A few weeks ago, I wrote about an out-of-the-box solution to part of our Social Security problem–that is, how to pay for so many benefits as our population ages and lives longer.

I received many great responses, but most of the critical ones centered around one idea, which is espoused by the following two emails:

“OK so you pay off all these people with trillions of dollars and buy out their social security and in 10 years when these people have blown/mismanaged this cash they end up on welfare and the government ends up supporting them anyway! What makes you think they wouldn’t blow it all when that is what they have been doing for the last 50 years!”

And: “If you look at what has happened in England with the privatization of the social security system, you may rethink your idea. People could easily take the buyout you propose at 50-60, and find themselves broke at 60 to 70. What would the government do? Let them live on the street?  I don’t think so. Never underestimate the ability of the population to lose all their money!”

Now, first, let me say I do think they bring up good points–that’s why I included them in this issue.

To me, their basic point is that most people are too stupid (my words, not theirs) to handle their money–so if they took the lump sum, they’d “blow it” and would be back at the government’s door, hands out, hoping for more help.

I’m not ignorant enough to say that this scenario could never happen.  However, consider the logic–if so many of these near-retirees are unable to handle money, then it follows that they’re not managing their assets properly today.  Thus, it only makes sense that the government should take MORE of their money, and in return, offer them the services they need.  This would, according to many emails, be logical.

But I just can’t see that as reality.  If having the government run everything was the best way to go, then the U.S. would have failed long ago, and we’d all be speaking Russian.  No, the government has good intentions, but politics and bureaucracy prevent it from being efficient.  Heck, it can’t even make money with a monopoly in the mail business.

Still, there are some possible compromises here.  First, instead of giving people a lump sum, you could offer near-retirees a short annuity; possibly pay them some amount per month for three or five years.  Or, another option would combine a lump sum with an annuity, and make part of the lump sum go into an IRA or similar account.  That would force younger people who took this option to hold on to their money until they hit retirement age.

I’m not saying my solution is perfect by any means.  But with interest rates at absurdly low levels (the 10-year Treasury note is now yielding just over 2%!), getting Social Security off of Uncle Sam’s books still makes sense to me.  As always, thanks for all your comments.