The best reason for private retirement accounts

Reason, April, 2005 by Nick Gillespie

LIKE MANY--probably most--Americans, I got a late start on saving for my golden years, not throwing a single penny into any sort of retirement account until well into my 30s.

There were many reasons for this. I grew up in a household in which there was relatively little money to begin with and even less understanding about how to handle it well, especially when it came to such distant and mythical events as retirement. (Work was, after all, something you did until you dropped dead--partly because you worked so long--or got canned because you were too old to produce.) In the first half of my 20s, I'd work for a few months, save money, and then travel until I ran out of money. In the second half, I was in grad school, scraping by on minimal stipends and fellowships and amassing student-loan and credit-card debt as I made a long-odds investment in what economists would call my "human capital."

It took a long time to pay that debt down and get real about retirement planning. Having kids helped immensely on the latter score, as virtually every financial planner will tell you that the best thing you can do for your children is to take care of your own retirement.

Mine is a pretty typical tale when it comes to retirement savings, and it helps explain why Social Security reform is the hottest policy topic of the day. It is also the topic of our cover story, "The Death of Social Security," a fiery debate between investment author James K. Glassman and economist Tyler Cowen that begins on page 24. Both are fierce proponents of free markets and libertarian policies, even as they disagree on key questions about how, or even whether, to move forward on mandatory private retirement accounts.

I've got a long list of reservations about likely reforms, but the single most powerful selling point for private accounts is that they might keep some money within families that can be passed down to kids or grandkids. I know firsthand that an inheritance of $15,000, $10,000, or even $5,000 can make a huge difference in all sorts of ways, from clearing out debt to providing a car (and hence employment opportunities) to financing a down payment on a house.

At press time, the Bush plan--let alone whatever legislative Frankenstein's monster might arise from the halls of Congress--is vague, though almost certain to disappoint those of us interested in truly fundamental reform, free markets, and individual freedom. With those reservations firmly in mind, the thing I'll be looking at more than any other is whether the changes do something to help pass wealth on to the next generation, especially to younger people who will otherwise have very little coming their way. That may be enough to convince me that any reform, however misguided and imperfect, is better than the Social Security status quo, which only promises less and less to future recipients.