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.

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 readers 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 8 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 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 tomorrow.

"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 years."

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 benefits.

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 unraveling 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 un-indexed just like the hated alternative minimum tax.

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

On the web: Play "what-if" with rising Medicare premiums and Social Security benefits on the Medicare vs. Social Security Calculator

Sunday, June 5, 2005: "Missing a couple trillion"

Kotlikoff and Burns, "The Coming Generational Storm: What You Need To Know about America's Economic Future" on Amazon.com ------------------------------------------------------------------------------------------------

Personal finance writer Scott Burns is syndicated by Universal Press. His twice weekly column appears in newspapers from Boston to Seattle. He is the Chief Investment Strategist for AssetBuilder, Inc. Readers can register at www.scottburns.com. Questions/comments can be posted directly. They can also be sent, without registration, to scott@scottburns.com. Questions of general interest will be answered in future columns and on this blog.

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