“And who will decide what form those investments will take as a default?”

Actually it's worked out between the business and the fund manager the business chooses. The government doesn't mandate anything except changing things so it can be opt-out instead of opt-in. I would imagine there would be rules preventing another Enron, though, limiting the amount of company stock that could be in the mix.

“And who will decide what form those investments will take as a default?”

Actually it's worked out between the business and the fund manager the business chooses. The government doesn't mandate anything except changing things so it can be opt-out instead of opt-in. I would imagine there would be rules preventing another Enron, though, limiting the amount of company stock that could be in the mix.

This is the essence of the solution.

The modern retirement age should be at least seventy. Seventy is the age where age itself starts to be of concern (yes, this year, with McCain); onset of moderate disability associated with aging is in the low seventies and severe disability, the high seventies. Social Security and Medicare should have their retirement ages raised to seventy at a minimum (71-72 is better) and early retirement should be abolished or suitably reduced in payment levels to account for modern expected remaining years of life at retirement age (treated as an annuity even if there are cost of living adjustments from year to year).

This puts Social Security and Medicare back where they should be if these are meant (with Medicare, for now, anyway; extending it to everyone sometime soon is on most people's minds) to be true retirement programs — they should reflect the realities of modern lifespans and remaining years of life and normal disability phenomena. (Federal laws requiring a lower retirement age for pilots and similar laws should be changed so the retirement age is seventy or the same as that for Social Security and Medicare.) It's the most effective way to help control cost growth and a retirement age of seventy years or more is real given the modern state of affairs in this nation, and is obviously the most fair given that the current earlier retirement ages are unrealistically generous and outmoded.

Once the programs are made modern and real for today's world, then recalculate the costs and raise the taxes accordingly. They'll have to be raised unless benefit levels are to be reduced. (Raising the retirement age is an eligibility or qualification matter, not a reduction in benefits. There is no inherent “right” to total benefits based on retirement at age 62 to each citizen's current official full benefit retirement age.)

Another thing to consider when raising the retirement age (nobody sane questions this) is to check the “support ratio” or “dependency ratio” effects of such increases in the retirement age (relative sizes of taxpayers to beneficiaries). There is likely no choice but to raise the retirement age as part of a way to ease the future burdens on taxpayers (along with, for example, benefit reductions in the form of constantly indexing benefits to life expectancy and to costs rather than to wages). Some trade-off between such an age and low seventies seems likely.

Something, including too-early retirement age, and especially early retirement age, is going to have to give if benefit levels are not going to give (too) and taxes not increased too much. Age 70 for retirement is in no way unreasonable.

(NOTE: This age should be used to recalculate and revise PBGC and other age-based federal government benefit levels.)

“Can society tolerate a rise of 60 percent in the proportion of the population that is retired over the next 30 years? Not likely. …

… to sustain the dependency ratios of 1980–2000, the retirement age would have to rise to 72 or 73 by 2030. We found the following:

• From 1980 to 2000, the people over 65 constituted an average of 12 percent of the population. What retirement age would lead to a retirement community amounting to a fixed 12 percent of the population? The answer is that the people born after the 1950s will have to retire at age 72 if we are to keep a steady 12
percent of the population retired.

• If the ratio of retirees to working-age people is held constant (which makes far more sense than using a fixed retiree percentage), then from 1980 through 2000, this dependency ratio averaged 21 percent. For it to have been constant at 0.21 retirees for each working-age person, the retirement age would have been steady at 63–65.5 years of age from 1960 until 2010. To keep this ratio fixed at 0.21 into the future, the normal retirement age would have to soar from 65 to 73 between 2005 and 2035.

• When we counted each person under 20 as one third the burden of each retiree, this adjusted dependency ratio averaged 0.38 from 1980 through 2000. If we assume that society is comfortable carrying 0.38 adjusted dependents for
each working-age person, then the boomer generation will see the normal retirement age rise by eight years, from 64 to 72, between 2009 and 2035.

These kinds of rises in acceptable retirement age occur regardless of how much boomers save or how heavily we tax the next generation in Social Security taxes.

… Today, many people believe that to work 40 years to retire for an additional 20 years is sensible! …

To the extent that today’s workers are misled and told to expect the rest of society to support them for 20 years or more in retirement after just 40 years in the work force, we could face serious policy gridlock when those promises come due.”

http://www.researchaffiliates.com/ideas/pdf/dem…

“If you were designing a system today for men with 11 or 12 remaining years and for women with 15 remaining years, you wouldn't set the retirement age at 65. You'd set it between 70 and 75. …

… active-life expectancy—the average number of years a person could expect to live free of chronic functional impairment—was 8.8 years in 1935, 11.8 years in 1982, and 13.9 years in 1999. Based on the trend line, he projects that by 2015, active life expectancy will be 17 years. In short, if you were designing a system in 1999 for people who could expect as many active years as a 65-year-old person could expect in 1935, you'd set the retirement age at 70. And by 2015, you'd raise it to 73.”

http://www.slate.com/id/2113883/

We know that replacement migration (new immigrant workers) won't solve the problem.

“Attempting to maintain a constant ratio between working-age and pension-age populations might mean, for example, that 80 percent of Germany’s population in 2050 would consist of immigrants or their progeny. Retirement ages could be raised, but such measures will have no effect on depopulation. Meanwhile, relying solely on longer work lives might mean that, by 2050, the typical European worker would work until his or her late seventies, and the typical Japanese worker until
age 83. Child subsidies and other pronatalist policies might help to prevent depopulation, but these measures are costly. If such policies are effective (their record is dubious), they could saddle countries with a double dependency crisis: simultaneous baby booms and senior booms.”

http://www.twq.com/02spring/hewitt.pdf

“Proponents of raising the NRA contend that their proposals address Social Security’s long-range financial problems while responding to changing demographic factors. In fact, raising the NRA could have both positive and negative consequences.”

http://www.actuary.org/pdf/socialsecurity/age_o…

Raising the retirement age (arguments both for and against)

http://digital.library.unt.edu/govdocs/crs/perm…

We're going to be in trouble before 2020. Will we solve this problem?

http://www.brookings.edu/comm/policybriefs/pb15…

This is the essence of the solution.

The modern retirement age should be at least seventy. Seventy is the age where age itself starts to be of concern (yes, this year, with McCain); onset of moderate disability associated with aging is in the low seventies and severe disability, the high seventies. Social Security and Medicare should have their retirement ages raised to seventy at a minimum (71-72 is better) and early retirement should be abolished or suitably reduced in payment levels to account for modern expected remaining years of life at retirement age (treated as an annuity even if there are cost of living adjustments from year to year).

This puts Social Security and Medicare back where they should be if these are meant (with Medicare, for now, anyway; extending it to everyone sometime soon is on most people's minds) to be true retirement programs — they should reflect the realities of modern lifespans and remaining years of life and normal disability phenomena. (Federal laws requiring a lower retirement age for pilots and similar laws should be changed so the retirement age is seventy or the same as that for Social Security and Medicare.) It's the most effective way to help control cost growth and a retirement age of seventy years or more is real given the modern state of affairs in this nation, and is obviously the most fair given that the current earlier retirement ages are unrealistically generous and outmoded.

Once the programs are made modern and real for today's world, then recalculate the costs and raise the taxes accordingly. They'll have to be raised unless benefit levels are to be reduced. (Raising the retirement age is an eligibility or qualification matter, not a reduction in benefits. There is no inherent “right” to total benefits based on retirement at age 62 to each citizen's current official full benefit retirement age.)

Another thing to consider when raising the retirement age (nobody sane questions this) is to check the “support ratio” or “dependency ratio” effects of such increases in the retirement age (relative sizes of taxpayers to beneficiaries). There is likely no choice but to raise the retirement age as part of a way to ease the future burdens on taxpayers (along with, for example, benefit reductions in the form of constantly indexing benefits to life expectancy and to costs rather than to wages). Some trade-off between such an age and low seventies seems likely.

Something, including too-early retirement age, and especially early retirement age, is going to have to give if benefit levels are not going to give (too) and taxes not increased too much. Age 70 for retirement is in no way unreasonable.

(NOTE: This age should be used to recalculate and revise PBGC and other age-based federal government benefit levels.)

“Can society tolerate a rise of 60 percent in the proportion of the population that is retired over the next 30 years? Not likely. …

… to sustain the dependency ratios of 1980–2000, the retirement age would have to rise to 72 or 73 by 2030. We found the following:

• From 1980 to 2000, the people over 65 constituted an average of 12 percent of the population. What retirement age would lead to a retirement community amounting to a fixed 12 percent of the population? The answer is that the people born after the 1950s will have to retire at age 72 if we are to keep a steady 12
percent of the population retired.

• If the ratio of retirees to working-age people is held constant (which makes far more sense than using a fixed retiree percentage), then from 1980 through 2000, this dependency ratio averaged 21 percent. For it to have been constant at 0.21 retirees for each working-age person, the retirement age would have been steady at 63–65.5 years of age from 1960 until 2010. To keep this ratio fixed at 0.21 into the future, the normal retirement age would have to soar from 65 to 73 between 2005 and 2035.

• When we counted each person under 20 as one third the burden of each retiree, this adjusted dependency ratio averaged 0.38 from 1980 through 2000. If we assume that society is comfortable carrying 0.38 adjusted dependents for
each working-age person, then the boomer generation will see the normal retirement age rise by eight years, from 64 to 72, between 2009 and 2035.

These kinds of rises in acceptable retirement age occur regardless of how much boomers save or how heavily we tax the next generation in Social Security taxes.

… Today, many people believe that to work 40 years to retire for an additional 20 years is sensible! …

To the extent that today’s workers are misled and told to expect the rest of society to support them for 20 years or more in retirement after just 40 years in the work force, we could face serious policy gridlock when those promises come due.”

http://www.researchaffiliates.com/ideas/pdf/dem…

“If you were designing a system today for men with 11 or 12 remaining years and for women with 15 remaining years, you wouldn't set the retirement age at 65. You'd set it between 70 and 75. …

… active-life expectancy—the average number of years a person could expect to live free of chronic functional impairment—was 8.8 years in 1935, 11.8 years in 1982, and 13.9 years in 1999. Based on the trend line, he projects that by 2015, active life expectancy will be 17 years. In short, if you were designing a system in 1999 for people who could expect as many active years as a 65-year-old person could expect in 1935, you'd set the retirement age at 70. And by 2015, you'd raise it to 73.”

http://www.slate.com/id/2113883/

We know that replacement migration (new immigrant workers) won't solve the problem.

“Attempting to maintain a constant ratio between working-age and pension-age populations might mean, for example, that 80 percent of Germany’s population in 2050 would consist of immigrants or their progeny. Retirement ages could be raised, but such measures will have no effect on depopulation. Meanwhile, relying solely on longer work lives might mean that, by 2050, the typical European worker would work until his or her late seventies, and the typical Japanese worker until
age 83. Child subsidies and other pronatalist policies might help to prevent depopulation, but these measures are costly. If such policies are effective (their record is dubious), they could saddle countries with a double dependency crisis: simultaneous baby booms and senior booms.”

http://www.twq.com/02spring/hewitt.pdf

“Proponents of raising the NRA contend that their proposals address Social Security’s long-range financial problems while responding to changing demographic factors. In fact, raising the NRA could have both positive and negative consequences.”

http://www.actuary.org/pdf/socialsecurity/age_o…

Raising the retirement age (arguments both for and against)

http://digital.library.unt.edu/govdocs/crs/perm…

We're going to be in trouble before 2020. Will we solve this problem?

http://www.brookings.edu/comm/policybriefs/pb15…

“…it's wrong for a government to do it without an individual's consent.”

The employee IS notified. He chooses to give his consent or opt out. These types of plans do not have a mandate on the employee IN ANY SENSE.

“…it's wrong for a government to do it without an individual's consent.”

The employee IS notified. He chooses to give his consent or opt out. These types of plans do not have a mandate on the employee IN ANY SENSE.

There's still a requirement for employers to enroll their employees. What's next, a default ten per cent deduction if the employee does nothing? No matter how good it would be as the employee's decision to always save ten per cent, it's wrong for a government to do it without an individual's consent.

“the no taxes and no responsibility sector”

Meaningless. Next to nobody wants _no_ taxes, and it's the entitlement and government-spending crowd that is the no-responsibility crowd.

it's a very sensible approach, psychologically, and, therefore, pragmatically.
Politically, there will still be the no taxes and no responsibility sector to overcome.

Except an opt out means there is no mandate at all. That's the point. (And it's not about people being too stupid to look out for themselves, it's about human nature. God knows I don't take advantage of all the opportunities I have to set aside more for a rainy day.)

To answer the question about choosing investments, though, the automatic enrollment portfolios can be deemed compliant if they satisfy the kind of default, age-appropriate-diversified portfolio that would provide any fiduciary with protection against liability. You can do it with a minimum of governmental interference. In fact, they already have in recent legislation regarding qualified employer plans.

Sadly, we still encounter resistance as well as silly game-playing where “implied consent” of organ donation (with such an opt-out option) is concerned in the USA.

I don't want the Feds to be the nation's largest mammoth institutional shareholders. With that could come CALPERS-style disgusting political activism and insistence on meeting political rather than strictly economic objectives by business, “social responsibility” nonsense, even uglier, more evil things like “Israel divestiture” and such.

http://www.ssa.gov/OACT/TRSUM/index.html

* * *

“The reason Social Security has worked is precisely because it is coercive.
This is the same exact argument as the one about universal health care, btw.”

Actually, the key, which you grasped and didn't realize you did, is that it is universal, so has the most public support (aside from whatever it means about the middle class being hooked on entitlements). If it were not universal, the taxpayers would have less support for it and it would also be exposed as the welfare program it is.

Some people opt out bacause: I'm young, I make good money, I have plenty of time to plan my retirement, or I can manage my retirement funding better on my own.
Then, they get sick, lose their source of income, invest badly or the market suffers a severe downturn just as they reach retiremant age. Very quickly, public assistance can become necessary (food stamps, etc.), and the taxpayers who didn't opt out subsidize those who did. The opt-outers are gambling with everyone else's money when they gamble with their own.

Those hapless workers not handling the paper work are equally likely to end up in the taxpayer's lap. The rest, like Jazz, can't get away from them, no matter how much they may want to, not unless the country is ready to adopt a die-in-the-street atitude towards the inept, irresponsible or just plain unlucky.

Every policy needs to be 'sold', however, in order to make it acceptable, So, if we need opt-outs to do it, so be it. I would favor every means necessary to make opting out less attractive than opting in.

Sorry, but I don't care to have the Feds mandating any of that for us.

Among the most prominent of those proponents of libertarian paternalism is Cass Sunstein, one of Obama's advisers. Obama has mentioned this approach often.

This is called “Libertarian Paternalism.” The idea is that in general there are many things that people should do (and want to do) but that they don't feel that they have the time to mess with it and so never investigate/once the money is in their hands they have a hard time getting rid of it.

It is deeply grounded in behavioral economics which has some experiments showing that people that are automatically enrolled to do something but have the option to “opt out” makes everyone happier because most people are glad they are forced to save and those that don't want to have flexibility. The brains behind these proposals are actually a couple of libertarian leaning economists from University of Chicago.