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An Argument for privatizing Social Security
Speaking at the firm’s Retirement Summit program, Blackrock CEO Larry Fink spoke in favor of individual savings accounts funded by employer and employee contributions and market-based investment management as a better way to ensure continuity of Social Security. He based his comments on the retirement financing model used in Australia, a program he deemed superior to the U.S. Social Security system. As added emphasis, he noted that the U.S. system has “become too “politicized” to discuss changes to it.” For a full recap of Fink’s remarks, check out this post by NAPA reporter Paul Mulholland.
The Association of Mature American Citizens (AMAC), has taken a similar position in creation of its Social Security Guarantee proposal. The recently enacted Secure 2.0 Act substantially improved retirement savings options for U.S. workers, with provisions to promote savings and increase flexibility for those saving for retirement. AMAC has long recognized the importance of increasing workers’ ability to accumulate savings to augment their cash flow in retirement and after claiming Social Security benefits. Both AMAC and Secure 2.0 recognize this measure of financial health in retirement as being critical to a retiree’s ability to meet financial obligations and survive through economic downturns.
With many retired workers relying on Social Security as a significant portion of their retirement income, and with many Americans facing retirement with Social Security as their only source of income, making common sense changes to improve financial stability in later years is vital. Increasing retirement plan portability, making Roth conversions easier, and increasing access to retirement savings vehicles will help workers save more for retirement.
In keeping with this general objective, and as an extension of the Secure 2.0 Act’s provisions, inclusion of a new benefit would help and encourage workers to secure a financially sufficient retirement. Specifically, through creation of an Early Retirement Account (ERA) structured as a voluntary, supplemental savings vehicle with preferred tax provisions and built-in portability, wealth accumulation could develop under the guidance of investment experts. With access restricted to age 62, death, or total disability, the recommended ERA would serve to create estate value for dependents and heirs. Linking the availability of an ERA to employment has the lateral benefit of recognizing the dignity of participating in the economy and the confidence that results from building financial self-sufficiency.
To be effective, an Early Retirement Account provision would be governed by a set of clearly defined investment oversight parameters, including having 80% of the funds invested in stock funds overseen by a volunteer board of investment experts. Investment choices would be similar to those used in 401k plans and IRAs and the cost of administration would be borne by the same providers who offer those plans, not the federal government.