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        Investor's Insight - Friday, February 24, 2006           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"


Comment The Post Below...

by Scott Burns

You've heard about credit risk, interest rate risk and 
manager risk, right?

Well, Donald D., a Houston reader, thinks there's a greater 
risk. I think he's right.

He calls it "Congress risk."

Writing in response to my recent column about the benefits 
of taking Social Security benefits later rather than sooner, 
Donald agreed that a discounted present value approach to 
the benefits decision was the best financial approach.

But he had misgivings. "Congress risk" was just one of them. 

"I think there are other factors to consider. For one, the 
marginal utility of a dollar for a 62-year-old is probably 
greater than for an 80-year-old,"he wrote. 


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Marginal utility, in case you've never heard the phrase, 
is econo-talk for the usefulness of the last dollar, Oreo 
cookie or margarita compared to those preceding. Just as 
we all know that the additional pleasure brought by the 
seventh pancake is small compared to the first, most of 
us seem to think that pleasures of any sort at age 60 
have a higher value than pleasures at 70 or 80.

I'm glad he said it, not me, because he's the one you can 
call "age-ist." That said, you should know that many read-
ers have offered the same thought. No reader has ever 
suggested it's best to hold off doing anything until we're 
91 because we'll appreciate it so much more than at 35.

"There is also the risk that a person will not live long 
enough for the delayed benefits to pay off," Donald's 
message continued.

"Using a person's life expectancy may be the best guess 
about how long that person will live but, statistically, 
half the people will not live that long. Many people will 
reasonably conclude that 75 cents starting today is better 
than a dollar in eight years, if they live that long."

The blunt fact is that while the financial planners can 
wring their hands over the difference between 5.5 percent 
and 6.5 percent in a financial calculation, normal human 
beings use much larger discount rates when we fire up our 
hedonic calculators to value an experience today vs. one 

"Then there is Congress risk," his message continued.

"Politicians are better at getting their hands on other 
people's money than at just about anything else. We know 
there is already a shortage of money looming. We know 
they will soon not be able to meet their obligations. 
Maybe getting what you can, now, is safer than hoping 
that Congress keeps its promise for the next 15 or 20 


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He's got a good point there. 

Last year at this time there was a deluge of proposals 
to "save" Social Security. The proposals shared only one 
thing. Today's voters would be spared any inconvenience, 
while tomorrow's retirees (the young) would get less in 

Seniors get the mine; the kids get the shaft. 

I call it "The Great Reneging" -- somehow, some way, 
politicians of both ilks are going to complete the un-
raveling of the Great American Security Blanket, just 
as American corporate executives are reneging on the 
benefits and pensions promised to millions of workers 
as they rake in their stock-option millions. (And, no, 
I can't tell you how I really feel about this.)

In fact, even without Social Security reform, future 
workers are going to see their benefits reduced because 
(1) Medicare premiums are rising faster than Social 
Security benefits, and (2) more benefits will be taxed 
because the taxation of benefits formula is unindexed 
just like the hated alternative minimum tax.

Bottom line: Whatever the financial calculation, de-
ferring Social Security benefits very long requires 
more trust than our politicians have earned.

(Investor's Insight reflects the opinions of experts. It does 
not recommend any specific investments, and no endorsement is 
implied or should be inferred. For more information, contact 
the individual firms cited).



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