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Why Does the Federal Government Subsidize Retirement? December 6, 2012

Posted by federalist in Retirement.
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Since the federal government is, however briefly, about to address its massive liabilities it’s worth re-reading past posts on the entitlement systems that drive a majority of those liabilities and our inability to meet them.

John Goodman surveys the question in a recent essay, concluding, “any reform of the system should give people better incentives to work and pay taxes rather than encouraging them not to work.”

“Seniors Living on Fixed Incomes” March 14, 2010

Posted by federalist in Government Spending, Pensions, Retirement.
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“Senior citizens living on fixed incomes” is a common refrain of the powerful pensioners’ special interest groups, and it seems to never go rebutted. It’s practically the slogan of The Most Selfish Generation: The Baby Boomers who are willing to pile debt upon their children and grandchildren in order to enjoy 30+ years of healthy and unproductive “retirement.”

For the record: None of us working citizens has unlimited income, and unlike retirees we don’t have guaranteed fixed incomes from the federal government in the form of social security, medicare, and (in many cases) government-backed pensions. Nor do we have disposable time that we could devote to earning extra income to make up a shortfall, as do retirees.

Dead-Weight Government February 24, 2008

Posted by federalist in Economic Policy, Government, Pensions, Retirement, Taxation, Unions.
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When you drive from Delaware into New Jersey, you don’t really see any differences.  If you move from New Jersey to Delaware you don’t experience a significant decline in government services.  But New Jersey has among the highest tax burdens in the nation, while next-door Delware has among the lowest.

If higher taxes aren’t buying better government services, then what do high-tax governments like New Jersey do with all of their extra tax revenue?  Apparently the answer is that they buy votes.  More specifically, public union votes:

Public workers and teachers can retire at age 55 after 25 years with a pension of 60% of salary — indexed to inflation. Police and firefighters can retire at 65% of salary at any age after 25 years of service and 70% after 30 years.

Not that we should be surprised at American democracies degenerating into this sort of patronage government.  But isn’t it depressing to think of all those public resources going to bankroll lives of leisure for union members instead of something virtuous?

Social Security — Try to Calculate Your Benefits! June 27, 2007

Posted by federalist in Economic Policy, Government, Retirement, Taxation.
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I would invite anyone who believes in Social Security to try to calculate their expected benefits based on what they have paid in.  This is actually an amusing exercise which I recently undertook to answer the following question: If you haven’t paid any social security taxes in your life, what is the least you can pay in to get the maximal return from the Social Security system?

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Retirees: Get Out of the Way April 5, 2007

Posted by federalist in Retirement.
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I’m not a big fan of the concept of retirement, but a question for those who subscribe to the lifestyle: Why don’t you get out of the way?  (And I mean that in the most gracious possible tone.)

Except perhaps for proximity to family, there is no reason for retirees to be clogging urban arteries and hogging real estate that is close to job centers or desirable schools.  Is this simply a problem of inertia, or transaction costs?  Aren’t the savings that can be gained by moving to a lower cost-of-living area sufficient to subsidize these costs?

Can’t retirees stay away from banks around lunchtime and stores on weekends?  I.e., given that workers are largely constrained from commerce during working hours, can’t the retirees get out of the way during non-working hours?  What incentivizes retirees to pay (and add to) the extra queuing costs during these high-demand periods when they can have things all to themselves any other time?

WSJ has a few articles that reveal some attractive alternatives for the fully-retired:

1. Lifestyle communities — where people dedicated to a hobby like golfing, racing, or shooting, join with like-minded fanatics to pursue their interests with zeal.

2. Overseas retirement — where people are discovering you can live in a better climate and get a lot more bang-for-your-buck.  (E.g., even first-rate healthcare is often ten times cheaper than in developed countries.)

More Arguments Against Mandatory Retirement February 16, 2007

Posted by federalist in Retirement.
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Human mental faculties suffer measurable declines with age.  Professions like air traffic control and piloting set absolute age limits, supposedly out of concern that older workers simply cannot maintain safe performance standards.  Many other professions, like law, try to force workers into retirement at age 60 or 65, though the only basis for such traditions I can imagine is the fact that over a century ago that is the age at which people typically died.

Research highlighted today in the WSJ reveals that, even as generalized mental skills like attention and memory degenerate, job-specific faculties are quite resistant to gerontological decay.  In fact, the experience accumulated over years in a profession can confer a performance advantage over the more agile brains of younger people.  This suggests that mandatory retirement — at least at the ages currently indicated — is both unfair and counterproductive.

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Personal-Finance Salesmen Pedal the Retirement Myth November 15, 2006

Posted by federalist in Finance, Regulation, Retirement.
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I suppose we can’t blame Robert Pozen for trying to drum up more business for his MFS Investment Management company, but his proposal for government-mandated retirement accounts is over the top. Rather than reforming our current social security programs, which require contributions by both employers and employees, he actually advocates creating a second more-complicated requirement for employers and employees to sock away even more money, this time in personal “retirement” accounts hamstrung by numerous government rules and regulations.

“Retirement,” as peddled by both entitlement politicians and personal-finance salesmen like Mr. Pozen, is a completely obsolete concept. It is based on the premise that an average American will reach a point in life at which he is unable to work for income. This may have been true generations ago, but today we enjoy a service economy in which even the severely disabled can find productive employment.

Furthermore, individual income requirements should actually decline over a lifetime. Even the most unskilled blue-collar worker in America has the opportunity and capacity over a 40-year career to own a home and send his children through college. With no debts and no future obligations, any unskilled senior who is willing to work can certainly support and insure himself without a “retirement” fund. Granted, there is always an individual risk of severe or long-term disability along the way, but we have both government social security and private insurance programs that address those risks and casualties.

As Americans live longer and healthier lives, they will continue to be capable of productive activity well into their old age. 21st-century retirement should not be thought of as the time when a citizen is no longer capable of working. Rather, it should be the milestone at which an individual is free from major future obligations, and therefore free to pursue interesting employment with minimal concern for income.

Retirement: Modern Society’s Most Pernicious Ideal October 30, 2006

Posted by federalist in Retirement.
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Retirement is not just an obsolete concept.  It is downright destructive: By encouraging people to leave the workforce as they enter their seventh decade, we are taking human capital at the peak of its productive potential — with not only many years of training and experience, but also finally with fewer family obligations and concerns for the future — and telling it to just stop producing.

WSJ today has an interesting article on anti-aging research and technology.  In principle the ability to preserve the duration and vitality of human life is wonderful.  After all, the first 20 years or so of human life are almost entirely lost in development of a capable adult.  In most cases, the next 20-30 years are distracted by reproduction.  Ideally, humans reach their peak production potential around age 50, and all the years from then until they become too feeble to work could be “pure profit” to society.  That is, unless society encourages such people to “retire” and halt their production as soon as they are able.

The Overdue Death of Pensions August 6, 2006

Posted by federalist in Economic Policy, Finance, Government Spending, Pensions, Regulation, Retirement.
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The Wall Street Journal expounds on the latest legislation to overhaul private pensions, noting, “the idea of a single company guaranteeing retirement payments for decades is no longer practical, if it ever was.”  Frankly, that is an understatement.

Defined-benefit pensions are annuities.  Annuities are an insurance product.  Unless you happen to work for an insurer, your employer has never been regulated as an insurer or rated for the health of its reserves.  What business does an airline or car manufacturer have writing insurance for its employees?  Yet that is what all these private companies were doing with their defined-benefit pensions.

It would have been fine if they had literally been funding a deferred annuity written by a proper insurer.  But as we know they neither fully funded their pensions nor did they offer the sort of portability that would come with a true annuity contract.

Fortunately, that scam seems to be coming to an end.  But there is still the matter of government defined-benefit pensions: Many federal, state, and local government agencies offer these to their employees.  I suppose that since they are being backed by governments they do not suffer the same credit risks associated with private companies.  Many agencies also collude to provide some degree of pension portability, so an employee can switch jobs without losing his benefits.

But government pensions still suffer from the underfunding hazard — with the cost and risk being dumped on taxpayers.  I suspect pensions will persist in government if for no other reason than that they are a convenient way to hide the cost to taxpayers of benefits provided to one of the classically strong special interests: government employees.  For this reason, taxpayers should demand that governments fully price and fund their pensions.  Or better yet: abolish them and let people buy their own annuities if they want.