Students should start planning for retirement now

Written by Robert Dran
(rdran@mscd.edu)

The Point: Social security won't be there

If students need a reason to vote, just look at the federal budget. The biggest government expenditures, such as Medicare and Social Security, go to the elderly. Education expenditures are nowhere close to Social Security expenditures. It makes sense: the elderly vote and students generally don’t, so the elderly get a hookup and students don’t.

Simply put, Social Security is the labor of the current work force financing the previous generation’s retirement. Unfortunately, this system is demographically unstable. As countries develop their population increases because people live longer. At the same time, the birth rate drops and the ratio of people paying into Social Security to the people collecting social security drops as well. With the drop in work force a country must increase immigration or face financial collapse. This is the situation Europe and Japan find themselves in. Europe is increasing immigration; Japan is not and maintains very generous benefits. Japan is clearly heading to the edge of a fiscal cliff.

If the situation continues in the U.S., it is unlikely the current generation’s work force will see any of the money they are paying into Social Security. Students are better off learning where their closest polling station is and voting to keep more of their money to use for their own retirement. How much confidence should people have in the government taking their money on the premise they will see it again when they are ready to retire? My answer is probably the same as yours — none at all.

One of the few positive but flawed Bush proposals is privatizing Social Security. I understand the argument: didn’t the stock market just crash? My answer is it sure did, and that’s why people should keep more of their own money. The best way for citizens to spend their money, especially for students, is to start investing for retirement. Stocks are cheap, so now is the time to start buying. Stocks have a high return over the long run. As you get closer to retirement, you get less risk adverse. Start transferring their investments from stocks into bonds and CDs which are much safer despite their lower returns. This could be done 10 years before retirement in case of a market downturn.

I know this is a bitter pill to swallow. Everyone wants a system where we can have a decent retirement and no one is left behind. The problem is such a system does not exist. Anyone who tells you they have perfect economic or political system, whether it’s a large welfare state or a capitalist utopia, is lying to you. All systems have flaws. As voters we simply have two choices: worse and better. Continuing our current path on Social Security is clearly the worse option.
The key here is it takes a bit of effort and discipline to save for retirement. Students should be doing this now and the best way is to get rid of Social Security since we will not be seeing that money anyway. Give people what they’ve already paid into Social Security so people can use their money for a better future. Some people may lose this money, but the money is gone anyway — everyone losing their entire Social Security is much worse than a few not saving properly for retirement.