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Retirement Planning > Social Security

We Need a Better Fix

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Tom Harkin wants to fix the retirement system, or so the chairman of the Senate Health, Education, Labor and Pension Committee said during a conference organized by the National Institute on Retirement Security on March 8th. Is the system broken? As a millennial, I am not on the cusp of retirement but if you pose this question to a boomer, they may have a more temporal answer. I am willing to go out on a limb and say that most people who were planning on retiring this year have pushed things back a little.

Harkin said, “Forcing people to manage their own retirement funds isn’t working, few workers have the background needed, the interest or the time.” That flies in the face of personal fiscal responsibility. The idea that I would be forced to have my retirement dollars pooled and managed by professionals in a portfolio turns me off. After all, if I want to keep it under my mattress I should be able to. But I think that Harkin may have a point when he says that some people don’t have the background needed or the time to manage their retirement income.

It is the season of college spring break and I remember coming home from college to Westfield NJ, in 2005 and waking up one morning to a huge security presence in our town. It was brought to my attention that George W. Bush was there to hold a town hall meeting where he was expressing his wish for a transition to a combination of a government-funded program and personal accounts through the partial privatization of the social security system.

Now, here is where Mr. Harkin’s statement rings true. If people are given the choice between paying payroll taxes into the current social security system or missing out on potentially high rates of return through investing in individual accounts, most will decide to go with the individual accounts even though they may not have the “background, interest or time” to understand the underlying risks involved. It is a combination of hubris, ignorance and most importantly, the sly manner in which their choice is framed and explained to them. At that town hall meeting, President Bush went out of his way to say “one way for a younger worker to come close to what the government has promised is to be able to take a portion of the money and get a better rate of return on your own money than that which the Social Security system gets.”

Now, why would anyone in their right mind not want to do that?

The way the President’s statement was phrased seemed to heed no warning of potential market volatility or the devastating impact that it could have on an individual who opted for investing in a private account. So, people with no “background, interest or time” would most likely have chosen the private account option.

It is almost exactly six years to the date that President Bush made that speech and we all know how things have changed. The grim exercise of imagining what shape people would be in had Mr. Bush’s proposal gone through and been effected by the Great Recession is an undertaking I would rather not participate in. We have seen 401(k)s and IRAs decimated. Good thing the social security safety net didn’t go down with it. But hey, I may not have the background needed, the interest or the time to make these kind of statements.


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