Humble Pie

Saving

Social Security

&

Bolstering American’s Saving Rate

This Will Require Congressional Action & Signed into Law by the President

Far too many Americans are falling through the cracks going into their retirement years relying solely on Social Security.  To make matters worse Social Security’s trust fund is scheduled to run out in the 4^th quarter of 2032 if no Congressional action is taken, by law the Commissioner will be forced to lower benefits by 23% (current estimation).

In order to have major improvements and reform the political left and political right will have to be pissed off equally.  Let’s toss a coin to see who goes first.

Public Accounts:

Saving Social Security in its present form is by increasing the earnings level subject to F.I.C.A. taxation (the caps - curr. $184,500).  Social Security will remain as a pay as you go – or (PAYGO) – system, each year the Commissioner’s report will determine the increase (if any) beyond an automatic increase based on the Consumer price index.  If there is any excess dollars they will be invested into existing marketable treasury securities by the Chief Financial Officer for Social Security.   This will allow at current benefit structure (kick the can down the road), estimated to the year 2055 at that time either an increase in the existing tax and/or a tax on dividends.

Private Accounts:

Way too many Americans have fallen through the cracks for retirement savings, so much so, it has become one of the larger problems acerbating our income and wealth inequality between race, gender, and age groups.

Add on mandated private accounts with 6% contributing by the employer and 9% by the employee.  The working poor will receive from income taxes a 3% add on boosting their savings rate to 18%.  

These monies will be invested separately with only one investment option.  That is the Permanent Portfolio concept pioneered by the late Harry Browne. The reason for this method is it’s very low downside risk despite a historical average annual return in the 7% range.

Mandated by law managing costs for these accounts will have an expense ratio no higher than 0.25%.  The maximum going into the accounts is capped at $50,000 per year and then automatically raised each year based on the previous year consumer price index.

25% in worldwide investment grade stocks.

25% in worldwide investment grade long term bonds (Government and corporate).

25% in worldwide investment grade bills and notes. (Government and corporate)

25% in gold

Monies going in will automatically split four ways equally to be invested and will only be rebalanced if one of the asset categories is 35% or greater.

Accounts are not subject to taxation until retirement; monies cannot be borrowed out early nor sold before retirement.  The only option for early retirement withdraw is due to total disability (stated by 2 physicians).  

Retirement withdraws may begin at age 62 and required minimum withdraw at age 71.  Two options will be presented for withdraw.  A percentage withdraw rate (changeable at anytime by the participant) from 1% to 8% calculated on an annual basis and then paid out monthly (minus taxes withheld).

The second option is the purchase (after taxes withheld) into a government sponsored non profit annuity.  With either option any monies remaining upon death of the participant will go to the individual(s) named in the plan documents.

Voluntary retirement option:

Super Roth IRA using after tax dollars to shelter earnings from taxation yearly deposits up to $50,000 per year automatically increased each year calculated by the consumer price index.  All other plans would be frozen (no further deposits) or converted into Super Roth IRA’s.