Time to talk about our deficit. Well, it’s always a good time to speak about our government’s imbalance between expenses and income, but since we’re three-weeks from an election, and the results from our deficit we’re just equated, it’s an even better time!
The deficit is a bigger deal this year because we have recently reformed our tax code. While the US has taken in a record high amount of money (not adjusted for inflation, so this should happen), we have serious issues on how much we’re spending. Does it matter? Well, it depends what area of our deficit spending we’re going to focus on. For the sake of this article, let’s talk entitlements. In particular, the focus will be on America’s greatest lie, its retirement pension for all of its citizens. We couldn’t be further behind in funding this liability, and with regards to our population age imbalance, the situation does not get better.
What are we to do? Well, it starts with honest politicians. It begins with leaders in our Federal government that don’t have an issue speaking the harsh reality, even if it worries their constituency. It has to do with candid leaders who say scary things, and speak with a brutal sense of candor. They have to hold nothing back. If only America had that leader.
It’s time for America to go against historical norms and rewrite our story with regards to our underfunded pension. There are ways to fix this, but they can only be fixed if we come out ahead of the ensuing problem, address it head on, and invite creativity into the decision-making process. We can fix this. It is likely we try.
- When? Post 2020
- Who? Trump
- Why? He doesn’t care
- How? With innovative, tough to swallow ideas that are originally unpopular but bittersweet and required.
- Why? He doesn’t care
- Who? Trump
It’s not that difficult to fix this. America can offer younger workers with the money they’ve already deposited into Social Security in the form of a gift. The gift is an IRA that has restrictions similar to that of the current IRAs. The withdrawal penalty will remain intact until a certain age. The ability to withdrawal penalty-free for other causes as an exception is available. These exceptions are a buying a home, paying off student loan debt, or any debt for that matter. The penalty for early withdrawal is 50% if the person simply intends to remove the funds for purposes not listed. The money given to each younger American will automatically be invested in index funds. The options will be straight and narrow. Cash, bonds, US stocks, and a global blend of stocks. Easy to understand, and difficult to mess up.
This will work as an economic boost straight away. Investment will increase in stock and real estate markets. Long-term investment in stocks will pick up now that almost every American has a piece of the pie. Debts will decrease, freeing up buying power. It is a huge spark for our economy.
What about soon to be retirees. No change. Same promises. Carry on.
What about those stuck in the middle? They will get options similar to those all annuitants receive when cashing out of an underfunded liability, such as insurance policy or annuity. They get options. Three options.
- Option one – they can take the lump sum like the younger generation receive. Likely a poor idea for most pensioners, but they may not need much of social security because they’re wealthy, or have poor health.
- Option two – they get a mix benefits. They get some lump sum and a small monthly guarantee for the rest of their life. The calculation will be based on their current age, and amount they have put into social security.
- Option three – they get to keep their monthly guarantee with a catch. They have to prove via external assets that they truly need the money if they take it at 62, and unless otherwise proven, they are unable to take it until 66. Benefit promises are still guaranteed, but the government is ensuring it is offering it on a need only basis.
The greatest part about all three of these options is someone who has settled down later in life, but still working for a decent amount of time can select from one of the three options that best suits their current and future financial pictures. They will have a good grasp on what their needs will be at this stage in life, and the selections offered mold to that.
This isn’t perfect but it’s a start. The time is ripe post 2020. Americas biggest shock of a president will continue his shock and awe as a lame duck president. Why not?
Phil Your Day 