Newt Likes Privatized Social Security

Reuters reported that Newt (turns out they meant Gingrich not the character from Lonesome Dove) is in favor of privatized Social Security for younger workers although there was no mention of a specific age.

Gingrich would be on board with giving people a choice of whether to participate or not and if participating how to allocate between stocks and bonds which he thinks would offer a chance at 7% annual returns.

This issue makes for a great debate because it is something that people can relate to and more than other issues it really is an intersection between ideology and reality.

The ideology is the sort of Libertarian view of having less government in our lives, having the chance to succeed or fail and own the consequences. I would sign up in a heartbeat, I love the concept for top down reasons of starting to relieve the burden placed on the country and from the bottom up in the belief that I can get a better result than the government would.

The reality is the 401k litmus test. We've probably all heard about the research that concluded that (as of a few years ago) the stock market averaged 10% per year, actively managed mutual funds averaged 8% (the fees) and mutual fund holders averaged about 4% (poor decision making). I remember this coming from T Rowe Price but I believe there have been several papers concluding about the same numbers. Numbers for 401k plans are also quite poor, likely to be worse as the 401k population takes in people who would otherwise not participate and so are not likely inclined to try to learn about markets and investing.

Part of the equation here could be education of course. If it were done correctly it could be reasonably cheap and effective where the goal would be basic literacy. Unfortunately I think the lack of interest thing would be a hindrance to this working as it would take in an even larger percentage of people who are otherwise not interested. Maybe there should be a competency test to go with education although that would increase the expense and I wonder if it would be unconstitutional somehow.

As a practical matter I think this would fail on a colossal scale and would lead to even more of the "personal bailouts" I mentioned a couple of weeks ago which might be more costly than what we have know unless the country is really prepared to turn its back on someone who tried this and was wiped out.

I will repeat my idea which would address a small slice of the problem which is to remove IRA and 401k contribution limits, allow for writing off whatever amount someone contributes but still collect the full $16,000 (round number) FICA withholding and people participating would get no benefit. Yes it would benefit the well to do but this section of the population is less likely to need the money, could save more on their own but still pay in full boat. I'd do this in a heartbeat too.