Richard Thaler, who won the Nobel Prize in 2017 for his work on behavioral economics, wants to mesh 401(k) plans with Social Security benefits to help Americans simplify what is perhaps their most daunting and complex financial issue: drawing down retirement assets. He said Americans should be allowed to contribute more into Social Security using a portion of their 401(k) benefits when they retire, which would increase the size of their monthly Social Security checks.
Allowing retirees to send up to perhaps $100,000 or $250,000 of their 401(k) balances to the Social Security Administration would deliver an inflation-adjusted annuity, guaranteed by the federal government at fair actuarial value over a retiree’s lifetime—which companies in the private sector are loath to do, said Mr. Thaler. It would be aimed primarily at households making between $50,000 and $100,000 a year, who haven't accumulated a big retirement nest egg, rather than the wealthy or individuals at the bottom of the income ladder, who rely almost 100% on Social Security for retirement income.
The federal government should be the natural institution to bear the risk of a “calamitous increase in life expectancy,” Thaler said, remarking on the possibility of an eventual cure for life-threatening medical conditions like cancer or heart disease. “Everyone has Social Security as part of their portfolio,” he said. “So the question is how much bigger should that share be?”
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