Writing in Slate, Matt Yglesias says "401ks suck." The Instapundit responds:
Instead [Yglesias] calls for “a much more forceful, much more statist approach to forced savings, whether that’s quasi-savings in the form of higher taxes and more Social Security benefits or something like a Singapore-style system where ‘private’ savings are pooled into a state-run investment fund.”There are two issues here. One is the eternal impulse of the good-intentioned Left to take a little bit of your freedom because, gosh darn it, you're just not smart enough to handle your own money. Yglesias doesn't propose that we launch a massive education initiative to show Americans that they need to save much more for retirement - more than they think. Instead, the sheep need to accept higher taxes so that the government can supplement their meager savings.
The problem is, those approaches suck, too. Social Security is going broke. If you want to see a pooled state-run investment fund, look at CalPers. It’s going broke amid horribly politicized mismanagement. And state-run pension funds are subject to all sorts of politicized investment decisions that have nothing to do with the interests of the pensioners.
The corollary to that is money not going to the government is going to investment firms and that is simply intolerable. So Yglesias conjures up Uncle Moneybags taking a fat cut. To this assertion, he has something of a point. But ultimately the name of the game is your rate of return on your investment.
Let's say you are a young worker and your 401(k) earns a modest 5% after fees. You earn $50K/year and invest the same percentage in your plan taken out in Social Security (6.2%). Not counting any company match, after 20 years you would have a little over $100,000. Since Social Security now has a negative rate of return - we'll round that off to zero for this exercise - the same $3100/year "invested" would yield $62,000 after 20 years. That's a 40K difference and you still have 25 years to work and compound - or not.
Social Security was never supposed to be more than one leg of the "three-legged stool" for retirement. If you spend all your retirement cash trying to win an XBox and all you have is a Rastafarian banana, the government isn't compelled to bail you out. You should have known better.
Extra - Reason's Hit & Run: "Neoliberalism 3.0: More forceful, much more statist approach to forced savings."
Footnote - I failed to mention that the Social Security Trust Fund runs dry in 2033 and then, by current law, benefits will be cut by about 25%. This makes a bad investment worser. You heard me.