April 11, 2018

How the government can improve retirement savings

James McCusker, Everett Herald, WA - The U.S. government got into the retirement business almost, but not quite, by accident. In the 1930s the feds stepped into the picture with the creation of Social Security, which initially was intended to keep people out of the poorhouses, dependent on charity, by providing them with a regular, subsistence payment.

Through politics and human nature, this concept gradually developed a romantic attachment to the retirement idea, with the result that today Social Security is viewed by many as part or all of their retirement income.

Beyond the unstated political purpose of buying votes, there are two basic motives for government’s desire to set up savings and pension funds. The first is a government version of paternalism toward the millions of people who are not making sound financial decisions for themselves.

There is a kind of crazy logic underlying this motive, because nobody makes worse financial decisions than our federal government. It consistently lives beyond its means, has no savings, is in debt up to its ears and the public retirement system it set up itself is now devouring its own solvency.
The second is a form of self-interest. The premise is that a growing number of people make bad financial decisions and have no savings are eventually going to become public welfare cases of one sort or another, and taxpayers will end up holding the bag. Taxpayers will not like this, and politicians’ heads will roll. If, instead, government guides the bad decision-makers into a lifetime savings program, fewer will end up that way. That will mean that the bag handed to the taxpayers is smaller — and the political price paid will be lower.

Washington state is in the vanguard of states setting up pension savings plans for the millions of workers not covered by any existing employer-based plans. Although many states have passed legislation covering plans, and others are considering one, our state and Oregon, in fact, have the only programs functioning. These state programs are aimed at those who have jobs but don’t have a regular savings plan. It encourages those who would be rejected by most existing investment plans. Washington’s plan can be started with $5.

That is the area that the federal government could be very helpful in — savings plans for those without nest eggs and without any history of a personal savings plan. The feds should revive its savings stamp and improve its minimal savings bond programs to involve youngsters and encourage them to develop lifetime savings habits. The K-12 schools should be involved, both in a fresh curriculum in personal finance and in explaining how savings plans work. And the U.S. Postal Service can help with attractive savings stamp booklets, perhaps along the lines of its commemorative stamp series on national parks, wildlife and American history.

We can do this and make it work. And we should.


Hubert said...

Enacting single Payer health care would do wonders to boost everyone's retirement savings!

Anonymous said...

Single payer health care and a minimum wage that is indexed to inflation or even better indexed to average labor productivity. A proper public transport system so low income people don't have to spend ridiculous amounts of money on keeping a private auto on road. Free higher education so middle aged people can save instead of spending every available penny trying to launch their children into a decent life. This article fails to note that wages have been largely stagnant or declining since around 1970 which accounts for the savings crisis better than any silly contentions that people have bad habits related to savings.

Tobias Mann said...

Good article. Thanks.