As someone who works around a lot of economists in Washington, DC, I am privy to a lot of big talk about the problem of retirement policy. The overwhelming consensus among the learned is that Americans, as a group, aren’t saving enough money for retirement, and that if we can gather sufficiently clever people in a room, we can figure out a way to coerce, trick, or otherwise induce workers to be more responsible with their incomes.
I tend to be the odd man out in these meetings: my contribution is generally the radical proposition that we leave people alone and let them make their own choices.
People aren’t saving enough? How absurd. How much is enough, and who comes up with that number? Like most attempts at social engineering, this one appears to only work in one direction. Curious that no one ever laments when someone saves too much, and dies with an unspent fortune. If there is a “correct” amount of saving, than it would be logical to assume that it’s just as possible to exceed it as to fall short, yet it would appear that the “correct” amount of saving has a lower bound, but not an upper one.
Some people have urgent needs in the present, that outweigh their potential needs in the future.The overriding assumption in these talks is that people are irrational and short sighted, and that if they had as much knowledge and intelligence as economists, they would save more. Okay, maybe this is the case for some people (although I agree with Ludwig von Mises that the concept of irrational action is a contradiction in terms), but shouldn’t we stop and consider that people make their financial decisions for a reason?
Some people may have short life expectancies, and want to use their money while they can still enjoy it. If a worker expects to die by the age of 65 due to medical conditions or lifestyle choices, can we really call it rational for him to save enough money to sustain a lengthy retirement?
Some people have urgent needs in the present, that outweigh their potential needs in the future. If you have bills to pay today, it’s hard to see how forcing you to pay into a retirement account at the expense of making a mortgage payment or keeping up with the electric bills would make you better off.
Some people expect to make much more money in the future than they do now, and choose to defer their retirement savings for when they will be able to afford it.
Let’s allow people to keep their own money.Some people simply prefer present consumption to future consumption, and that is their right. Time preferences are personal, and no one can say that there is anything wrong with prioritizing the present over the future, whatever the reason may be.
Now, to be fair, much of the concern over retirement policy arises due to the fact that in our current system, taxpayers are frequently compelled to bear the burden of those who fail to adequately plan for their old age. This is indeed an injustice, but pointing that out is not an indictment of individual decision-making, but rather of a system that forces some people to pay for other people’s choices.
Instead of trying to control what workers do with their own money, it would make far more sense to make individuals bear the costs of their own actions, which would have the additional effect of increasing the incentives for saving. When you know that the government isn’t going to bail you out, you tend to be a little more cautious in how you manage your money.
I have a radical idea for retirement policy. Let’s allow people to keep their own money, make their own decisions, and get government out of the business of telling people how to save. After all, your retirement should be nobody’s business but your own.