Centerfield

How hard should Uncle Sam work to make sure eveyone looks out for themselves? How much should we be protected from our own ?stupidity, ?laziness?

You've read my mind. This is what I was thinking about.

I've maxed out my contributions for the last decade. LOOOVE those matching contributions and tax breaks.

Of the forty people working in the lab there seems to be three categories:
1) Those so poor that even 10 dollars a pay check for a 401k would mean they could not meet the rent.
2) Those who refuse to acknowledge a problem with SS and unwilling to make alternate plans (clueless, in denial or screaming "I paid it in I want it back").
3) Those who acknowledge a problem with SS and are preparing for it.

The more education a person has, the more disposable income is available and the more likely they are to use the 401k..

How hard should Uncle Sam work to make sure eveyone looks out for themselves? How much should we be protected from our own ?stupidity, ?laziness?

That's one way of looking at it. But realistically, it makes sense to me consider that we live in a democracy. Do you expect a collapse in SS to just leave millions SOL or do you expect those "stupid" people to vote to raise taxes to fund the continuation of SS at the expense of the "smart" people.

If you're truly smart, don't you have to consider that in a democracy other people's stupidity and shortsightness could easily become YOUR tax burden? What if the "stupid" people's plan is to stick it up the buttpipes of all the "smart" prudent people. It doesn't even have to be a plan, per se, for it to happen.

I'm worried about protecting myself from the effects of other people's short-sightedness.

bk;
I asked the question not from any political vantage point. A bit of background. I'm a physician and I daily see folks who's bad choices (i.e. not wearing a helmet as a motorcyclist) lead to very bad outcomes.

Many states have created mandatory helmet laws because they know its cheaper (i.e. less serious head injuries, fewer chronic brain injured patients in long term care under Medicaid). And on top of that most people would prefer not to have a serious head injury. I support these laws.

BUT I just wonder what are the limit's a state's paternalism, even if it saves dollars. How much "freedom to fail" do we give folks?

I used to max out my 401k, but then I bought a house. It would be foolish of me to continue maxing out my 401k when that money would be better spent on preventing interest from accumulating on my mortgage. Now I only contribute to the degree my company will match.

Many people make the mistake of contributing to their retirement rather than paying off their present debt. With the high levels of debt accumulation in America at the moment, I think more people should be paying down what they owe now, rather than worrying about SS or their 401k status 30+ years from now.

Let's also not forget the importance of diversification. A company matching an employee's contributions is great, but if you worked for Enron then you're screwed. You should put money into stocks, bonds, CD's, and even a savings account as well.

Also remember that 401k's fluctuate. They aren't guaranteed to make money. I know a lot of people who would love to retire right now, but their 401k's are badly damaged by the recession. Some of them will be working into their late 60's to compensate.

Oh yeah, and pay down your debt first!!!

It's so simple isn't it?

I don't think this is an issue of "smart" vs "stupid" people. We live in an economy where everything is priced to take every last cent out of our pockets. With credit cards they are now taking even more than that. I can pay into my 401k, stocks, bonds, etc because I make an above average salary. If I worked at McDonald's, I would be screwed, and somebody has to work at McDonalds in our society.

I think most people are ignorant about the importance of saving for the future. Retirement isn't an immediate concern. Our current expenses and (perceived) financial needs trump any reason to save money, which is why we see so much debt these days.

Complicating the matter for those who might choose to save for retirement are the investment decisions that follow. I'm lucky, having worked for a major mutual fund and brokerage firm for five years, but for most people, it's difficult and intimidating to choose from among many, unfamiliar mutual funds.

When faced with difficult choices (whether it's to reduce your income by 10-15 percent or to choose between a "value" fund and a "small cap" fund), it's easier to do nothing.

My employer's match is anemic to say the least. Suffice to say that my 5% contribution far exceeds my employer's contribution.

I dunno about anyone else, but my 401K investment returns have sucked over the last couple years. There have been quarters where the only reason why my net holdings increased was because I was dumping money into it. And even then some of my contributions were simply offsetting losses. Which makes me question the wisdom of Bush's SSI investment scheme, based on my own personal experience.

I read somewhere that the average individual investment in the stock market didn't keep pace with the returns that SSI gets. It was pretty close, though. Still... if we're talking investing for retirement, I think it's relevant.

Wish I could remember where I read it. Maybe I heard it on a radio talkshow program... Hmmm... I think maybe that's where I heard it. Thom Hartmann, I think.

Chris, I think you are on target in wondering how much freedom we should give people to fail. And I probably lean your way in thinking too much freedom could be costly. And it makes sense for each such decision that we look at what happen in that particular case, checking out how the people with freedom do.

My sense of how people do with their investments leads me to think that an integration of investment into SS should be limited. Any attempt should be small at first, and I'd be very leery of going over 1/3 or 1/2, at least until we had seen how it was working out over a period of close to a generation.

And, I would want the investment choices to be a fairly limted menu, probably something in the neighborhood of not much more risky than an S&P 500 index fund. I'd probablystop short of lettting people toy with individual stocks and definitely short of derivatives and speculative futures and options.

Another important factor to consider is that old folks tend to get a little befuddled, they are the number one target for scam artist. A seventy year old is the last person who should be holding the purse strings.

It's hard for me to watch my dad slowly loose his faculties. Luckily he's a retired used car salesman, so he can smell a con just by reflex, but that doesn't stop telemarketers from trying. I don't know how they found out he's retired, but since then he's gotten more calls from phony “bankers” and “Social Security Officials” than I've got in my entire life. His Fidelity mutual fund was embellished by a Fidelity employee (he was reimbursed by the company). While Merrill Lynch has been outright abusive in trying to get him to “churn and burn” his stock market account.

I myself got ripped of by Putnam in an IRA account when they charged more in “fees” then the account ever earned.

Wall street types are scum and should never be given access to Social security money.

So, why are we going to privatize SS? Is it because the system is considered to be actuarily unsound? Or is it because the federal government has no right to tax our income for the sole purpose of redistributing it?

Those are important questions because those that say investment choices should be limited must feel it's okay for the government to be in the retirement business; they just need to do a better job of it.

How about making privatization voluntary? Those that want the same system can keep paying in, those that want to invest the money themselves can do so. Maybe it's too actuarily difficult, but after an initial period there should be enough data to adjust the forumulas.

What about fairness? Why isn't investment and savings income subject to FICA taxation? Why is it only wage earners have to pay? Doesn't this exclude a significant number of disproportionately well-off people from having to pay a regressive tax? If we're going to radically change the system now is a good time to put everything on the table.

I'm an expert on baby boomers because I am one. This country has never had a generation that has taken so much and given so little in return. I predict with a great degree of certainty that what ever happens this decade, the following decades boomers will vote in their own economic interests until they die off.