Social Insurance or Mandatory Individual Saving?

[Reed Davis <rdavis2@ix.netcom.com>]

Robert D. Reischauer wrote:
>
> Mr. Davis raises a fundamental issue in his May 23 comment/it is whether
> Social Security should be a social insurance program or simply a system of
> mandatory saving for retirement. If it's nothing more than the latter, the
> case for personal accounts with a good deal of worker control over
> investment decisions may make more sense that if we are trying to structure
> a social insurance program.
:
> What happens to those who end up with account balances that are
> insufficient to support an adequate pension? Mr. Davis suggests that they
> should be supported by welfare (SSI).
>
You must be confusing me with someone else.  I did not express support
for individual accounts, at least not for accounts that are to provide
discretionary retirement income.  In my May 21st message, I stated
"it's not clear to me that the government should be mandating saving
that is, by definition, discretionary".  In addition, I have never even
mentioned SSI.

In my view, the current Social Security system combines the functions of
a safety-net, insurance, and a retirement system.  I believe that there is
a valid argument for the government requiring all citizens to have some
minimal level of retirement and disability insurance.  A person may say
that they expect nothing from the government, that we can let them starve
if they are unable to provide for themselves in retirement.  But, of course,
that will never happen.  Someone (likely the government) will end up picking
up the bill in this case.

Those whose incomes are judged to be too low to pay the full premium for this
minimal level of insurance would fall into the safety-net.  Hence, everyone
would carry at least this minimal level of insurance.  Given this, I see no
reason why the government needs to mandate individual accounts for additional
retirement income.  If someone wishes to live at a higher standard of living
than that provided by the minimal level of insurance, that's their choice.
The government might provide education or incentives to promote additional
saving.  But I see no rationale for mandating it.
>
> Unlike many other countries, we are pretty miserly when it comes to
> welfare and welfare is viewed as demeaning.
>
I don't rush to judgement about those who receive some type of welfare.
It doesn't sound like you do either.  However, I think that all government
policies should be open to public scrutiny.  We should be convincing others
of the correctness of some level of safety-net, not hiding it from them.
Only by confronting the policy openly can we hope to strip away any
undeserved reputation that "welfare" might have.
>
> I think a fully funded social insurance system whose reserves are invested
> in a diversified portfolio of private and government assets is the best way
> to assure basic retirement income for all workers and their dependents.
> This should be supplemented with personal retirement saving (IRAs) and
> employer-sponsored retirement plans (401(k)s) in which workers can exercise
> their taste for risk without jeopardizing their basic retirement incomes.
> Others advocate a system of mandatory retirement saving back up with a
> welfare safety net.
>
As I said, I think the primary purpose of Social Security should be to
provide a minimal level of insurance, not provide discretionary retirement
income.  Howver, any safety-net that this insurance is combined with should
be open to public scrutiny.

Reed Davis