Hi all - I know its been a long time since I’ve been around here but I’m glad to see the forum back up and running! Its good to see a lot of the same faces back as well.
I figured I’d jump right back in and ask you all what you thought of an idea I had a while back for an alternative to the Social Security Retirement Insurance Benefits (RIB) program. It seems self evident that the program is unsustainably expensive, insufficient, and unlikely to last long enough to help my generation out. Instead, I’m thinking we try something more long-term and sustainable.
My idea is to create a government sponsored enterprise tasked with insuring individual retirement accounts (like the FDIC insures bank accounts) against losses or insufficient funds. Lets call it the FRIC (Federal Retirement Insurance Corporation )
The program would work like this: everyone with a individual retirement plan, be it a 401(k), pension, IRA or something else, that is managed by a member institution of the FRIC would qualify for a certain level of insurance on their retirement (dependent on things like contribution amounts, with a baseline level of coverage). This means, for example, if you have $550,000 of insurance coverage, but you have $120,000 in retirement savings upon retirement, then you receive the difference as a cash payment to your retirement account.
In order to qualify for retirement insurance, your retirement plan must fill certain risk standards, to keep risk for the insurance scheme low. Moreover, even someone with no retirement savings would receive a moderate insurance payment to cover retirement costs, roughly equal to that of the lowest RIB lifetime amount. This payment would be reduced, however, for people who do not have retirement plans or savings in an effort to encourage people to open retirement accounts and save. Moreover, matched contributions to retirement from employers would remain tax deductible.
The general idea is to encourage individuals to save for retirement, to allow markets to take some of the burdens of paying for retirement, and to put the capital saved for retirement to good use to try and get the country out of consumption mode and back into investment mode.
I did a brief cost analysis (accounting for the cost of legacy participants in the current RIB program i.e. 55+ y/o, and buyouts for those who are younger i.e 45-55 y/o). These are the results with current projections for FICA tax income:
Obviously the program is significantly more expensive at the beginning, but after 16 years its cheaper than the current program and after 29 years it runs a surplus. I figure sometimes you have to make short term sacrifices for the long term health of the country. Plus, it will all be paid off in 90 years, and then will be a revenue generating program.
Even more important, costs could be even further reduced with things like raising the retirement age for non-manual workers to 67 or 68 and maybe lowering benefits levels for certain groups (i.e. high income).
I forget where I to the data by the way, but I’m sure I can find it again. I can also upload the spreadsheet if anyone wants to look at the actual numbers.
Please, fire away with questions! Let me know what you think! Its good to be back!