You've mentioned Social security as insurance, previously, but I think
the point deserves more emphasis. Reducing social security benefits and
replacing (some of) the lost benefits with private investment accounts is still
gambling EVEN if the accounts earn a relatively optimistic rate of return, and
EVEN if the accounts are limited to conservative investment options. The reason
why private investment accounts are RISKY is because people don't know how long
they will live. Someone living to (say) 95 is going to do much worse with
private investments, simply because the privately invested money is going to run
out well before they die.
The scam here (on the part of those trying to sell private investment
accounts as a substitute) is that they (implicitly) are talking about what
someone who lives to the AVERAGE lifespan will be getting. But half (or so) of
retirees are going to live LONGER than average. This half will either have to
withdraw money more slowly (live less well) [and how will they be able to
predict this?] or will exhaust their private investment accounts long before
So with private accounts, those who die early end up with some (or
much) of their money going to the heirs, and those who die late end up
(potentially) in poverty. Only the hypothetical "average" person (the one who
dies at an average age, having exactly exhausted his/her private investments at
exactly the right time) is going to do as well as any "predicted" outcome for
private investment accounts.
Yes, Social Security is insurance. It's the part of my retirement (or God forbid, disability) that is guaranteed. I would like to do better than rely on just SS and that's why I have a 401k. I also have a small pension coming to me from the State of Illinois for the almost 10 years I spent working there. The State pension (a defined benefit package) and Social Security are guaranteed for life. My 401k, when cashed in, is a finite amount of money. I know I won't live forever but its good to know there is a source of income available to me for as long as I do live after retirement.
By the way, I'm not going to get into it now but I really think the trend away from defined benefit plans is a bad deal for workers.