Retirement Insurance

The New York Times notes that the insurance industry is lobbying congress for a piece of the Social Security action. If they want it, we should let them have it. The private insurance industry already competitively provides retirement accounts, annuities, life and disability insurance, everything that Social Security provides. Instead of private accounts, people should be allowed to put part of their Social Security contributions into private insurance and annuities that meets government constraints.

What should be the role for Social Security? What government insurance uniquely provides is risk blindness. Only the government can be blind to risk without going out of business, either by mandating contributions or by passing losses to taxpayers. The blind Social Security insurance annuity currently does the former, but should be doing the latter. It is better for Social Security to be a small money-losing program than a large solvent program. Social Security's solvency is meaningless since we have a unified federal budget. Instead of raising contributions or reducing benefits to keep the blind Social Security retirement annuity solvent, we should let people opt out while leaving Social Security as a backup. Social Security benefits could be more flat, based more on hours worked than contributions, so that most would opt out while adequate benefits would still be available for low earners.

The insurance industry is also trying to prevent the elimination of the estate tax, which many wealthy Americans now pay with the proceeds of life insurance policies. As a compromise for sending them annuity business we should reduce their planning business by eliminating the estate tax. The AARP could also compete for retirement annuity business, so they would probably not be opposed.