Managing Retirement Accounts
By Arnold Kling
The Wall Street Journal reports that recent events have raised doubts about the ability of people to manage their own retirement accounts.
The most obvious pitfall is that 401(k) plans shift all retirement-planning risks — not saving enough, making poor investment choices, outliving savings — to untrained individuals, who often don’t have the time, inclination or know-how to manage them. But even when workers make good choices, a market meltdown near the end of their working careers can still blow their savings to smithereens.
On the other hand, look at professionally-managed pension funds. The Washington Post reports,
The collapse of the stock market last year left corporate pension plans at the largest companies underfunded by $409 billion, reversing a $60 billion pension surplus at the end of 2007, according to a study released yesterday.
The only difference between amateur management and professional management is that the professionals get bailed out. Corporations will have to plow more earnings into pension funds–or else default on their obligations, in which case taxpayers will do the bailout through the Pension Bemefit Guaranty Corporation. And state and local pension plans, which also lost money, are going to be bailed out by taxpayers.
I fully expect to pay more in taxes to bail out other people’ retirement losses than I lost myself in the market.
If anybody else is afraid to manage their own retirement money and wants the government to do it for them, they are welcome to do so. I would prefer to suffer for my own mistakes.