model may not be so smart.
That's why I favor a two-track approach. Accumulate investment
capital in private accounts to cover the first ten years of
retirement. Accumulate capital in the Social Security Trust Fund
to cover the later years of retirement.
No rocket science here. Let's put the square peg in the square
hole, and put the round peg in the round hole.
-Steve Johnson.