annuities all around! [UPDATED]
I may not be reading him right. But I think former Treasury Secretary Paul O'Neill is suggesting we replace the current social security system with one in which everyone (yes, everyone) is guaranteed a 1 million dollar annuity at their retirement, made up of required savings over their life that the government holds in a big trust invested in index funds, but remains the individual's property. Upon retirement, the annuities would be supplemented if need be by, well, the government. But that's all they would do: add the funds to make a person's account large enough to provide "enough money in retirement for all needs - food, clothing, shelter - and including medical needs like prescription drugs."
Are we really going to have enough in the general fund to give every retiree a million dollar annuity when their savings don't add up? He kinda skips over that part like it's no big deal.
And when a person dies, their account can be inherited?
I'm not sure I get this plan. Does it make any sense?
[UPDATE] Kevin Drum also doesn't get this plan so I don't feel so stupid. How could the numbers possibly add up? If it was that easy to keep everything the same and have everyone retire with a million dollar annuity wouldn't we be doing it? Specifically, Kevin notes that "This is all back of the envelope, but I figure the population of retired people in 2075 will be around 100 million, give or take a bit. At $1 million each, that's a total of $100 trillion in investments.
The total market capitalization of all public companies in the United States is about $12 trillion today. At a long term real growth rate of 3%, that number will be roughly $100 trillion in 2075.
In other words, retirees would own everything. That's a bit of a bleak future for everyone else, isn't it?"
Maybe the strangest part of O'Neill's piece is his admission that he and Alan Greenspan had worked through it. Do they think that most all Americans make 50,000 dollars a year on average for their entire working life? Is he thinking that we will have more money to use because we will no longer be funding Medicare? Since everyone's personal annuities will be expected to cover all medical/insurance costs?