What kind of accounts would be created? Many options have been presented, each with their own problems, some larger than others. Investing ins the stock market via mutual funds that offer little risk would default to index funds. These low expense - that's right, the cost of administering your plan would fall directly on you - would seem the most likely. But if Congress is involved, expect special interest groups to object to some of the companies in those indexes. This would create new problems as indexes are re-created in a politically correct manner and possibly at the determent of returns.
Some have offered a combination of stock funds and bonds or funds that are weighted with bonds. Bonds, for the uninitiated are a much more complex form of investment that depends on many different economic cycles. When investments are locked into bonds, the fixed rate is determined and could offer little help in an inflationary society. Once again, depending on the investment, inflation will play a role in the success of the program.
Annuities have the same problem. A retiree who buys an annuity at retirement will receive a fixed income for the remainder of their life and that of their spouse. Inflation will eat away at this fixed income actually lowering the real benefit. The owner of the annuity would need to live almost twenty years to see a $100,000 policy reach its original investment. When the owner dies, so does the policy negating the inheritance value of any change the administration has offered.
While we are on the subject of annuities, the money paid monthly to an annuity holder of a $100,000 policy, which by the way is twice what the average retiree has currently saved at 50 years of age not counting equity in their homes, would supply the retiree with $500 a month with no cost of living increases. The average worker earning $35,000 a year is eligible for a Social Security retirement benefit of $700 a month with cost of living increases. Even with a change in how those increases are calculated, the worker under the current plan is far better off than a retiree facing an annuity alone.
Would you be able to invest if your retirement was your responsibility?
The Blue Money Report
Financial Commentary covering a wide range of topics concerning money, investing, and how it effects the average investor and their financial health.
It is the World of Money and Investing Explained.
Our Publication
If you are interested in providing your readers with our syndicated column, you can request it here
