Social Insecurity? (April 7, 2008)

[Scene – Three guys sitting around the den on a Tuesday night.]

“Your parents have a ‘defined benefit plan’ which is paying certain amounts at regular times.  You have something called a ‘defined contribution plan.’  You must make the contributions yourself.”

. . .

“At least you won’t lose anything.”

. . .

“Exactly.  You are on your own.”

. . .

“How will privatizing the social security scheme help?  If you don’t contribute anything now with a beta version of the plan in place, why would you suddenly feel some great urge to contribute if the program were expanded?”

. . .

“I get my statement from the Social Security folks every April.  It is sort of a taunt.  I reflect on what I have paid and what I could have done with the money.  But here’s the dilemma.  If they completely privatize social security, I will make money, you guys won’t.”

[Nervous laughter.  Panicked eyes.  Shifting in seats.]

“That still leaves me trying to figure out how to take care of you guys.”

. . .

“What if the tax were imposed on all income and the funds were invested and each person were provided a property interest in a defined sum?  Everyone receives a small subsistence payment upon retirement.  Those who are industrious, talented, tenacious or lucky are free to acquire more and to retire with more.”

. . .

“The nagging problem is that there is no way to guarantee that the government will pay or even be able to pay benefits.”

Bumper stickers of the week:

What’s said in the den stays in the den.

Be careful what you wish for.

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