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How to be Secure in Old Age

By Theresa Fritz Camoriano

Imagine that a person walked up to you on the street and offered to take care of you in your old age if you would just give him 15% of all your income until you turn 65 years old.  How would you respond?

Would you ask how he planned to invest the money? (What if he said he planned to spend it all right away?)

Would you ask to see the legally binding contract by which he was required to repay you? (What if he said you didn’t need a contract – that you should just trust him?)

If he gave you those answers, chances are good that you would laugh at him and walk away.

But what if we asked those same questions of the government about its social security system?

How does the government invest your money?  It doesn’t invest your money.  It spends the money right away and then promises to pay itself back.  Most of the money goes to pay benefits to current retirees, and the rest gets spent along with the rest of the general fund.  There is no “lock box”.

Where is the contract requiring the government to repay you? There is no contract and no legal obligation for the government to repay you.  You are giving the government roughly 15% of your income (including the employer’s matching portion), and you will receive in return whatever the government chooses to give you whenever it feels like giving it.  The statements that have been mailed to you telling you what you can expect to receive from social security are not legally binding.  In fact, they aren’t worth the paper on which they are written.  And, if you die before retirement age, you receive no retirement benefits, and no portion of the money you paid into the system will be available to your heirs.

If that is the case, then why are so many people so strongly supportive of the current system and so upset about the prospect of “privatization”, by which people could begin to pay into their own self-directed retirement accounts, invested in a mutual fund, certificate of deposit, annuity, or some other investment?

Perhaps the answers are the following:

1.      People who are currently retired or near retirement age are afraid that any change to the system might reduce the payments they will receive.  You can’t blame them for their concern, but nobody is suggesting such a change.

2.      Many people are afraid that their personal retirement account might lose money if the stock market went down, and then they would have difficulty retiring.  Of course, that is a risk, but, even in the worst of markets, 15% of their income invested on a regular basis would result in an account with a substantial amount of money that they could use for retirement or could pass on to their children.  It would be difficult for them to do worse than what is planned under the current social security system, where no money will be earmarked for them.

3.      Many people want to shift responsibility for their retirement onto someone else, like the government.  If they don’t have the responsibility, then they feel more secure, trusting that someone else will take care of them better than they would take care of themselves.  Some people actually feel more secure with a bare, unenforceable promise from lying politicians than with actual money in their own retirement accounts.  They seem to think that money from the government is manna from heaven, coming to them independently of the productivity of the economy and unrelated to the condition of the economy.  But those people are deluding themselves.  Government money is not manna from heaven.  The government depends on the productivity of working people for its income, just as the stock market depends on the productivity of working people for its value.  So, if the economy is bad and the stock market is down, the government will also be having difficulty coming up with money to support retirees.  The risks may be more hidden, but they are every bit as real.

What kind of politician would try to tell you that you are better off with a bare, unenforceable promise than with your own money in your own personal retirement account?  Perhaps a politician who is willing to lie in order to obtain power?  Perhaps a politician who wants you to be afraid and dependent rather than confident and independent? 

If you would walk away laughing at the man on the street who offered you a lousy deal, why would you be willing to make the same lousy deal with the government?  As for me, I wish I could walk away from the government deal and invest my 15% as I choose.  Unfortunately, in a supposedly free country, the government won’t let me have that choice.

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