Friday, August 3, 2012


No I'm not retiring from blogging, but I did just read a very interesting op-ed on retirement policies in the new york times.

The stats on how little people in the US have saved for retirement are depressing. Many people are facing poverty due to either lack of planning or poor decisions. Yes some people can keep working to ease the blow but many can't. And though I'm generally against government intervention its clear the current system needs to be fixed. Retirement is an area where I feel the ideas of libertarian paternalism are most applicable. If someone doesn't want to save for their retirement that should be their choice, but right now we have an opt-in system - meaning that the default choice is don't save. If the government mandated an opt-in system the evidence suggests people would save a lot more. Under such a system you're automatically enrolled in 401k contributions unless you fill out paperwork to the contrary. Furthermore the government should mandate that all companies offer everyone better low cost investment options and make it more difficult to withdraw money. I follow all this stuff pretty closely and it still feels overwhelming at times! And I manage risk professionally. I can't imagine how someone without all that experience must feel. All this is basically at the heart of libertarian paternalism, let people do whatever they want but nudge them toward better options.


  1. I agree that maybe an op-out system would help people save for retirement (that's what you meant, right?), but I really think you're underestimating how hard it is when you say "people are facing poverty due to either lack of planning or poor decisions." Most people, my family included, live paycheck to paycheck. When I was growing up, retirement was the last thing on my parents' minds; they were trying to make sure we had food to eat, and my brother and I even took extra jobs to make sure that happened. Things are probably going to be easier now that my brother has joined the Navy and only my sister is at home, but even now, if there are any extra costs for the month (my sister's glasses, clothes, or schoolbooks, for example), they're cutting it really close, and I often still chip in. My mom's a smart woman who knows what her options for retirement should be, but it's just not possible at this point, no matter how meticulously she plans.

    1. No doubt there are a lot of problems facing the country. Millions of people live paycheck to paycheck, that is if they even have a paycheck. Our education system has done a pretty lousy job of getting people educated for the modern economy. I've seen a lot of articles about factories in the Midwest that can't find enough workers. That said the nature of work has changed a great deal - now a factory worker needs to know some computer programming and excel. Its also harder than ever to raise kids, basic necessities like health care and education have gotten so expensive they will eat through most family's budgets. But my point (and the point I think the op-ed was trying to make) is mostly about over-consumption in America. The median household income for people ages 45-64 is over $80,000. So if 75% of people nearing retirement age have less than $30,000 saved that means there are some 13 million people who make significantly more than $80,000 who have next to nothing saved. No doubt many of these people have stable middle and upper middle class jobs but due to poor planning have saved next to nothing. Again education plays a role here, but lots of studies have shown that people are very bad at long term planning and will generally go with the "default option." So if the default option is to do nothing that's what they'll do. If the government sets up a system where the default option is "do something reasonable and conservative" its a simple way to keep millions of people out of poverty.