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.
The fact that George could face old age with minimal savings does not entitle him to any of John’s savings. George’s need does not give him a right to John’s money. Penalizing John for having saved responsibly to bail out George would be a gross injustice — just as it was a gross injustice for the government to punish frugal homeowners who lived within their means to bail out irresponsible homeowners who took out larger mortgages than they could afford.
Unfortunately, the Republicans are little better than the Democrats with regard to respecting your rights to your own money. Republican Congressman Paul Ryan has proposed his own “roadmap” to “reform” Social Security, where you could divert some of your Social Security money into a nominally private individual account. But you couldn’t invest your money as you saw fit. Instead, if you met certain eligibility requirements (set by the government), you would be allowed to put some of your money into special accounts (approved by the government), to be managed not by the private investment service of your choice — but by the government.
In his Newsweek interview, Ryan claimed that his plan “unapologetically applies our nation’s founding principles — individual liberty, limited government, and free enterprise — to the challenges of today.” But his plan does nothing of the sort. In fact Ryan openly admitted to the New York Times, “I make a lot of concessions here to the left.” As with the Obama administration’s plan, under the Ryan plan your money wouldn’t really be yours to do with as you wished. Instead, you could only do with it what the government permitted.
If Republicans truly wanted to respect the principles of individual liberty and limited government, they would respect Americans’ rights to save or spend their money as they wished. The government’s job is not to somehow guarantee a fixed standard of living to all retirees but instead to protect individual rights — including each person’s right to enjoy the fruits of his labor and his right to plan for his retirement according to his best judgment.
The Social Security program should be gradually phased out. Individuals should be allowed to save their own money in whatever investment vehicles they see fit. If they wished to form voluntary mutual aid societies or enter into voluntary insurance contracts to protect against financial catastrophe in their old age, they should be free to do so. But the government should not compel one man to pay for another’s retirement by raiding his 401(k) account to prop up the unsustainable Ponzi scheme of Social Security.
If someone lacked sufficient retirement savings in his old age, he should rely on voluntary charity, not demand another’s life savings as an entitlement. Most Americans will gladly help those who have fallen into dire straits through no fault of their own, as we’ve seen recently in Haiti, and as we’ve seen throughout history with countless innocent disaster victims in the U.S. and abroad. Conversely, those who have brought financial hardship on themselves through irresponsible living should not be able to compel their more-responsible neighbors to subsidize their bad choices via what amounts to forced charity.
As Don Watkins and Yaron Brook of the Ayn Rand Center for Individual Rights recently wrote in Investor’s Business Daily, we must reject the notion that one man’s “need” gives him an automatic moral claim on another man’s wealth. Instead, we must respect and affirm the principle that the person who has earned his wealth deserves it — and that it is his rightful choice (not the government’s) to decide whether and how he should save it, spend it, or give to others as charity.
The coming debate over Americans’ retirement funds won’t be just about economics, but about fundamental issues of justice and individual rights. Will we allow the government to raid John’s retirement account because George “needs” the money more? Or will we demand that it respect John’s right to his hard-earned life savings? The choice will be ours.