Bob's recent post on retirement plans prompted a couple of thoughts:

1. Regarding Roth IRAs vs. traditional IRAs: One way to view a Roth is as an insurance policy against higher future tax rates. (With a Roth, one's contributions are made on an after-tax basis and withdrawals are tax-free. With traditional IRAs, 401k plans, and the like, the contributions are made on a pre-tax basis but the withdrawals are subject to tax.) Since it is probably much harder for Congress to change the tax status of Roth withdrawals than it is to up the general income tax rates (which apply to traditional IRA withdrawals), Roths provide something of a hedge against higher taxes.

2. On grounds of individual freedom, I am all for switching Social Security over to a system based on personal accounts. (In a really radical moment, you might even get me to utter something about there being no need for government to mandate retirement savings in any form public or private.) I do, however, have a concern about plans for personal accounts. (Click here to see Rep. Paul Ryan's version; I link to his plan because it is a typical reform proposal not out of an intent to specifically criticize his plan. Indeed, I commend him for his initiative.) My concern is with provisions to guarantee workers at least as much Soc. Sec. benefits as they would receive under current law. My fear is that this provision (which is probably included as a political tactic) would lead to substantial moral hazard problems. I can invest in, say, a risky IPO and reap the benefits if the investment is successful or fall back on my govt. guaranteed Soc. Sec. benefit if the investment is not successful. Don't get me wrong--I think prudent retirement investment decisions might well include some degree of risk, but the "heads I win, tails you lose" aspect of the Ryan plan would give people an incentive to engage in even riskier investing.