A Profoundly Bad Idea

The idea of privatizing Social Security has been around for a long time now. Republicans especially like it because the mutual fund companies and brokerage houses that lavish them with generous campaign contributions salivate at the idea of getting their grubby paws on the billions in investment fees they might receive if tens of millions of people suddenly became responsible for investing their own retirement savings.

The best argument against privatizing Social Security is that most people simply do not know enough about how to invest money and would no doubt make a shambles of the job and end up with no retirement money, little retirement money, or just not enough retirement money to see themselves through their retirement.

For this reason, The Curmudgeon was surprised recently to see an elected official in Philadelphia suggest that the city work its way out of its pension problem by buying city employees out of their pensions.

At about 50 percent of the value of those pensions.

The Curmudgeon realizes that the biggest financial challenge facing most governments these days is not the cost of the services they provide but the cost of pensions for their retired employees, but the idea of turning over that kind of money to the average public employee makes his head hurt. If such an approach were to be adopted on a voluntary basis, he suspects that the very people who would be most tempted by the likely six-figure buy-outs would be those least likely to have the skill and education to tackle the challenge of turning their one-time jackpot into something they need to last them for the rest of their lives.

And just to be clear, The Curmudgeon considers himself among those not smart enough to do this on their own.

What will happen, moreover, is that when people squander their buy-outs and are out of money they will turn to government, and the taxpayers, to support them for the rest of their lives. While The Curmudgeon recognizes some degree of public obligation to help care for those who cannot care for themselves, he does not want to take on responsibility for caring for those who sold their lifetime pension for a quick, six-figure shot of money and then squandered that money with bad investments – or worse, just squandered it.

If privatizing Social Security is a bad idea because the average person doesn’t have the skill and knowledge to manage that retirement money then so is buying out the pensions of retired public employees for pennies on the dollar. If a private business came along, like an equivalent of companies like (the heavily advertised) J.G. Wentworth that offer to give people cash up front for their “structured settlements” like insurance payouts and annuities, people would be outraged – outraged! – and call them all sorts of names for trying to profit at the expense of working people and leaving them vulnerable to an impoverished retirement. If it’s wrong for the private sector to do it then it’s wrong for government to do it, too.

Should the city of Philadelphia and other governments being doing more to address their enormous and growing pension obligations? Absolutely. But should they be doing it in a way that would almost certainly harm a significant proportion of the people for whom those pensions are intended?

Absolutely not.

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  • Peaches Shimmerdeep  On May 21, 2016 at 9:18 am

    I agree with you, but I think that for the most part, it isn’t smarts or skill that people lack– it’s discipline.

    • foureyedcurmudgeon  On May 21, 2016 at 11:42 am

      I agree – partly. It takes discipline to make sure you set aside the money and then don’t raid the kitty, but it takes at least some degree of intelligence to figure out what to do with the money once you’ve saved some. Stocks? Mutual funds? Savings account? I think back to the many times my late father told me I should invest in gold and just shudder.

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