Uncle Sam wants your retirement money.
The Obama administration has just solicited public comment on their proposal to take money from Americans’ private 401(k) retirement accounts and convert it into government-backed annuities. In other words, they want to take your money now to purchase U.S. Treasury bonds, then pay you a monthly sum later after you’ve retired.
Although this proposal is being initially portrayed as a voluntary choice, Americans already have the ability to purchase Treasury bonds with their retirement money. Moreover, the Obama administration is considering making these annuities the default option. And as analyst Karl Denninger noted, “‘choices’ have a funny way of turning into mandates.” Nor is his concern unjustified.
In 2008, Professor Teresa Ghilarducci of the New School of Social Research testified before Congress proposing a similar scheme to convert private 401(k) accounts into government-run “guaranteed retirement accounts” that would pay a 3% return. And in 2008, the Argentinian government attempted to nationalize private retirement funds to help cover its runaway deficit.
As the U.S. Social Security system moves ever closer to bankruptcy, the billions of dollars Americans have saved in their private retirement accounts will become an increasingly tempting target for our politicians.
A government raid on private retirement funds wouldn’t necessarily take the form of outright confiscation. It could take the form of mandatory conversion into government accounts, where the government would determine how much money retirees could receive. Or it could take the form of, for example, a 40% surtax on disbursements from 401(k) balances over $1 million — on the grounds that it would only harm wealthy “millionaires.”
But regardless of the precise method employed, the basic principle would be the same: Your money would no longer be your money. Instead, the government would claim the right to redistribute your wealth to pay for others’ retirement on the grounds that they needed it more. In essence, the government would be implementing the Marxist principle: “From each according to his ability, to each according to his need.”
Many Americans are predictably alarmed at this prospect. One of my friends who I’ll call “John” is a hard-working middle-class professional who has lived frugally, saved enough to send his two children to college, and has carefully built up a nest egg sufficient to ensure that he and his wife will have a comfortable retirement. In contrast, his neighbor George making the same salary has chosen to spend his income on fancier vacations and a more extravagant lifestyle, rather than saving for the future. John is understandably outraged that the government might someday tax or confiscate his nest egg to guarantee George’s retirement income regardless of George’s bad choices.