Tuesday, November 11, 2008

Retirement Funds and Government

Well, it appears that TRS, the teachers retirement system in Illinois, is in rough water with the recent economic downturn. That news comes on top of the revelation that TRS is only 56% funded. Of course, when I moved to Colorado, I heard from advisers out here to "leave your money in Illinois," and that made sense considering the projected payouts. Now, I might be wishing I'd taken the money and run. Of course, Colorado's PERA system is facing funding shortfalls as well. Perhaps I'd be better off if teachers paid into Social Security. Hmmm. All
these developments tend to bring criticism of the government and cries about the evils of socialism. However, I'm not complaining. It is what it is.

My thoughts on leaving my money in Illinois, rather than switching it PERA or investing it myself are simple. I made the decision to do so based on a fair amount of market research. Subsequently, the money could have been in worse shape if I'd pulled it and invested it myself (or better shape depending on my savvy). Ultimately, the money I left in Illinois is one source of my retirement, the money I put in PERA is another, and the money I invest myself is a third. There is also the small sum I will get from Social Security from non-teaching work. Thus, I feel pretty good about all my prospects precisely because I am so well-informed (and diversified), and I am not lamenting my decision to leave the money in Illinois. It was an investment decision, and like all, it had its risks and rewards.

There is a point to be made about the misuse of funds, as well as underfunding, and I'm no fan of what has happened to Illinois government under Blagoivich. However, it's truly no worse than if I'd invested it in AIG, Merril Lynch, IndyBank, Ford, WorldCom, Enron, etc. Governments aren't more likely to mis-invest the money than the private sector. Of course, once Enron folded, investors were left with no one to sue. The government funds, on the other hand, still have to answer to voters and taxpayers. When my Ford stock goes bust, or when the railroads abdicated their pension responsibilities, the free market leaves investors with nothing. Those pensions were eventually picked up by the government. And, Social Security will always be honored - Enron stock is worthless. Additionally, I should note that Social Security was never meant to be the sole retirement income for people. It has certainly gotten off track.

If I won the lottery these days, I'm inclined to take the payouts over twenty years because I know I will see the full amount. If I took a lump sum and invested it, I could lose half my value. The government (as noted by President Bush to be the only entity that can solve the mortgage problem precisely because its stability) offers consistency and a responsible party that can't walk away. Voters know where to find them.

I am fiscally conservative and a free market proponent, but I'm not naive about it. I believe the free market is the best answer to most questions, and free trade will do more than protectionism. I am heavily invested in, knowledgeable about, and supportive of free market capitalism. However, like both Adam Smith and Teddy Roosevelt, I acknowledge the pimples on the system, and accept the need to occasionally regulate what TR called its "more unsavory elements."

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