Posted on 11/29/2019 4:07:22 AM PST by Kaslin
It’s virtually undisputed that America faces a retirement problem, if not crisis. Many Americans lack sufficient savings to safeguard their retirement, according to the St. Louis Federal Reserve and others. A combination of low savings rates, longer life expectancy, and declining prevalence of corporate pensions are generating this crisis, which is coming to a head with 10,000 Baby Boomers turning 65 every day. An additional problem facing retirees is that their savings generate less income than in the past. In 2000, the 10-year treasury yielded over 7%; today it yields less than 2%. A retiree today needs to have three times as much saved to generate the same interest income as 20 years ago or invest in riskier assets.
Fortunately, the Federal Government could take action to protect Americans from low-interest rates and boost retiree income, at little to no cost, by launching a new Treasury bond program. To combat the dearth of income, the treasury should let every American citizen (not foreign investors or corporations) buy a perpetual bond with a yield of 5%. To ensure this program helps those in the middle and working classes who are at the epicenter of the retirement crisis and to keep wealthy Americans from receiving an excessive amount of risk-free income, there would be a cap on the amount of this bond anyone could own ($50,000 at 18, $100,000 at 30, $150,000 at 40, $200,000 at 50, and $250,000 at 60+).
This program would allow individuals to save for retirement and earn a reasonable return and then in retirement have a secure income. A married couple with a $500,000 nest egg could lock in a guaranteed $25,000 income stream. Combined with the average social security benefit of $17,000/year, they would have $42,000 in income (before accounting for any other savings they may have), enough for most to have a secure retirement. With this 5% locked in for life, retirees would never have to worry about Federal Reserve rate policy or treasury market gyrations on this portion of their savings.
This secure treasury bond program would clearly improve the living standard of retirees, but what about the cost? Fortunately, this program could be implemented at minimal, if any, the net cost to taxpayers. First, these perpetual bonds would replace existing treasury securities in circulation, meaning even with a $1 trillion deficit, the US treasury could fund entirely off this platform for some time.
Assuming 50% of the 250 million Americans over 18 participated with an average investment of $100,000, there would be $12.5 trillion of these securities, paying $625 billion in interest. Assuming these perpetual bonds replace treasuries that would yield 2%, the net cost is $375 billion per year (3% of $12.5 trillion). However, the true cost would be materially lower. As noted above, these bonds would be perpetual, giving retirees guaranteed income for life, but there is no set maturity. These bonds could be structured to pay back upon death at about 80%. In a sense, retirees would trade-off higher, sustained income for the duration of their life with a lower estate value to pass on to their heirs.
Assuming these bonds are held on average ten years, the federal government would enjoy $250 billion of debt forgiveness per year. On net, this program would cost about $125 billion per year. However, some of this cost will be mitigated by higher interest income tax revenue. In addition, retirees with more income will be able to spend more while those preparing for retirement will be able to save less knowing they can earn 5% on $250,000, allowing them to spend more today. These benefits should boost US economic activity, thereby increasing tax revenue. As such, this program will likely cost taxpayers less than $50 billion per year, or 1.2% of the Federal budget. A small price to protect the retirements of millions of middle-class Americans.
Furthermore, when the Fed cuts interest rates, that generally helps boost growth, but the loss of income to savers does limit the growth benefit of lower rates. By essentially segregating a pool of retirement savings from Fed policy, the central bank could more effectively implement interest policy to ensure full employment and stable prices.
Helping Americans feel secure in retirement should be a bipartisan policy, particularly when the benefits flow mainly to middle and working-class households and there is a minimal net cost to taxpayers. That is why I call on President Trump and Congressional Democrats to work together to create this 5% perpetual bond program.
President Trump succeeded in the 2016 Presidential Election because his conservative populism and America First agenda appealed to many working and middle-class Americans who felt the political establishments of both parties had left them behind. To succeed again in 2020, Trump cannot merely point to successes in his first term; he must also offer a positive vision of what policies he aims to implement in a second term.
A fiscally responsible way to help Americans save for and enjoy retirement while maintaining an expansionary low-interest-rate environment would be a compelling part of a policy platform. So if Congressional Democrats refuse to work with him to implement a proposal along the lines of a 5% perpetual bond program, President Trump should pledge to make it a first 100 day item of his second term and let Democrats try to explain why going-nowhere impeachment hearings were a better use of their time than securing millions of retirements.
And also to remove the rule that if a recipient of social security that makes XXXX amount of money then they have to pay Federal taxes on it especially after their full retirement age. (that is how Congress apparently fixed social security the last time!)
I blame ignorance. It is the responsibility of the individual to provide for his or her own retirement. It is up to the parents to TEACH children the virtues of becoming self reliant rather than dependent (and therefore RULED) by the provider (iow the government).
Saving a measly 10% of ones gross beginning with first job will almost guarantee a retirement nest egg of a million dollars or more NOT counting SS.
Those of sound mind and body who do not take the necessary steps to self reliance deserve what they get...which is to say nothing.
We know stocks have been screaming all year, and our retirement accounts have been doing great.
At what point does one start to move money into safer bonds and away from stocks (stocks can't go up forever)?
I've been moving small amounts over to safer bonds for a couple of months - are you guys staying aggressive or playing safe?
I blame the Fed. Their only mandate is stable prices. 2% inflation, if you believe BLS is not stable when it reduces a families savings by 50% over 20 years.
You are right about individuals and self reliance. .gov prefers dependency until we are fed to the Morlocks.
Better talk to a financial advisor. Don’t guess.
Psalm 73 wrote: “QUESTION for middle-class Freepers who own a 401K: At what point does one start to move money into safer bonds and away from stocks (stocks can’t go up forever)?”
That depends. As one respected financial adviser once said: “when you’ve won the game, quit playing.” But, you’re touching upon a more fundamental issue: planning for retirement has two phases. During the first, you’re accumulating assets. That takes a plan. During the second, you’re de-accummulating. You need a plan for that too.
There’s loads of advice on the web concerning both phases and optimal investment mixes for both.
When do you wake up at night thinking about impact of selling at the same time everyone else has the same idea.
This is nothing more or less than a government run annuity. BTW, those who have accumulated $500,000 in investments, really don’t need a special government run annuity. The existence of such a plan won’t solve the problem of people failing to plan and invest for their retirement.
What I found through most of my life was that saving for retirement was next to impossible with the constant rises in housing, transportation and insurance costs eating up any pay raises I could accrue.
I was fortunate though to have two long-term employments that paid pensions plus a Social Security dividend based on the last job I had (which, in my case, paid much higher than any other job before then).
But this still left me at well below what I would need to live independently so I moved this year to some place where my “fixed income” could go further. In my case, that was Panama but there are numerous places in Asia and Latin America where you can live cheaply as long as you accept that you will need to learn a new language and adapt to a different culture.
The nice thing about Panama (as well as Ecuador and Belize) is that the currency is tied to the U.S. dollar so your greenbacks are accepted everywhere (preferred in some places) and you don’t have to convert it to the local funny money. It is, however, a dicey economic situation as long as there is a chance of a tinpot dictator taking over - but then America had Obama for eight years so how much safer is it to stay in America?
I can retire in relative comfort for between $1500-$2000 per month depending on how frugal I want to be. There’s an English-speaking Bible-believing church here (two, actually) and I can straddle between gringo life and Panama life as I learn more and more about my new homeland. My pensionado passport is nearly ready and I get many discounts for being a retiree here.
They can be all over the map, too.
This wasn't a "financial advice query", just a Freeper discussion post for those of us who are in the same "zone" (lots of middle-class technical, fiscal conservative Freepers).
“the treasury should let every American citizen (not foreign investors or corporations) buy a perpetual bond with a yield of 5%”
Who is going to pay this 5%?
L
Oh, and, "I'll make sure your child gets a quality education."
THANK YOU.
EXCELLENT!
“It is the responsibility of the individual to provide for his or her own retirement.”
The ant and the grasshopper
https://alltimeshortstories.com/the-ant-and-the-grasshopper/
AaaaaMEN!
Prior to Trump’s election, I moved all of my retirement savings into a C Fund, Common Stock index, in a TSP.
Oh my, what a few years has done to my funds. I actually can retire and expect a fairly nice lifestyle over the next 10+ years.
The “orange man bad” people can go pound sand. Get out of government securities totally and get on board with President Trump.
I do not believe your post was meant for me. I never suggested a gov’t bond with a 5% yield.
It wasn’t meant for anyone in particular. Just a question other people seemed to miss.
That 5% would come from somewhere. Since it’s a federal bond one must assume that means taxpayers.
And 5% is a pretty generous yield on a federal bond, isn’t it? I don’t own any so I don’t know.
Enjoy your day.
L
A 5% yield is extremely high today. The yield on our 30 yr bond is currently 2.19%.
And yes the money to pay the interest would come out of the pocket of the taxpayer.
What happened to the one-time tax exemption on the sale of your home/primary residence?
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