No, they don’t need to be an expert, just basically competent or use a financial advisor. Simple concept, if you are nearing retirement, reduce your exposure to risk, otherwise wait out the down turn. Detailed information on that is available all over the place.
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Every new baby gets a gift of $10k in an unusable target date account (cost:$35 billion annually), unable to be accessed until age 65 and limited to a 4% withdrawal rate per year thereafter unless needed for emergencies.
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Reduce 401k deduction to 50% for people born this point forward (contribution max remains the same), which eventually pays for the above (break even on costs from #1 is in about 60 years and then positive cash flow begins). Americans contribute about $450 billion per year. Assuming the 22% tax bracket, we are talking a $49.5 billion dollar savings each year.
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Social security benefits are reduced by 25% and age raised to 70, eliminating the need for the soon-to-deplete trust fund.
Looking at 7% returns after inflation from ages 0-40 and 6% returns from 40-65, the initial gift of $10k becomes ~$640k in current dollars.
Assuming 4% withdrawal rate and 4% average real-dollar return and an average SS income of $1200/month, your retirees are getting ~$40k per year, assuming no other retirement savings. In down market years, they can slow withdrawals.
Unused funds from bucket 1 are immediately returned to the government - this is not part of one’s estate to pass down.
So that’s the reasonably straightforward fix to the issue.
Maybe the average American’s online financial advice will be as good as online pandemic advice.
One can dream.
It didn’t hurt you because you were retired.
However if you were 75 with $500k in a 40/60 bond/stock allocation and living by the 4% rule, you went from $500k in assets to ~$350k in assets right quick. You’d had to have greatly reduce spending for a few years to get back to the same standard of living at a time when medical expenses were rapidly increasing.
So yeah, when you were 50 and I was 28, who cares? It was buying season. If you were 75, you still had lifestyle-impacting exposure, even if holding a conservatively appropriate portfolio.
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I’m going to drink bleach and poop money!!!
Saw it on 4chan
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His choice to risk that much exposure.
Yes but you said “listen to a financial advisor” - a 40/60 allocation (or something similar) is what an advisor would suggest (e.g., 120-minus-age to stocks or so), so “Just listen to an advisor/you would have been fine” is incorrect.
If it all becomes privatized, there is no program to be (in)solvent.
As far as I am concerned, it shouldn’t be a portion. It should be all or nothing. (And I’m calling for ALL.) Get government out of it entirely.
Depends how much you had to start with. Your scenario is someone who is either poor or didn’t try very hard to save. They wouldn’t be getting some giant SS pay out either.
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If the government is setting a special higher interest rate for a good return then that rate has to be subsidized with other taxpayer money.
Your proposal does not do that.
Furthermore, getting rid of Social Security is just not going to happen.
Yes not sure why when people think privatize they automatically think of just stocks. It could have bonds, treasuries, even exposure to commodities, future and option markets.
Here is a nice well known neutral fund by vanguard for comparisons sake that doesn’t have huge swings yielding 2-3% dividends performance over the past 20 years. I personally would want something more aggressive but it shows not everything swings as extreme in market volatility.
A $500k retirement portfolio in 2007, even in 2013 bucks, would have been above 90th percentile for someone near retirement.
Sure, $500k is nowhere near ideal but we suck as a country at saving and investing. Even today, your median retirement portfolio is way below $500k.
From Transamerica Retirement Survey:
This is why an untouchable $10k retirement gift at birth in a target date fund, along with significantly reduced social security, is a winning idea.
What you would have to do is, use what people pay into social security currently as the investment amount and go from there. Doesn’t matter if Americans are good at saving if this is a mandatory program. Don’t forget my proposed mandatory employer match requirement.
We have basically tried the privatization experiment- when we moved from pensions to 401Ks. The experiment has…failed.
“But shifting the responsibility for growing retirement income from employers to individuals has proved problematic for many American workers, particularly in the face of wage stagnation and a lack of investment expertise. For them, the grand 401(k) experiment has been a failure.”
See I’d increase SS age and reduce benefit, give everyone an untouchable $10k in a target date fund at birth (grows to $650k at retirement) and lower the 401k deduction percentage to further offset the $10k.
Everyone then winds up with a mixed income at retirement consisting of a 3-4% withdrawal of the assets in the target fund (stock/bond/cash) and a smaller amount of social security.
When you die, your target fund assets are NOT part of your estate - they are taxed 100%, as they were given to you at birth.
For the duration of the special rate. But that rate is the counter-response to the concern that people will lose their savings in the stock market.
And heck, we spend like drunken sailors anyway. I’d rather spend on this to get the government out of the retirement business forever.
Of course it does. All employee social security payments go into a private retirement account. Once current social security obligations end, government is out of the retirement business.
Oh… so this is to put a band aid until Social Security is phased out? Is that what is being proposed?
Because that isn’t going to happen… like ever…
And if the proposal is a forced private retirement savings that is handled by for profit concerns… that will be a disaster.
Never is a long time. If we ever end up with a basic income scheme, do we still need social security?
I guess a UBI may replace SS… but that is really unlikely to happen also.
