I've been saving for my retirement since I was 21, banking on the fact Social Security would not be there when I am retired. I never cared one way or another about privatization because of that. Selfish and closed minded, I know. However, you bring up a good point and it's something I should ponder more.

People who assume the average American is stupid usually lose most political arguments at the ballot box. Which is why, just reading this, I feel more confident than ever that we'll soon do the right thing and move Social Security toward private accounts. When the only arguments left against a concept are "the people are too stupid to be trusted," it's game, set, and match.

You're going to lose this argument, Jack. We'll have our private accounts. It's only a matter of how long you conservative reactionaries can hold us liberal reformers off. ;-)

Oh and by the way? People who say they can't figure out how to manage their 401(k) funds are simply being silly, and are obviously not the majority. 401(k) plans are wildly popular, and for a reason: they work quite well and they spread risk very well.

And they outperform Social Security easily.

Ah but still, why argue? You obviously think most people are stupid and short-sighted and that you know better than the average American family what's best for them and that they should not be entitled to make their own choices. Good luck selling that message to the voters! ;-)

Dean,

Nowhere did I say "the average American is stupid", the *data* show that the average American investor makes less than 3% return on their investments.

This is not the same as calling them stupid.

Given that the supposed investing-professionals (of whom one would assume have *some* level of expertise in the field) in general do not match the broader market, and given that the *data* show that the average American investor does not even get a sufficient return to fund any reasonable retirement expectation, is it truly wise to say "private investment accounts will succeed"? I think not, unless you think it's equally OK for your barber to remove your appendix. Expertise does make a difference.

Again, this is not the same as calling the average American stupid.

The priorities of most people are NOT on retirement, they are on their day-to-day concerns. In general, people do not start even considering planning for their retirement until they are in their 50s, which is when you should be *completing* the execution of a retirement plan, not *starting* to plan. This kind of delay in planning is a part of human nature. Acknowledging it is not the same as calling the average American stupid.

This is why I used the phrase "willfully ignorant", because it simply is not a priority for most people to educate themselves about investing. We can't even get them to educate themselves about the wider world, even after 9/11. This is not calling the average American stupid, this is acknowledging the facts on the ground.

Finally, you are incorrect in your assertions of the popularity and succuess of 401(k) plans. Studies have shown (I'm at work, so I can't look them up now, but I can send links to you later if you like) that the return of an average 401(k) plan is not significantly better than the less than 3% I quoted in my post for the average investory, which is not what I would call an outstanding success. In addition, the motivation for most in participating in 401(k) plans is for the tax benefit, since it is one of the few methods remaining for significant tax reductions outside of the mortgage interest deduction. Finally, corporate executives have an incentive to promote their corporate 401(k) plans because the contributions of the executives are limited by the average contribution to the plan, so it is in the interest of the executives to have as wide a participation as possible with as high a percentage contribution rate as possible.

It is also fallacious to talk about 401(k) plans "outperforming" Social Security since the Social Security system is NOT an investment, and to assert otherwise is disingenuous at best. Depending on how long you live, in general people have received from Social Security far, far more than they paid in, and I suspect that on average the payout has been far more than even a 401(k) style plan with extraordinary return on investment would have paid out. The primary problem is that Social Security as currently constructed is a giant Ponzi-scheme, with the current payments funded by current contributions, not prior contributions. Therefore, when a bubble of people like the baby boomers retire, their children, fewer in number, have a far higher burden that they themselves had to carry. This is the REAL reason why the system needs to be examined, not because of some fallacious assumptions about higher returns through private investments and false comparisons between "investing" and a Ponzi-scheme.

I found quite a bit of humor in your referral to me as "conservative" because I am usually accused of being either "too liberal" or "too moderate", and also because most of the self-descibed conservatives that I know are strongly in favor of dismantling the current Social Security system.

I think of my approach to this issue as "Machiavellian". I look at human nature, I look at the *data*, and I act according to my own best interests, and if you noticed, I admitted that in the post!

Here's what I had to say about this a couple of months ago:

"I understand the rhymes, reasons, and rationales for privatizing Social Security. I understand the political/social theory behind giving people control of some or all of their SS retirement funds. I get all that. And I don't oppose privatization on the basis of the need to fund current obligations from current contributions - although having a variable fund balance could create problems during down times. The reason I oppose privatization is that I don't think the United States government - President, Senate, House of Representatives - or the American people generally have the political will to stand by while people who, come retirement time, have little or no retirement funds because of poor planning and allocations. Save me the "it's their fault, they'll just have to suffer" arguments. You know and I know that, when it happens, when aged parents hit the end and have nothing on which to retire, the line of people screaming for the government to do something will contain Democrats and Republicans in equal numbers. And the government will respond, because the images of grandmothers starving in the cold won't be tolerated by the public. You can argue that their kids should foot the bill, you can argue that they should just have to keep working, but the reality is that the government will fund Social Security. It's just that, under privatization, it will be an emotional response to a crisis situation, involving billions of tax dollars instead of worker contributions."

Well first off, I must say I've never been a huge fan of the Economist. Even in good times they can find little good in the economic world... but hey, the down beat bad economic news sells. I'm not saying they're always wrong, or don't have a point, I'm just saying they tend to slant their stories toward the most pessimistic outcomes.

Second, I notice that the 2/3 of fund managers they talk about are in Britain. How does this number compare to the US fund managers? Is it equal? close? divergent? Are we better or worse over here? I can't tell from the article and I went over to read the whole thing in case the excerpt missed something. I still can't tell.

Third - it is a truism that Americans won't do anything unless it's an absolute necessity. Even "smart" people will tend to let things slide unless they feel a pressing need to change them. So, it's very easy to complain about not understanding 401K's, yet still make zero effort to change that situation because there isn't a need felt. It also means there is a reason people don't feel a pressing need to plan for their future. It is because of the Social Security safety net, subconsciously it's always there ready to catch you if you fail to plan properly. You may not be comfortable, but you won't be completely without means.

But one of our biggest problems is the arbitrarily young retirement age we've set up. I still remember when it was put into place during the Nixon years. It didn't sound good then, and it's even worse now. People are living longer than ever, yet they still hang up the work mantle at the age of 65 or 60 or even 55! Now, it is possible that people may want to slow down in later years - work part time or something... but with Social Security set up the way it is now - that can end up being a huge penalty.

In the end, there will be those that plan and those that don't. You can't MAKE people do things - but there should be some sort of penalty in place so it's clear that if you don't make an effort - you lose out and have only yourself to blame. It should also not be a penalty to want to continue to be a productive citizen past the current retirement age. Heh - yep I'm pretty much of a b*&^h about that, but then I've worked for everything I've ever had - was never handed a thing and I expect I won't get even a penny of the Social Security I've been paying into all these years. And THAT makes me the ultimate pessimist. *grin* (oh and I foresee working until I drop in my tracks - if I don't have a job, I drive everyone nuts)