Reviving Tontines: An Alternative to the 1930s Social Security System
Imagine being transported back to the 1930s and tasked with creating the Social Security System. This exercise, however, reveals the critical differences in our modern goals and the objectives of policymakers like President Franklin D. Roosevelt. What worked as a bug in Roosevelt's system might be a feature in mine, and vice versa. My goal is to promote real prosperity and security, while Roosevelt aimed to maximize government dependency. Had I been able to influence events earlier, I might have prevented the Armstrong Investigation of 1906 and the subsequent dismantling of tontines, an innovative solution to retirement security.
Shifting Goals and Perspectives
When working on the Social Security System, the tension between our objectives is stark. Roosevelt's focus on the formality of hiring through government control aimed to reduce informal or 'off-the-books' labor. In contrast, my priority is on a truly sustainable and equitable system for all. This discrepancy makes it challenging to align our respective visions, yet understanding each other's perspectives is crucial.
The Origins and Impact of the Armstrong Investigation
The Armstrong Investigation of 1906 was conducted by progressive investigators who sought to eliminate non-governmental practices in favor of public-sector solutions. Their goal was not to reform but to transfer control to the state. Such investigations aimed to dismantle private initiatives and consolidate power within the government. In this context, the tontine system was a casualty.
A tontine is an investment pool where participants are entitled to a share of the pool's income during their lifetimes. Upon the death of a participant, the remaining pool is divided among the surviving members. This system provided a more decentralized and individualized approach to retirement security, which contrasts sharply with the rigid and government-controlled model we have today.
Reviving Tontines for a Modern Era
Historically, tontines provided a viable alternative to the outdated and rigid social security systems. However, tontines fell victim to ill-informed and shortsighted government policies. Today, as evidenced by articles in The New York Times, the idea of reviving tontines is gaining traction. This resurgence is not just about nostalgia; it is a call for a more flexible and efficient approach to retirement security.
The essence of a tontine can be seen in its simplicity and elegance. Participants in a tontine would receive annual dividends until their death. The shares of the remaining participants would rise in proportion to the original investment. This system could be adapted to various needs, including providing income for life or supporting life insurance. Crucially, it would allow for greater personal agency and choice in retirement planning.
The Future of Retirement Security
The current Social Security System, while widely recognized, is facing numerous challenges. The expectation is that it may no longer be sufficient for future generations, particularly those in Generation Y and Millennials. The idea of reviving tontines is gaining momentum, driven by the need for a more robust and personalized approach to retirement security.
Reviving tontines would mean rethinking the traditional pension models and fostering a system that is more attuned to individual needs. It would require legislation, public support, and a shift in public perception. However, the success of tontines lies in their ability to empower individuals, promote stability, and ensure that retirement security is a reality for all.
As we move forward, it is essential to learn from the past and embrace innovative solutions. Tontines offer a compelling alternative to the rigid and often unsatisfactory Social Security System. By reimagining retirement security, we can create a more secure and prosperous future for all.