My mind was filled with negative images before I even got the details of the plan covered in this New York Times Op-ed. The article rightfully acknowledges the high risk many people face of outliving retirement assets but the solution causes all sorts of problems.
Yes, the authors do in fact believe that a federally issued inflation adjusted annuity is the answer to the challenge of longevity risk. In my opinion this is an extremely reckless proposal for several reasons.
Here are my thoughts based on what’s mentioned in the article.
First, it is stated that there is no single financial product capable of dealing with longevity risk. That’s news to me since insurance companies, as I understand, have been properly managing assets for retirement income for several centuries now. The authors do note that private annuities go part of the way to address the problem. If they don’t go all the way it’s a funding issue and no fault of the annuity product itself.
Next, and I quote, “By doing good for individuals, the federal government could actually do well for itself.” The problem here is that the government always does well for itself. Congresses past have helped themselves to the social security trust fund and that is a critical reason why that fund is costing taxpayers so much money and is projected to go insolvent in less than 30 years. The fox is already guarding the henhouse. Why would we put more chickens in there?
Also, the article mentions the risk of potential insolvency of insurance company and states that the fed is well-equipped to carry the liability instead. Again, I’ll quote.
“…how can someone — particularly a young person — know for sure which insurance companies will be solvent half a century from now?”
How indeed? Well, I don’t know, except for the fact that the federal government is already over budget and deeply in debt. Insurance companies, on the other hand, are solvent, profitable and suitably hedged for future obligations. If I were looking for a good steward for my money, I’d rather have a hole in my head than trust more of my financial well being to those spend-happy egotists in D.C.
Lastly, when you look at how the proposal would be structured it’s no different than current annuity contracts. It’s like these guys just realized what annuities are designed to do and figured that the government should get in the business. Sorry guys, your idea is a couple hundred years behind its time. Any notion to the thought that the federal government could achieve better results than insurance companies cannot be grounded in actuarial analysis. Do the American public a favor and run some numbers to assert these claims.
At a time when social security is projected to account for nearly 40% of retirement income for the average individual, the last thing that should happen is to ensure more private money to that public institution. Does anyone remember Enron? So many employees got hurt because they were banking on Enron pensions, planning on cashing out Enron stock options and had 401(k)s heavily invested in Enron stock. That’s a direct example of how the lack of diversification put millionaires on food stamps. How is this proposed strategy an less risky?
Annuities work as designed and no meddling from bureaucrats will improve the situation. The reason I’m citing this article is to illustrate the fact that you can’t count on anyone but yourself for long-term financial security.
If you feel so inspired, I would love to have some comments or questions on this post. Please… tell me what you think!
Bryan J. Anderson
800.438.5121 [email protected]