Many of you that read this blog I know are older than I. I also know that many of you have been responsible within your working years, having set aside money to aid in your retirement. There are even some of you that are living off your hard earned (and invested) retirement dollars now. However, there are now talks on Capital Hill that the Government needs to "protect" you from the uncertainty of retirement investing.
Yes, you read that right. The government is now holding Department of Treasury committee meetings on "lifetime income options for retirement plans". For those of you that don't speak politics, the above can be revised to say "How can we nationalize and confiscate the retirement plans of hard working Americans to help fund and grow our entitlement agenda".
Don't believe me? Check out the Peter Heller article "US Departments of Labor and Treasury Schedule Hearing on Confiscation of Private Retirement Accounts". If you don't want to take Heller's word for it, you can see the press release from the Dept. of Labor regarding the hearings here.
The long and short of the plan is based on an idea by Teresa Ghilarducci, a professor at the New School of Social Research, to eliminate the incentives of popular tax plans, namely 401K and 401B plans. This idea involves workers transferring their current assets into Guaranteed Retirement Accounts (GRA) created by our ever-benevolent government. In return, the government would deposit an inflation indexed $600/year into the GRAs, while workers would be required to pay 5% of their pay into the same. For this, the government will guarantee a 3% return on investment for each account and upon retirement, the government would then convert that payout into an annuity, payable each year to the retiree, supposedly to ensure that the retiree has a "life long source of income after retirement".
So what's the problem that they are trying to fix here? It seems that the government does not think that the American public is smart enough to handle their retirement financial affairs. Their operating premise is that employees are put at "undue risk" because generally retirement investments are presented in a "lump sum payment" thus making them "responsible for ensuring that their savings will last throughout their lifetime". Again, the fed wants to play the "American people are too stupid to take care of themselves, so we need to do it for them" card that has become the standard operating procedure here of late.
So why this new found concern for retirees? Could it be that the government is generally worried that retirement investment income will not last sufficiently thru a worker's golden years? Well, if you believe that, please log off my site, cause reality is not something that you show an interest in! No, the reason for this sudden found interest is for nothing more than a huge cash grab intended to help fund the behemoth that is US Government policy. According to the Investment Company Institute research on 2009 retirement market, total US retirement assets are sitting at ~$16trillion, up 14% from 2008. Considering the spending orgy that this current administration has been on, this is simply too much money to ignore and boy would that come in useful in furthering the beaurcracy and entitlement mentality of our new found socialistic "hope and change" for America. Therefore, they are now considering the nationalization (confiscation) of American retirement accounts.
So what does this mean to workers? Surely a guarantee of retirement income is a good thing? First, since the GRA payout is converted to annuity, upon death, the benefit will terminate. No matter how much you saved, your heirs would no longer be able to inherit anything left over from your hard work and thoughtful savings and investment. Similar to Social Security accounts, the remaining funds would simply revert back into the general fund. Second, you will only be guaranteed a 3% return. Even with a finicky stock market, the average rate of return from money market and IRA accounts average 7%. Right from the start, you will be taking a 4% decrease in benefit. James Pethokoukis puts these figures into something much easier to understand by showing that $10,000 growing at 3% for 40 years would leave you with roughly $22,000 at retirement. However that same $10,000 at 7% for 40 years would net you a total of $150,000. Not only do you risk a loss of $128,000 of net return, but you must also remember the payout of the annuity. Would you rather see a monthly payment based on $22K or $128K? True, we are only assuming a $10K investment, but you can do the numbers to extrapolate. Also, after spending your life, dedicating 5% of pay into this account, wouldn't you want the satisfaction of knowing that your savings could be willed to your family in the event of an early passing? Not so with GRAs!!
In the end, we also have to look at the government's (any government's) ability to manage and dole out with respect to fiscal programs. Social Security, bankrupt. Medicare, bankrupt. Guaranteed pensions, backed with IOU's, but no money in the coffers to back the promises, forcing many states (California, New York, etc) to the brink of bankruptcy. You seeing the same trend I am here??? The simple fact is that the government does nothing well. They can't run a business (USPS), they can't guarantee the current retirement supplement (Social Security), and I don't trust them to be able to carry me thru my retirement years. In addition, since these GRAs will be backed with Government Treasury Bonds, I'm not even sure they could guarantee the lowly 3% return they are promising. Have any of you taken a look at the falling dollar in the world market? As our current policies keep us going back to the loaning tree of the Chinese and other unfriendly countries, as our debt continues to rise at the rate of super fueled rocket, how can we possibly be satisfied with a "promise" that Treasury Bonds will even be worth the paper they are printed on? Simple answer, we don't.
Decide for yourself, are you willing to trust the fed with your hard earned dollar? Are you willing to be forced by law to save into an account that will most likely not provide you with a return on your investment that will be in the black? Do you have no concern that all of your savings will not go the betterment of your surviving family in the event of your death? How about knowing that your savings will be used to fund the retirement of those who have not contributed as much as you? When will the fed want to open these accounts to non-tax paying illegal aliens as we've seen with Medicare, etc? Rest assured, if allowed, this will not be the end of confiscation of private property. First it was the water ways, now it's your personal savings. Where will it end?