Personal Retirement Choice

October 18, 2002

A recent article in the American Prospect illustrates the key reasons that private investment accounts are more desirable than the current pay-as-you-go system.

Author Teresa Ghilarducci points out that many current retirees' benefit levels are not sufficiently providing for their retirement, causing many older people to work past retirement age. She writes, "They are working not for the social or intellectual stimulation but out of plain economic need. They are working because America's pension system is collapsing -- and the more it collapses, the more older Americans will have to work."

Numerous studies have confirmed this observation. The pay-as-you-go system is unsustainable financially, and undercuts the ability of individuals to plan their own lives and make personal choices about what is important. It negates the possibility of early retirement for most workers, because it doesn't allow them to reap the much higher rates of return available to them through careful, smart investing. Over the long term, a cautious investment plan would provide workers with more than enough capital to provide for a comfortable retirement. Diversification among a large range of investment vehicles would allow them to minimize greatly the risks of investment while at once allowing them to retire when and how they wish.

Ghilarducci writes, "It is a failure of national policy when more and more of the elderly have to work out of sheer economic necessity. If we want retirement to be available to most Americans, as it was during the post-World War II boom, we need major policy changes so that all working Americans will have secure pension plans as complements to Social Security -- and to shore up Social Security as the anchor of the system."

The only way to "shore up" Social Security in the long term is to fundamentally reform the system by introducing fully funded, voluntary personal accounts. This option is preferable for two key reasons: First, it should provide a much higher rate of return than the current system; second, it will allow for personal value choices to be made by all workers.

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