In a previous post
in this series, I criticized proposals to raise the eligibility age for
Social Security and Medicare. It is already getting harder to save
enough for a comfortable retirement; raising the eligibility age would
just make it still more difficult. In this installment, I turn to
policies to encourage retirement saving, explaining why our current
system is not working well and suggesting some alternatives.
Why should we make it easier to retire? Grasshoppers vs. Ants
We can start by asking why making it easy to retire should be an
objective of public policy in the first place. The fable of the
grasshopper and the ant is the lens through which many people view the
issue. The ant works hard and saves carefully all summer, while the
grasshopper sings and dances. When winter comes, the grasshopper begs
for a handout. The fable portrays the ant as justified in shutting her
door to him. Why should the government, as agent of the ant-like
taxpayers that pay its bills, behave any differently toward grasshoppers
who don’t have the self-discipline to save during their working years?
The most common response is to justify government support for
retirement as a form of social insurance. Life is full of risks. For
retirement saving, the relevant risks include spells of unemployment,
health problems, the risk of losses or low returns on retirement
savings, the risk of inflation, and last but not least, the risk of
outliving one’s savings. When we take those risks into account, we
understand that some people will reach retirement age without adequate
savings not because they are grasshoppers, but because they are unlucky
ants. Many of the risks that can thwart the best-laid plans for
retirement savings are neither under the control of individuals nor
privately insurable. Only the government is in a position to pool the
risks broadly enough to guarantee a minimum level of retirement income
for everyone. >>>Read More
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