Encouraging Pessimism for Greater Savings?

(Photo: Aric Riley)

(Photo: Aric Riley)

During the Social Security lecture to my class of 500 freshman, most expressed disbelief that the program would exist when they retire.  Like a young colleague of mine, they were sure they would never collect.  

Wrong!  I can’t see the program being abolished.  It is very popular, and its potential bankruptcy is one of the most easily dealt with policy problems we face:  just raise the age for regular benefits by one year in each of the next four quinquennia, raise the taxable base for FICA, and voilà — problem solved.

But perhaps my students’ pessimism is a good thing.  If they believe this, and act on their beliefs, they will set aside more for their private pensions — saving more. Given the low American saving rates over the last few decades, maybe I should encourage their pessimism!


Sure, it'd be easy to fix, just like it has been for the past two decades.

You seem to be to optimistic that it will be fixed. ;-)


This is basically my pessimism - sure it can be fixed, but will it be fixed, and if it is fixed in some way will it be fixed to a useful state? (ie. will it be fixed like the ACA is fixing healthcare?)

I just don't see it happening.


It's a bad idea because young people would have less reason to be involved in developing solutions. Everyone needs to feel invested in solutions and to not "tbrow up tbeir hands" that the demise of Social Security is a foregone conclusion.

P. Noble

Professor Hamermesh,

Can we assume your suggested solution takes into account the change in U.S. population structure with the Baby-Boomer generation retiring over the next couple of decades? (I assume it does since you mentioned raising the receiving age over that span) Also, I think you are right about your students' pessimism being acted upon. It certainly has goosed me into saving more money!

Bill McGonigle

I bet it doesn't include gene therapy! What are we going to do with a huge number of 120-year-old baby boomers who have been on Social Security for the past 55 years?

Oh, the required gene therapy technique showed up last week in a new paper.

Steve Laurette

From an economics perspective, isn't it better to encourage your students to spend their money--putting it back into the economy--rather than saving it?


I think that depends on your definition of saving. Converting it all to gold coins and hiding them in your crawl space, like this guy http://www.businessweek.com/articles/2012-12-20/a-gold-hoarders-legacy probably doesn't do much for the economy. But investing those savings in stocks &c provides investment capital, which arguably would benefit the economy.


As a professional in my mid-20s, I'm pretty sure SS will exist when I retire. However, I expect that payouts will have shrunk enough that they'll figure minimally in my retirement planning, or the government will have finally given up any notion that benefits are anything but transfer payments and means-tested them so I won't get any.

I think the more credible threat is that the government as a whole will default in the next several decades, given that the current debt load per full time worker is currently worth more than my house and expanding with no end in sight.


Well, it worked for me :-)

I've never had any confidence that SS would be around when I reached an age where I could collect anything, so - in addition to giving up the idea of retirement as a goal - I chose to live well below my income*, invested the rest, and now could retire comfortably without needing anything from SS.

*But quite comfortably none the less: I may eschew a lot of popular consumer goods, but I have horses, fly my own plane, have enjoyed a variety of classic sports cars, etc.


This worked for me. I'm 61 and believing SS wouldn't be around for me to collect, I've been saving diligently since I graduated from college. The result is that I have a nice stash of $$$ and retired at 55.


Is increased savings actually good for the economy? If we want out of this recession faster, shouldn't people be spending more, so long as they're not borrowing?


Re young people and savings, on the one hand saving money is essentially transferring money from your current self to your future self. Given that young people are likely as poor as they will ever be, should transferring money to their relatively rich future selves be a priority? On the other hand, a small investment at the beginning of your career will pay heavy dividends at the end.

Back on the gripping hand, does it make sense to save for retirement when you still have outstanding debts? You might say yes if the expected returns outperform the interest on the debt, but returns are not guaranteed. For example, I started retirement savings in 1999, just in time for the dot com bubble to burst. I didn't see any positive returns until the mid 2000s and they were promptly wiped out by the financial collapse in 2008. I would have been better off using that money to pay off all my debts and not start investing for retirement until 2008. Instead I am on the razor's edge with everybody else; I have debt and a retirement account and if everything breaks right that will turn out to be the right course.



How were your investments "wiped out" in 2008? Unless you were foolish enough to sell everything at the bottom, of course. Those of us who stayed the course have, I think, done fairly well. My net worth took a hit in '08, but far from selling, I put every spare dime into the market. Now my investments are worth maybe 20-25% over what they were at the '08 peak, and - per today's news - still climbing.


As a banker in my thirties, I'm positive that SS will not be USEFUL to me. Even if it does exist, I believe that it will be either well beyond my retirement date (increasing the age as the Professor suggested) or will be a mere offset of payments (increasing the FICA to give it to me later).

Then there is the possability I'll be generation holding the bag for Ida May Fuller. But maybe it'll be someone else.

Even if it is around, I feel there will be so many adjustments necessary that it ultimately won't be of use to me and I certainly won't get my value adjusted dollar's worth before dying if I get it at all.

John Peschken

It worked with me. I'm 60, and doomsayers have been telling me for most of my working life that there would be no Social Security by the time I retired. I thought they might be right and I have been a pretty good saver. I could survive without it although doing so would definitely crimp my style.

Yet, here we are 30 years or more after I began hearing this talk. The proposed changes I have heard about all seem to grandfather me.

I think there will be changes in another 30 years when my children begin to think about retiring, but the fact that this has been a topic for so long without significant change tells me this change will not come easily and maybe not at all.

Kristine a

My pessimism does not lie in the existence of a solution, but the fact that there must be courageous enough politicians and selfless enough voters to enact the solution. Do I see that happening in the current political climate now or in the next few decades? No.

By the time it is too late there will be little left and what is there will have to be means tested.

Congratulations boomers, you just screwed over your kids and grandkids. Feels good, huh?


If it was that easy.

The problem is that while the program itself is very popular, raising the minimum age to collect is a very unpopular proposal.

Joe J

I wouldn't call belief that SS wouldn't exist when they retire as pessimism, but as optimism.
Popularity doesn't mean good. Unfortunately, I don't see us having the brains or courage to get rid of this Ponzi scheme.


Social Security is not a Ponzi scheme.

Ponzi schemes don't make you use their product.

Andrew B

This goes against a recent Freakonomics podcast in which Professor Levitt said young people should not save much as they will be financially better off in the future. He was opposed by Mr. Dubner.