Doug French

What everyone who pays attention already knows hit the front page the other day: Social Security will exhaust its reserves by 2033. That's 3 years sooner than previously projected, and, most importantly, a scant 21 years away for those hoping to retrieve some of what they put in over the years.

The Social Security Administration is kind enough to send out fliers occasionally letting us know how much of a monthly check we can expect from the program we pay into all of our working lives, depending on what age we decide to hang it up. Of course the folks at Social Security make no promises about how far a dollar will go when the time comes. And the present news would seem to cast some doubt as to whether any checks will be coming at all.

The Wall Street Journal's Damian Paletta writes,

The trustees who oversee Social Security's two trust funds — one for disability benefits, the other for retirees — said reserves for the fund that pays disability benefits would be exhausted by 2016, two years earlier than projected last year. And if the disability fund were combined with the larger fund that pays retiree benefits, all reserves would be exhausted by 2033, three years sooner than projected last year.

This makes it sound like there are actual funds sitting there waiting to be deployed. Funds invested in, well, anything. But of course that's not the case. Back in 1960, more than five workers were paying into social security for every retiree. Now that ratio is down to 2.8. People are living longer, and wages are not increasing at the expected clip. So, the program is paying out more and collecting less than planned.

What this all means is that people had better be stuffing their 401k retirement plans and IRAs with as much savings as possible. And not only that, individuals must make good investment decisions. Mechanics, gardeners, carpenters, and computer jocks must not only be good at their professions, but be money managers as well. However, since the median 401k balance holds all of $13,000, future retirees better be spectacular money managers and flawless speculators.

Not likely. In the words of Terry Burnham, "markets are mean," and people are forced to navigate this foreign world with "lizard brains." Speaking at the Socionomics Summit 2012 in Atlanta, the Harvard economics professor and money manager warned Social Mood conferees that herding is normal in life and especially in financial markets. And while our lives are made better by learning and perfecting tasks, this learning does not work well for investing in financial markets.

Doug French

Doug French is is president of the Mises Institute and author of Early Speculative Bubbles & Increases in the Money Supply and Walk Away: The Rise and Fall of the Home-Ownership Myth

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