Rescuing Retirement

The proposal was pushed before the 2016 election and is now a book with a plan to expand Social Security in a way that the financial community can benefit from. The disturbing model for the plan:

Public pension plans are the most relevant comparables for the proposed Guaranteed Retirement Account (GRA) pooled national fund because both are ongoing retirement trusts with similar time horizons, risk parameters, investment strategies, cash flows, and objectives. (page 34).

More excerpts:

The U.S. experiment with 401(k)s)s and IRAs, launched in the 1980s, has failed miserably to deliver on its promises. Predatory fees, low returns, leakages, lump-sum payouts – all have served to discourage or inhibit workers from accumulating enough for retirement. (page 3)

Here is the hard truth: existing tools make it impossible for most people to afford to save enough for retirement, and employers are not bridging the gap. (page 6)

Each year, federal and state governments spend a total of $140 billion to subsidize affluent workers’ 401(k) contributions…..The top 20-% most affluent Americans get more than 70 percent of the benefit from retirement tax deductions. The bottom 20% get almost nothing because they save very little and have low tax rates. (page 37)

A GRA has three basic components (pages 44-45):

  1. Every worker owns a portable retirement saving account. Workers maintain ownership of a government-guaranteed account over their career, automatically contributing at least 1.5 percent of each paycheck until they retire. A matching 1.5 percent – or more – is provided by employers. An additional $600 per year is contributed by the federal government.
  2. Savings are pooled and invested to achieve higher returns. Workers select a pension manager, who invests pooled GRAs in a way that ensures they will earn higher returns with lower risk. These pension allocators may include state pension funds, traditional money managers, or a federal entity such as the Thrift Savings Plan. Workers can change managers annually at will, based on performance, fees, or other considerations.
  3. Upon retirement, the account provides lifelong payments. Upon retirement, the bulk of the GRA is annuitized to guarantee consistent, lifelong income.

Taxpayers earning above $500,000 per year – about 1 percent of taxpayers – now get 43 percent of the government contributions to retirement accounts…..To help retain deficit neutrality, our plan includes a provision whereby the income on super-sized IRAs (more than $5 million) would no longer be tax deferred. This would affect only about nine thousand people. (An amazing fact: there are 314 people who have IRAs worth $25 million or more.) (page 54)

All workers are free to make additional GRA contributions beyond the required minimum, with the same annual limits that govern todays’s 401(k)s: $18,000 for individuals under age fifty and $24,000 for those fifty or over. (page 55)

Under our GRA model, the federal government guarantees each saver’s principal at the time of retirement. From that point forward, every individual will get back – as a guaranteed minimum – at least as much as he or she has put into the account. (page 70)

 

 

6 responses to this post.

  1. Posted by geo8rge on January 30, 2018 at 9:55 am

    Retirement can only occur if large numbers of highly productive ‘youth’ enter the workforce early and retirees retire from any sort of work late and live frugally thereafter.

    The current situation: The ‘youth’ enter the workforce later than at any time in human history, and unprepared for high productivity employment. While retirees expect extravagant long lives and a government the pursues expensive whims at home and abroad. So, in short, the ‘youth’ do not produce enough to maintain the retiree population.

    Everything else is just the plumbing that gets excess productivity from the youth to the retired. Portable savings IRA account is a means of trasfer and not a solution getting something to transfer in the first place. Suggestion, eliminate all IRA accounts and even pension plans. Replace them with either a yearly or lifetime deduction for investment income. I know people who had to cash in their IRAs and paid a penalty to the US gov. So for many the IRS increases their tax burden.

    I put youth in quotes as currently, they are entering the workforce in their twenties. I avoid the term elderly as retirees are really not old in the traditional usage.

    Reply

    • Posted by dentss dunnigan on January 30, 2018 at 1:04 pm

      I’ve had a IRA since 1980 always maxed out then in the 1990’s flipped to a Roth in my I’ll just say IRA my RMD is over 50K without my ROTH ,so I would say you invest right and be consistent and early every year ..I’m doing the same with the kids Jan 1 I make the full contribution for the year ,They are 27 and 30 and both have over 150K so far ,so it can be done and a lot easier now with the higher contribution limits

      Reply

  2. Posted by Richard on January 31, 2018 at 12:50 pm

    So a 12.4% contribution to Social Security doesn’t do it but somehow another 3%+$600. That the government doesn’t steal the money (or so they promise) and let people keep the earnings will help but it is hard to imagine that it will be enough for a comfortable retirement. And employer and government contributions are a scam. Employer contributions are compensation and government contributions are taxes or debt.

    Reply

  3. […] James, Blackstone chief operating officer and “Rescuing Retirement” co-author, was on CNBC today pushing his Guaranteed Retirement Account (GRA) proposal: . . […]

    Reply

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