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Ask Dave

I Heard 401k Not Smart, Social Security The Way To Go?

What is the meaning behind a person saying Social Security is a better way for retirement than the 401k?

QUESTION: A listener said he heard that the 401-K is a ridiculous way to save money for retirement and that Social Security is the best way to save for retirement.  Is he right?

ANSWER: The only way someone can say that Social Security is better for retirement savings than 401-K is if he is a socialist.  With Social Security you have a negative rate of return.

If you do a study, you’ll see that socialism has not benefited the countries that follow that economic theory.  Capitalism prospers countries and their citizens.

Capitalism, an economic theory by Adam Smith, is a free-market economy with little to no government interference.  In a capitalist nation, the market determines what is good and bad.  Houston, Texas is a good example of this – they have no zoning laws and the market decides the value of the real estate.  And they are a booming metropolis.

Communism is at the other end of the spectrum.  In Communism, the government owns and controls every single item.  Karl Marx was the father of this theory where a few elite individuals control everything for the masses.  It has proven ineffective.

Socialism falls somewhere in between.  Webster’s Dictionary says socialism is any social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.  It is the stage in Marxist theory immediately between capitalism and communism in which collective ownership of the economy under a dictatorship of the proletariat has not yet been successfully achieved. 

Capitalism, Socialism and Communism are just different methods of looking at how an economy should operate.  But, when the government begins controlling more and more of its citizen’s lives, you’re moving toward a socialist and communist nation.  In essence, you’re saying that the government is best equipped to run our lives.  However, if you do a study, you’ll see that socialism has not benefited the countries that follow that economic theory.  On the other hand, capitalism prospers countries and its citizens.