Designing a product to be “idiot-proof” is not an insult to the consumer. We all do stupid things sometimes, and it is just good design to build something so that even an idiot can’t wreck it. The same goes when designing a system for retirement and disability insurance.
The recent volatility in the stock market shows why Americans need a retirement and disability insurance program that is foolproof. Simply put, when people manage their own money in the stock market, they tend to make poor decisions. It’s easy to see why: when the stock market is dropping, people see their funds dwindling and are tempted to get out. When stocks are rising, it looks like people are making money, and it seems like a good time to buy. However, buying high and selling low is obviously a recipe for failure.
Even if every American had the self-control to simply put their money in an index fund and keep it there, the stock market’s inherent volatility means that there would still be losers. Over-reliance on IRAs and 401(k)s brought bad results after the 2008 stock market meltdown, when the average employee lost about $10,000, or 14 percent, of their retirement savings, according to Hewitt Associates. In 2008, the average diversified fund in the U.S. dropped 38 percent, and even bond funds fell by 8 percent.
Thankfully, we do have a foolproof solution: Social Security. The taxes that American workers pay into the Social Security system through their paychecks provide the funding for a rock-solid retirement and disability insurance program that never adds a penny to the national deficit.
When you consider the stability of Social Security as compared to the stock market, it is astonishing that there are still calls from Republicans to privatize Social Security, essentially taking the retirement and disability trust funds and rolling the dice on Wall Street. Social Security is the most successful and most popular government program in history, benefiting everyone who has paid into it and needed it for 80 years. Social Security as a whole is fully funded through 2033, and can be fully funded indefinitely with modest changes. Indeed, with IRAs and 401(k)s proving to be inadequate, now is the time to strengthen Social Security, as Democratic Presidential candidates Bernie Sanders and Martin O’Malley have called for.