New York Times columnist Daniel Altman wrote about "Taxes and Consequences" after the election, fearing all prospective changes in the status quo. His complaints with allowing young workers to put part of their Social Security tax into personal savings accounts were stupendously supercilious. He demanded to know "who would choose where workers could put their money?"
 
The elitism here is obvious. Like other New York Times employees, Altman has a 401(k) retirement savings plan. So, who gets to choose where he puts his money? He does, of course. So, why does Altman presume other people are too stupid to make such choices? It's their money, after all.

 He wonders, "What would happen if financial markets crashed?" It is considered polite to say, "There is no such thing as a stupid question." But this particular question has to be an exception. He makes it sound as though retirees are obligated to liquidate their lifelong retirement savings on the day they empty their desks, and would be most eager to do that during a market crash.

 But anyone who cashed-out a retirement savings plan in such an untimely way would have to pay income tax on that lump sum, often at a high tax rate. Prudent retirees instead avoid touching tax-deferred plans until age 70-and-a-half, when they are legally required to begin taking the money out. Only academics who ask stupid questions would even think of rushing to liquidate life saving during a cyclical crash such as 1933 or October 1987, which were excellent times to be buying.

 The money invested in any retirement saving account goes in over many years and comes out over many years. What the stock or bond market happens to be doing during the year one begins retirement tells the retiree almost nothing about the next 10 or 20 years. The stock market rarely stays down for more than three years, and then typically rebounds quickly (as in 1983 or 2003). Meanwhile, the value of bonds often rises in recessions when stocks fall (as in 2001).

 Under a partly privatized Social Security system, potential retirees' incentives to tap the retirement account slowly would be similar to existing 401(k) plans. Unlike old-fashioned Social Security, there would be no artificial incentive to retire prematurely at age 62 or 66, because the longer you keep investing in your own account the more comfortably you can retire or partly retire whenever you choose.

 On Dec. 1, Wall Street Journal writer Tom Lauricella chimed in with a front-page feature saying, "The Bush administration wants to incorporate elements of the 401(k) approach into Social Security." But those who have such retirement savings plans, he warned, "have made obvious mistakes in investing their money, such as putting too much money into low-yield savings accounts or betting the house on their own company's stock. Many also don't put as much money into the plans as they could, forgoing big tax savings and employers' matching contributions."

 The first and last complaints are inappropriate; the one about company stock is irrelevant. Those who put "too much money into low-yield savings accounts" have a low appetite for risk, which is as legitimate a taste as any other. To presume to instruct people on how much risk they should take with their own money is no different from complaining that other people buy the wrong cars or drink the wrong wine.

 This is a peculiarly ironic point to make in this case. Those opposed to adding private choice to Social Security start by suggesting that private retirement accounts are too risky, yet end up complaining those with 401(k) plans don't take enough risks.

 The Wall Street Journal writer's second complaint is that "many don't put as much money into the plans as they could, forgoing big tax savings and employers' matching contributions." That simply shows it is difficult to save, particularly for young parents.

 I once advised a young father facing a budget squeeze to temporarily shrink his 401(k) contributions to the small percentage his employer matched, because the alternative was adding to his family's debts. Most of us save little until the kids are out of college. Yet 78 percent of those offered a 401(k) plan nonetheless participate as well as they can, adding more later in life when they can best afford it. Continued...