IMPORTANT NOTE: Readers are advised that the plan presented in the following essay is one which would apply to future generations and would not directly benefit current workers except in such a way as to remove the burden of repairing the current retirement program for future generations. This plan would run parallel to the current system, eventually replacing it as the sole national retirement program. A final essay on the topic of national pension plans will address the problems of the current system and how to sustain it until this new plan came to maturity.
In my last essay, Crafting A National Pension Plan, I presented a case for developing a national pension system for retired workers based upon the concepts of gratitude for a lifetime of hard work and appreciation for participating in the continuance of the American Dream. In this essay, I will describe my thoughts for administering such a system in a way that is both equitable and economical. After much thought, I feel that this can best be accomplished by a short summary, followed by an imaginary “Question & Answer” period. So without further ado, I offer this plan to you.
The National Whole Life Pension Plan seeks to accomplish one goal and one goal only. Its task is to ensure that all citizens will have a standard minimum retirement fund available to them when they reach the end of their productive working years. It accomplishes this goal by recognizing that although all citizens may not be equal with regards to employment skills or desires, each task is of equal value to a smoothly functioning society. Whether you choose to rear children, wash dishes in a restaurant, operate an oil-drilling platform, or design computer programs; your financial security in old age should not be dependant upon how much money you earned in your lifetime.
As its name implies, the National Whole Life Pension Plan would begin at birth with $5000 placed into an account in your name. This account would belong to you and you alone, but would be pooled with all of the other personal accounts from people born in the same year. For the first 30 years of the plan, the government would deposit $600 per year into your account. At the age of 31, the government would end their yearly contribution and you would then be able to make contributions of your own until you reach age 70. At age 70, you would retire and begin to draw an annual stipend from your account, tax free, for at least 20 years. Once you reach the age of 90, all of your basic costs of living would be free, paid for through a separate social security program for elderly citizens.
Q: How much is this program going to cost compared to the current system?
A: At its inception, the program would cost approximately$22.5 billion dollars. This figure is derived from the average number of new births in the U.S. (4 million/year) times $5000 plus that same number of births (4 million) times $600. Each year the program would require an additional $20 billion for the new births, $2.5 billion for the yearly $600 deposits, and an additional $2.5 billion for each preceding years births up to 30 years. At its peak-funding requirements, the program would be paying out $95 billion dollars a year. ($20 billion for new account start-ups and $70 billion in account contributions.) The current system pays out $540 billion per year (for both benefits and administration costs.)
Q: Who pays for this system?
A: Unlike the current retirement program in which the employee and employer contribute a like amount into the national fund, under the new plan, only businesses would be required to contribute to the Whole Life Pension Plan. The reason for this is twofold: first, business is the main profiteer of an employees hard work, deriving its continually climbing profits from employee ingenuity and dedication; and secondly, because of the changes in the retirement system mentality, employers would no longer be contributing to a matching retirement pension like the 401k or other private plan, and would likely not have other benefit costs, or at least much lower ones, through reform of the medical industry. (Another topic to be sure.) Currently, the federal government collects $819 billion a year from employees and employers for social security programs, including Medicare and Medicaid. If half of that is the employer’s portion ($409.5 billion), then a yearly cost of up to $95 billion surely represents a tremendous savings to businesses.
Q: What is the average payout expected to be compared with the current system?
A: The answer to this question really depends upon what an individual decides to do once the account becomes their full responsibility at age 31. But for purposes of estimating, let’s assume that the accounts earn an average yearly return of 4.5%, compounded quarterly. (This number is based on average returns for long-term T-Bill investments.) At age 31, each personal account should have a balance of about $52,000. If a person simply left that $52,000 in the same account, growing at that same 4.5% rate, when they begin to draw on that account at age 70, they could expect an annual payout of $21,292 in today’s dollar value. If that same person decided to contribute an extra $1200 per year, their monthly income would increase to $30,652. The current average yearly retirement benefit under Social Security is $11,500.
Q: What about naturalized citizens who were not born here? How would they be covered?
A: Because naturalized citizens share in the hard work of creating the American dream, they too should have a way to benefit from their contributions. In that spirit, a separate but similarly administered fund would be created, funded with up to $1 billion dollars per year, to accommodate our naturalized citizens upon their retirement. This fund would not necessarily be a guarantee though, like the Whole Life Pension Plan. Each naturalized citizen would be required to contribute at least $600 a year for 5 years cumulatively in order to draw a pension. And they must have worked in the U.S. for at least 15 years prior to retirement. We must remember that our retirement program is being designed to reward our citizens for their contributions, not to act as a stimulus for the world’s poor to flood our shores in their golden years.
Q: Would the National Whole Life Pension Plan be guaranteed to all citizens who are born in America?
A: Except in cases of lifetime imprisonment or banishment, each citizen would be able to collect their pension funds upon reaching age 70.
Q: What happens to someone’s account if they die before they can collect?
A: The answer to this question depends upon when the person passed away. If they had not yet begun their working life, or if they were single and had no dependants, then their personal account would be reabsorbed into the general Social Services budget. If, on the other hand, a spouse and/or children survived the person, those survivors would have a claim to the account and could receive a single lump-sum payout, minus a 25% tax, which would be transferred to the general Social Services budget. If they were to die after reaching retirement, the remaining balance would be transferred to their estate for distribution to their heirs.
Q: Who administers these accounts? And if it’s the government, how can we be sure that they won’t just raid this fund like they did the original retirement fund?
A: Initial collection and disbursement of the account funds would be handled by a government administration, but would be subject to strict guidelines and frequent audits. Legislation would be enacted that would forbid inclusion of these retirement funds in any federal budgeting process and no Congress could never leverage another expense on the backs of o
ur retirement accounts. Any attempt to do so by a lawmaker would result in immediate impeachment proceedings, presided over by a combined citizen-judicial-legislative panel. Further, each personal account would be established as a deposit only account, and have a unique unlock code that was time dated for withdrawal activation only at the account holders 70th birthday.
Q: How can the money earn interest if it stays in one place?
A: In a personal bank account, the money you deposit is not physically in a box in the bank. Similarly, the National Whole Life Pension Plan lends out a portion of its balance through the purchase of long-term government bonds. A separate provision requiring the entire balance be available for lump-sum payout at age 70 could be instituted, allowing pensioners to transfer their funds into a private account if they so desired, but the same yearly disbursement requirements would follow.
Q: While this sounds pretty good, could I still invest in supplemental retirement accounts for myself?
A: Absolutely! A wide variety of investment options would still be available to supplement your retirement savings. These programs could have an unlimited, tax-free ceiling for contributions, but would have a graduated tax schedule applied for withdrawals, based on total non-national pension funds or purpose for withdrawal.
Well, that’s pretty much it. The National Whole Life Pension Plan could be a solution to the future insolvency of Social Security’s retirement program. It seems to be considerably more economical for businesses and government to fund and operate, and considerably more lucrative for individuals who will need to live off the funds for 20 or more years. This plan levels the playing field from the beginning, allowing workers to become more focused on the job they do today rather than worry about their retirement benefits, resulting in possibly better worker output and better corporate profit.
The beauty of this plan is that it could begin at any time, since $22.5 billion dollars is just a drop in the bucket of the federal trough. Even in thirty years time when the system is running full blast, the outlay is a mere fraction of what is being spent today. The adoption of this type of plan would also have the immediate effect of securing retirement benefits for future generations, taking that aspect of our current systems breakdown out of the equation and allowing us to concentrate on helping the program limp along until its last recipient has drawn their last benefit check.
(Note: Population figures derived from U.S. Census reports and projections. Current Social Security Administration budget figures derived from the 2006 U.S. Federal Budget. Pension fund estimates used retirement and compound interest calculators found here: http://www.moneychimp.com/calculator/retirement_calculator.htm)
This entry was posted on Tuesday, May 10th, 2005 at 4:12 am and is filed under Common Sense, Government, Life, Politics, Reform, Social Programs, taxes.
You can follow any responses to this entry through the RSS 2.0 feed.
You can leave a response, or trackback from your own site.
May 10th, 2005 at 10:33 pm
Ken, when are you going to toss your hat into the political arena? Perhaps for the CA gubinatorial race forthcoming in 06? You’d get my vote. Nice thoughtful piece. Too bad the current set of politicians are not as thoughtful, but perhaps it is a trap of such positions – people in them aren’t free to do this kind of thinking. Therein lies the rub.
May 11th, 2005 at 3:40 pm
Beautiful Flower. Great Blog. Glad I found you surfing with blogexplosion.
http://outrageous-ebay.blogspot.com/
May 12th, 2005 at 1:14 am
(responses)
Windspike- Thanks for the grand endorsement. I’d be happy to run for an office if I thought I could still pay my bills during the campaign and would still have my old job if I lost the election. The biggest barrier from average folks holding an elected office is the cash needed to run a competitive campaign. If you know of someone who wants to help bankroll this thing, or if you know of a cheap way to get out ones message, I’ll be happy to jump in.
As for the lack of thoughtfulness among elected eladers, I don’t think they really care all that much about anything except keeping the contributions coming in and winning the next election.
After 2 days of having this post up, I really thought I’d have more comments coming in. I suppose that I either scared everyone off with this concept or they are still in awe at the simplicity and efficacy of my idea. Thanks for your support.
Livinglikekings- Thanks for dropping by.
May 12th, 2005 at 3:27 am
Well Ken, if you think about it, I think programs like BlogExplosion really only promote short attention spans – rewarding ADD types. So, many bloggers surf through and don’t bother to read such dense posts. For magazines, the rule of thumb is don’t print an article longer than the average person takes a dump. For bloggers, I suppose it is hard to get anyone to read something longer than 30 seconds, unless the topic can draw them in.
And if we are being very honest, many people are more fond of harping about rather than fixing or making suggestions about repairing the mess we are in.
All that said, I say Blog on Brother…as to running for office – here a pac, there a pac, everywhere a pac,pac – if they can get one, us mere mortals should be able to wrangle one together.
I’d sign the petition to get you on board the race. As to funding, I am probably as tapped out at you are. Just trying to pay the rent/mortgage in CA is killing us.
May 12th, 2005 at 5:48 am
(response)
Windspike- I know that the blog exchange programs are designed for quicker reads, but I will continue on as I have. Those who will read will read. Those who will surf will surf.
I think it is true about most preferring to complain rather than offer up a solution, and when a solution is offered up, the tendency is to look for its faults. That is all well and good, but if something is broken, you don’t just keep it broken. You fix it. And someone has to do the mending eventually, and someone has to have the ideas. The blogging community is full of thoughtful people, and while they don’t all agree, at least they propose ideas. Some of them do anyhow.
A PAC you say…that might be worth looking in to. I’ll let you know when the petition comes out! And I hear you about the mortgage thing. OUCH!
May 13th, 2005 at 3:05 am
I came as promised to see your plan. I started with the “Defining Social Security” post and read my way up through this one. I disagree so much with your starting point (which I won’t get into because others have voiced my thoughts more eloquently than I could) that I was sure that I would hate your plan. I have to admit that I was pleasantly surprised. Actually, overall it sounds too good to be true. If it were that simple I think someone would have tried it by now. (Out of curiosity, have you sent the link to your congressman?)
I do have a few questions/comments right now.
1. You cover how much would be contributed for each worker and it sounds like that entire amount will be put into accounts. So, where does the money come from that administers the plan? And, have you factored in the fact that our government won’t figure out a way to administer it that won’t require thousands of inept employees and mind-boggling layers of bureaucracy? (As a complete aside, as often as I use that word I shouldn’t have to spell check it every single time I use it.) Because, that is going to cause the cost of your plan to skyrocket.
2. You say that the employers will be contributing the entire amount. I really dislike that idea. People have to, HAVE TO, take some responsibility for themselves. Hell, we all move out of Mom’s house and start taking care of ourselves-we shouldn’t get a foster mom when we are adults.
3. Again, on the employer point-who pays for the contributions before a person starts working? Who pays the contributions of people who chose to be housewives (or househusbands)? How about the disabled or the chronically unemployed? Do people who live on government assistance their whole lives also get this retirement? If so, is it in addition to what they are already receiving or in place of what they are already receiving?
4. You said that all jobs contribute to society so all workers should receive equally. Now, I hate my job with a passion I didn’t know I had in me. If I had my druthers I’d be an upright bass player in a psychobilly band. But, I can’t play any music-not a lick. So, are you saying that I could quit my job as an auditor and become a musician, even if I have no aptitude or ability? Even if I was completely unsuccessful all of my life? I think there are a lot of people with no integrity that would jump all over that. I work hard at a job I hate because I want security and I know that no one owes it to me. Making everyone equal without regard to level of effort, difficulty, or talent is a morale destroyer, a pride killer, and a lazy-ass maker.
5. You say that a single person with no dependents dies then their retirement money goes back into the fund. I think you should cover all contingencies from the beginning, so: what about couples who chose not to get married or who are not allowed by law to be married? I was in that situation myself for 6 years until I finally tied the knot and know a couple that are legally prevented from getting married. What about people in these situations?
That is all I have right now. But, overall, I do like the plan. I’m interested to see your answers to my questions.
May 13th, 2005 at 4:19 am
(response)
Ashley- I’m really glad you took the time to read through the series of posts, and even more surprised that you managed to go from a position of hating my ideas to almost endorsing the end product. The fact of the matter is that we do have and will continue to have a natinal retirement program in one form or another, so why not adopt one that is both economical and equitable. I also thank you for your thoughtful questions, which I will now try to answer.
1) You are right about the money going into a type of dedicated individual account, at least from a payback point of view. What’s yours will be yours when your time comes to collect. I know that I left out the costs of administration, so I am glad you brought this up. As I see it, the government is not an efficient administrator, but could be legally obligated to become more so. There is no reason for a layered bureaucracy in this type of system as it is pretty straight forward. The actual work would likely be simple accounting procedures, and much of the system could be automated, requiring much less man power than the current system. But it will still take some money to run. Who pays? Perhaps this is where we bring the individuals back into the front end of the plan, engendering some “ownership” by funding a small tax to pay for administration costs. The tax would have to be evenly apportioned and not based on wages.
2)The reason for this plan being covered by employers only (not including the aforementioned administration cost tax) is twofold: first, companies are the ones who profit most from labor and owe their success to their workers, and secondly, because I hope to propose a plan for health care that eliminates this cost from employers altogether. Combined with reduced overall pension costs, companies will come out farther ahead than they do now. The individual will assume more responsibility for their day to day lives and needs without having to worry about their retirement security.
3) Because of the way the system is designed, retirement benefits are not tied to wages earned, so all monies paid into the fund by employers are divided as described, ensuring that all the people you mention are covered too. Disabled individuals are another part of the social security program and is unrelated to retirement, but the short answer is yes, they too will get the national pension plan benefits. I previously wrote an essay that briefly describes changes in the programs for people currently on government welfare that describes how to help them back into the workforce, but again, yes at retirement age, the pension benefits would be there. There would not be a combined benefit except under tightly defined circumstances that would need to be hammered out.
5) Yes, all jobs have value but are equal only in the sense that society calues them all and needs them all to be performed to properly function. I didn’t imply that unqualified people should just do whatever their heart desires. You will still need to be successful in your job or you won’t have it for long. The point that I was making is that the guy whoh cleans dishes at the restaurant should not have to worry about retirement security simply because he didn’t have the skills to be a brain surgeon. We do need dishwashers too. Now the brain surgein will obviously have a larger retirement fund since she could afford to put more away, but at least the dishwasher won’t be living on the edge in his eighties.
5) Since everyone would have an equal and comparable retirement base, there wouldn’t be a need to pass the money on to others. I make the case for people with dependents simply to recognize the hardships faced by people whose spouse has died. Before you say, “What about single parents?”, they have dependents who would also get their portion of the retirement fund, so no one is really left out. Yes, I know that these dependents also have their own retirement acccounts waiting for them too, but in their case, the deceased’s retirement funds would help offset the costs of raising the dependents to adulthood, which is preferable to going completely on the public dole.
I hope that this answers your questions satisfactorily. And no, I haven’t sent this idea to my congressman yet. Maybe I should. But I have a hard time believing that in the current climate I would be able to make it through the front gate. Who knows though?
Finally, a bit off topic, but many of my previous posts ( and future ones for that matter) explore ways to streamline the costs of government at many levels. If combined, the reforms I suggest could result in considerably less expensive yet more efficient government, lowering the overall tax burden for everyone. I encourage you to read more if you’re curious. In the end, you may start with the same visceral reactions as you did these posts and come out thinking, “Hey…this guy isn’t so crazy afterall.”
Thanks for the opportunity to add some fine details to this post. I hope you come back again.
May 14th, 2005 at 6:16 am
this is one of the most well-thought, intuitive social plans i’ve seen in a long time.
kudos to you, Ken!
great post!
have a good weekend
May 14th, 2005 at 6:29 am
(response)
Woodenshoe- Thanks! Now if we can only get the word out and have those in “power” actually think outside the box for a change. Glad you stopped by!
May 15th, 2005 at 8:15 pm
Ken, this is an excellent idea. I do, however; have a couple of additional ideas to add.
First, I’d like to bring the retirement age back to 55. I think working and contributing to society for 30-35 years is more than enough. Should you wish to work longer, you’ll get a higher yearly payout but you CAN hang it up at age 55 in the best case scenario.
Now how to fund it, right? One thing we know is there are millions of people who do not contribute at all to the financing of our government. This includes but is not limited to the wealthy amongst us who take full advantage of every tax break they can get, as well as sex workers, under the table workers, bar band musicians and servers who are paid in tips. Folks who do not work outside of the home also fall into this category. They just do not pay one red cent into the government while the rest of us pay huge taxes.
Bottom line – we make them pay the same amount of Federal taxes that the rest of us have to pay. This is where a flat tax comes in. This tax should be taken at the register, every single time a dollar changes hands at a business. We do not NEED the IRS. They are a waste of money under a flat tax. We’ll only need a Federal agency to insure the flat taxes are being paid by the purchaser to the business and that the businesses are sending that money into the government on time.
Just imagine how much revenue would be collected in this manner. How many times is a dollar bill passed before it is burned and taken out of circulation? If 20 cents were taken and sent into the Federal Government every single time it passed hands, how much revenue has been collected? Without having to fund the IRS and in fact, abolishing that huge, money-sucking government machine, how much revenue does that free up?
As for the argument about how much more things will cost when a flat tax is taken at the register, we’re paying more than that now anyway. Money is only worth something at the time it is presented at the register anyway. It is worthless when it is buried in a mason jar under the house.
You do think outside of the box Ken. Consider thinking outside of the box on the issues of taxation as well. Saddling businesses with the responsiblity is one thing but just how many businesses are profitable compared to those who are not? While accomodations could be made to tax only upon the businesses’ actual PROFIT, it still opens the door for cheating.
Nope, I don’t like our current taxation system at all. With the exception of the retirement age being at 70 in your proposal and with the exception of such a pitiful payout (consider inflation over the years to come), I like it very much. I just think there is a much fairer way to finance it, that’s all.
Last but not least, if you are wealthy, there is no reason for you to collect any type of government-funded retirement. They can get their personal contributions (the ones you proposed) back with no penalty but I see no reason at all why comfortably wealthy folks would want, or need a tiny little government check each month. Now, should their financial status change and take a turn for the worse in their golden years, well of course they can draw it.
I know many will discount this as being communistic but hearkening back to your previous post, they most likely wouldn’t be wealthy were it not for the blood, sweat and tears of the common man who helped make them that way (it is normally a “collective effort” to obtain wealth after all).
Consider those ideas and keep on blogging, Ken!
May 16th, 2005 at 5:29 pm
(response)
GTL- Thanks for the comments. I will, at some point, address the issue of taxation, and will think about your points at that time. I think your ideas definitely have some merit.
As for the retirement age being 55- I’m not sure how feasible that is in an era of expanding life expectancy and better medical care. Also, from a economical standpoint, funding 30-40 year retirement plans seems much more difficult to accomplish, and still get all the other things from our government that we expect.
So early retirement may be a great idea for those who can pull it off, but the retirement funds would need to stay in place until the 70th year to fully realize the benefits of compound interest. The goal is to make sure people can live off these funds (and any they may have accrued in other places) in their retirement years instead of having to rely on other assistance programs.
Of course, all ideas are subject to some compromise, and with it, a truly sustainable plan can be created.
May 17th, 2005 at 8:56 pm
If the government contributes to your account when you are born, the only administration is thenm sending the check to the account.
June 27th, 2012 at 7:07 am
I certainly think this is a great article. I have been reading stuff
like this for quite sometime but haven’t found such an engaing piece
till now. There is more items that I think you would like on final expense sales presentation.
If You are interested please let me know.