You don’t. And truly the costs to taking too little risk could be large… if you’re willing to live with the alternative. But I know you don’t want to live with the alternative: that people actually fail. So… I don’t get it. I don’t like subsidizing businesses because I expect businesses to take risks and I expect them to fail and that’s life—don’t start a business if you can’t stand the thought of failing. I don’t mind subsidizing people because I don’t want people to fail. But to refuse to subsidize people until they’ve failed seems misguided. Why wait until the house is burning before you consider buying a fire alarm? Everyone will be old and anything could happen to their savings; if we’re not going to let them fall off the bottom then just… don’t let them. But that’s exactly what we’re doing: not letting them.
If you don’t want birth control, you don’t take it, and no one else is paying for it. If you never retire, you never get your SS and no one has paid for you, either. Right? I mean, they’re not sending you SS checks and birth control that you just throw out, right?
And we’re into adverse selection again. Without a mandate, those who can take care of themselves will; and the poor? There is a reason they are called, “The Poor”.
What percent of the population will have the income equivalent from their private investments? And the rest are a destitute drag on the economy, spending nothing?
I don’t see any other outcome. No payroll taxes going in, massive benefits being paid out. It is a deliberate plan to render SS insolvent. And that is not good for the rich, either.
No, I was merely pointing out that people don’t have access to personal financial advice, tend to listen to bad advice from people they know or have heard of, and act on that bad advice. I wasn’t making any argument; I was simply responding to your post.
As others have pointed out, people are allowed and encouraged to save additional money for their retirement, and there are incentives to do so; many of these accounts are tax-advantaged in one way or another. You can walk into just about any financial institution and open an IRA or similar account, save some money each month, and invest it however you wish. The bonus here is that there is a human handling your account and who can make valid recommendations based on your goals and wherewithal so you don’t keep your money in a fund that won’t meet your needs.
There are, however, some disincentives to doing that, many of them having to do with human nature. If I’m contributing the maximum of (say) 5% of my pre-tax earnings toward the company 401(k) in order to get the maximum match, I may not really want to devote much more to a private retirement account. I may not be able to contribute more because of where I am in my life. I may also be relying on some online calculator or personal finance guru that tells me that what I’ve got in the 401(k) is enough and that I don’t need to add more.
That said, people don’t make financial decisions based on what economists and policy wonks say. They make decisions based on what they know and understand. They suffer from confirmation bias. They understand the advice given by their favorite guru or brother-in-law, and they act on that. To pretend otherwise is to deny millennia of human nature.
How can you say “no”, and then go and write more about how people are too stupid to made their own investment decisions? That would be “yes”.
And you completely ignored what I wrote about the government being able to restrict the kind of investments people make in such retirement accounts. Sure, most people have access to this in addition to SS, but there’s no reason to assume we have found the perfectly correct balance of the two.
Stop using the loaded word “stupid.” We know full well that there are many psychological factors that cause many people to make bad investment decisions. Defaults, loss aversion, for instance.
Remember how before investing in 401Ks became the default lots of people didn’t do it? That didn’t happen because they were stupid, but because they took the default choice. Experiments showed that when investing became the default option, numbers skyrocketed. One interesting discovery - if they made the default investment amount something below the max, say 2%, money invested actually went down.
An obvious retirement strategy is to have a guaranteed base income, and then take more risks beyond that level if you have the money. which is exactly our current system. Your assumption that the government would make good any losses by the poor is just laughable. I can just hear the conservatives bemoaning the big deficits during a time of reduced tax revenues. Plus, having most Americans not part of the Social Security system will hurt support for it. I can just hear that p.o.s Ryan bloviating about how unfair it is for people who made good decisions to bail out those who made bad decisions.
I’m really surprised that you’ve taken up residence in that libertarian fantasy land where almost everyone is a financial expert and a medical expert and we don’t need government to make decisions for us. I posted the average 401 K amounts. Is $155K enough to live on for 25 years even given social security?
Feel free to read “stupid” as “uninformed” if that makes you feel better.
Stop throwing up strawmen.
What part of “you are required to invest ‘x’ amount of money in only a few, conservative index-fund type investment vehicles pre-approved by the government” do you not understand?
many of the experiments done on this were done with business majors, often in MBA programs. Uninformed? I don’t think so. People are uninformed, but being informed is no guarantee that you are not going to fall into the trap.
Diversification is fine - until a person notes that part of his portfolio is underperforming and decides to move it into the better performing part - because why give up the money? homo economicus is as mythical as Bigfoot, yet so much of conservative economic policy depends on his existence.
If people do such a good job managing their IRAs and 401Ks, where is the money?
But yeah, there’s a reason that if we talk about privatization of a government run program that the government has a say in the type of investment vehicles that are allowed, since they’ll have to bail people out if they make [del]stupid[/del] bad decisions.
Wouldn’t a federally-mandated 401(k) contribution managed by a private third-party investment house run afoul of the same Constitutional limitations that the individual mandate of the ACA is currently up against?
Not if you are allowed to opt out and stay in the SS system. That was part of Bush’s plan, too. Not that I think his plan was the be all and end all, but it actually had much more going for it than you would think be reading all the hysterical reactions. It was to be phased in slowly, didn’t affect anyone over (IIRC) 45 or 50, and was only intended to replace a part of SS.
So really we’re just arguing about the size of SS then, right? And only the retirement income insurance part? Because SS + private retirement accounts (with tax incentives) is exactly what we have now. You’re basically just arguing for an optional SS reduction (I cut my SS contributions by 20%, say, with a commensurate reduction in benefits).
To put my cards on the table, that type of system (public funds invested in private accounts) sounds like as bad a half-measure as the ACA’s system of public funds for private health insurance. I much prefer my entitlement programs to remain wholly public or wholly private.
Let the public sphere handle the cases that the private market can’t (provided a basic level of retirement for anyone who works their whole life regardless of their investing prowess and market conditions at the time of retirement) and let the private market handle everything else.
So I’ll ask again - do you really think that Republicans in Congress would get behind an increase in the deficit to bail out people? And I have no doubt that they would call these people stupid.
If you remember, the deal was that putting the money into the more general market would increase returns, with the implication that there would be no more risk. In fact, around here a lot of people posted about how the Dow went up over every ten year period. This was of course just a few years before it didn’t.
Totally ignoring the ironclad rule that higher returns always involve higher risk is exactly the kind of blindness I was discussing.
There are also problems about what happens when you pump all that money into the market, and about fund selection, but that is secondary. The Swedish economy is a tad smaller than ours.
I agree with you about mixing public and private. We did that with Fannie Mae, and that didn’t work very well.
