Re: Complexity

[National Dialogue Moderator <moderator>]

			Re: Complexity


I love the idea offered by Bob Reischauer that we should think of the 
nation's giant retirement program the way we think of automobiles or 
computers--complex in ways we just don't need to bother ourselves with.  This 
is so profoundly at odds with my views that I only wish we had more time to 
debate!

You be the judge.  Do you think that you--or your wife or husband or mother 
or father--need to be able to answer these 2 simple questions?

--  I'm 60 years old.  How much will I receive when I retire?  (I take it Bob 
thinks this question worthy since he's concerned about benefits relative to 
pre-retirement earnings.)  With social security as it is now designed, the 
answer depends on how many years you worked under social security and what 
you earned while covered by the system--the more years, the more 
continuously, and the higher the earnings, the better in terms of benefit 
level but the worse in terms of implicit rate of return on taxes; which year 
you plan to retire--benefits could be reduced for early retirement or 
increased for delayed retirement; whether you continue to work while drawing 
benefits--which could increase your benefits for delayed retirement but 
result in a loss of benefits because of the retirement-earnings test; and how 
large your other income is--benefit taxation kicks in when your income 
reaches a certain level.  It also depends on whether you are the primary 
worker in your family or whether you are the spouse who will be drawing on 
your husband's or wife's account.  If the latter, your benefits will also 
depend on whether you earned a pension from non-covered employment, perhaps 
you were a school teacher for a while, which could reduce your benefits.  It 
also depends on whether Congress changes the law at any time between now and 
the time you (or your spouse) die.  

Ask yourself the same question about your 401(k) plan.

--  If I die tomorrow, will my spouse receive benefits and how large will 
they be?  Answer depends on how old you are, how long you've worked under 
social security and what your earnings profile has looked life, how old she 
is, whether she works while she's drawing benefits, whether she has any of 
your children in her care (wouldn't matter if she had a dozen from a former 
spouse--no benefits for her if she's not of a certain age), whether she's 
worked in uncovered employment and gained a retirement pension of her own, 
etc. etc.  If it's a former spouse you're concerned about, answer also 
depends on how long you were married and whether she's remarried.   If you're 
middle aged and your spouse's benefits may not begin for a number of years, 
answer also depends on how Congress changes the law.  

Ask yourself the same question about your life insurance policy.

The list of questions and complexities goes on and on.  Note that I'm not 
referring to complexities of the "bend points" in the benefit formula or how 
your wage history is indexed to wages while benefits are indexed to 
prices--these are technicalities.  I'm talking about the complexities that 
affect what you and your family receive or what you can expect to receive, 
which affects your ability to plan for the future.

Who cares how a computer works as long as it allows you to do your word 
processing or spread-sheets or allows you to send and receive e-mail--and as 
long as you can call a specialist to fix it promptly when it breaks.  Who 
cares how your car works as long it starts in the morning and takes you where 
you want to go--and as long as you can call a specialist to fix it promptly 
when it breaks.  Everyone should care if you don't or can't know, with some 
reasonable certainty, what you and your family will receive from social 
security under various reasonable circumstances.  Who do you call to fix that 
problem--and how long will it take?  What can the specialist tell you when 
future Congressional changes are unknowable?

As for personal accounts and complexity, that's like saying you're 401(k) 
plan--or the Federal Thrift Saving Plan for federal employees--is complex.  
Think about which details do and do not matter when you get a regular 
statement showing you your contributions and net investment earnings, and you 
know the date on which you can begin making withdrawals (with personal 
accounts, there are no early retirement penalties, delayed retirement 
credits, or retirement-earnings tests to contend with), and you know the 
withdrawal options (for example, life annuity w/ survivor benefits, phased 
withdrawal based on life expectancy, or unrestricted withdrawals).  What 
details matter when you can go to your plan document and learn what you need 
to know, when you need to know it--and you know that you are protected by law 
and regulation against false or misleading plan documents?  You also know 
that you own what you've accumulated in your account and that all of the 
document changes in the world can't take it away.


Carolyn Weaver