This May, I had the privilege of hosting a Jeffersonian dinner with the speakers of the Cato Institute Social Security Symposium: A Global Perspective, where we delved into the experiences and policies that shape our views on the government’s role in retirement provision.
A Jeffersonian dinner is characterized by being off-the-record (following the Chatham House Rule), guided by a set of targeted questions and clearly established norms, and moderated by a skilled facilitator. A well-run Jeffersonian dinner will lead to every participant learning something new through a generative ideas exchange. The goal is not to debate or persuade, but to shed new light on an issue and understand different perspectives more deeply. Our May dinner was guided by the following questions:
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What personal or professional experience has most shaped your perspective on the role the government should play in people’s retirement?
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What political, technical, or strategic key lessons should the US draw upon to address its dual challenges of an aging population and the unsustainable growth in old age benefit programs?
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How can we shape the conversation around retirement program reform to spotlight its potential and highlight possibilities for positive outcomes in a way that sparks enthusiasm for transformative change?
Our discussion was rich and varied, touching on personal experiences that have influenced our perspectives: from the impact of grandparents’ financial situations, to witnessing old-age poverty, to researching the accumulation of Boomer wealth, to calculating our personal expected Social Security benefits, to being confronted with the skepticism of younger generations about receiving any benefits at all given system financing shortfalls.
We explored how behavioral finance, including tax incentives and compulsory savings, plays a role in retirement planning. Key questions arose about the fundamental purpose of Social Security: Are we insuring against poverty, providing replacement income, or combating myopia in retirement planning? We also discussed the often-overlooked geographic aspects, such as people moving to lower-cost areas and the role of Social Security in enabling them to stay in their communities despite rising property taxes.
On the policy front, we examined the total costs of pension systems and how much of a country’s GDP should go toward subsidizing consumption among older individuals, regardless of need. We debated the merits of pre-funding pensions versus relying on taxes collected by current workers (as is done in pay-as-you-go systems like Social Security), and how the size and eligibility criteria of benefits impact economic growth by increasing or decreasing labor supply.
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Should benefits be pre-funded with taxes collected and set aside for retirees and saved in investment accounts they own and control? Or should most people be free to save and invest for retirement as they see fit with government programs acting as a basic backstop against poverty in old age?
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Should benefits be tied to average wages or some measure of the poverty level rather than individual earnings?
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Would increasing the retirement age and reducing the generosity of benefits encourage more work and savings?
Other thought-provoking topics included the efficiency of payroll taxes versus income taxes, the potential political and economic pressures of funding government retirement programs through general revenues, and the complexities brought about by actuarial calculations and what incentives factor into actuarial judgement calls.
We pondered how to make retirement program reforms politically feasible, possibly through bipartisan accords that transcend electoral politics. We also considered different international approaches to Social Security defaults, such as benefit cuts in the US when promised benefits exceed payroll tax collections, automatic tax increases in Germany, and Sweden’s balanced approach of reducing benefits and changing policies to boost growth. How do policy defaults shape political negotiations and influence legislative outcomes?
Ultimately, our discussions emphasized the importance of agreeing on facts and consulting longitudinal household surveys to better understand financial behaviors over peoples’ lifetimes. This can inform whether public benefits need adjustments, including deterring over-saving for retirement due to health uncertainty with long-term care supports and annuitization. We concluded by reflecting on FDR’s words: “We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” What’s the best way to uphold this promise without undermining the economic and financial future of the next generation?
This dinner left us inspired to seek transformative change in how we approach Social Security, with a commitment to setting clear system goals, learning from other countries informed by our nation’s unique history, and finding collaborative paths to achieve reform.
The symposium speakers built on this discussion during our panel sessions the next day at the Cato Social Security Symposium: A Global Perspective. I invite you to watch the video of our discussions if you haven’t done so yet.
