Monday, January 24, 2005

Race-Based Social Security Formulas

Another great Republican idea.

Though, inadvertently, Thomas is getting at one of the great values of Social Security -- its value as an annuity. It's insurance against long life*, and it doesn't suffer from the adverse selection problem that normal annuity markets do.

*to be clear, long life is a good thing, but what's not good is the uncertainty about time of death. From a financial planning perspective, given nest egg at retirement of x and expected years until death y you'd like to spend x/y annually and have exactly 0 dollars at the moment of death (assuming away any bequest desires). But, since you don't know when you're going to die exactly, absent an annuity you face the prospect of dying with extra money in the bank, "wasting" it, or living longer than expected and being flat broke.