First, how much can our government force people to save in the first place? You can make them lock up funds in an account, but they can respond by borrowing more on their credit cards, taking out a bigger mortgage, and in general investing less in their future. The net increase in savings will be much less than the mandated increase.
So if your fellow citizens are willing to provide some minimum level of subsistence for you in retirement, the temptation grows to risk bankruptcy in retirment, either by blowing all your money on wine, women and song, or by making extra-risk investments in the hope of extra-juicy returns.
Also, many people aren't good at planning. A look at the current state of boomer finances, or my 401(k), would scare the hell out of you.
My view in this case is paternalistic. I do not think people are financially sophisticated enough to know how much they should save or to know how to offset very much of forced saving.
My view is that hardly anyone understands just how much the increase in longevity and improvement in medical care that has taken place in recent decades implies a need for larger saving. In Saving Freedom, I showed in a simple example that we might need five times as much saving at age 65 as we needed 50 years ago.
Private accounts meet further problems if people live for a long time. What about the woman who survives to 105?
I think that the key will be getting her to retire at 75 rather than 65. If she retires at 75, and her savings are exhausted at 90, I do not mind government picking up the rest of the tab.
I stand where I started, namely that social security should evolve into a welfare system for the elderly, but without the forced savings component.
My concern is that without forced savings, the vast majority of people will require the welfare component, so we would end up with something that looks like today's tax-and-transfer scheme.
For Discussion. To what extent do you think that people would offset a forced-saving scheme with greater borrowing or other means?