Retirement, a personal obligation surrendered to the government and third party institutions.  The result…an insolvent program destined for collapse.  The time to recapture individual responsibility and ownership…is now.

Social Security is a retirement system funded with 15% of one’s earnings, 7 1/2% funded by the employee and 7 1/2% funded by the employer.  This retirement system brought in $749 billon in 2009.  This system also dispersed $730 billion in pensions and an additional $430 billion in Medicare costs, a net shortfall of over $400 billion dollars in 2009.  The future of Social Security will be challenging, at best.  Supplementing this retirement system would be prudent.

Another popular retirement system is the pension.  This retirement system requires long service to a single-employer, often a strong union and a company to remain forever prominent, in an industry that is perpetually strong.  Should the company, industry or market falter then the funding of the retirement is at risk.  Failed pension funds include Bethlehem Steel, United Airlines Pilots, LTV Steel, Lehman Brothers, Polariod and recently General Motors and Chrysler.  Far too many fail, only to be bailed out by those without…the American people.  This form of retirement funding should be abolished in favor of individualized retirement accounts.  The accounts can still be funded by the employer; just not managed.

The ability to fund and transfer cash is extremely developed and efficient in today’s markets.  There is no reason for an employer to maintain retirement accounts on the behalf of their employees.  Why not allow employees to select institutions of their choosing?  Likewise, why should one’s investment options be limited to a selection of the employer’s choosing?  Brokerage accounts can easily offer a full array of investment options as well as robust analysis to support informed decisions.

Personal retirement investment accounts should be almost bulletproof.  The ability to attach these accounts should be virtually impossible.  If we want to encourage individual responsibility and accountability then we need to ensure the protection of those assets. The intent is to empower the people to replace governmental and institutional retirement funding with personal resources.

The Revised Retirement System.

To demonstrate the power of compounding and constant investing, all employers should be required to divert a portion of the employee’s wages to an investment account of the employee’s choosing.  Employers would be encouraged to match funds, similar to today’s 401(k) accounts. The ability to withdraw from one’s account would be barred and protected until the citizen reaches the age of 35.  After 35, citizens could withdraw funds from their investment accounts subject to penalty up until the age of 65. Once a citizen reaches 65, they could withdraw from their accounts as they see fit and tax-free.

As private retirement accounts build, Social Security will shift from the primary retirement funding of the masses to a secondary source.  While Social Security morphs, the eligibility age should be pegged to the average life expectancy as originally designed.  The eligibility age should be adjusted every few years (for example 5 years) to reflect the improvement in national health and life expectancy.

To further secure the retirement insurance of Social Security, early retirement should be discontinued.  The insurance fund would no longer offer incentives for citizens to leave the workforce early.  Those individuals who were diligent in their planning for retirement or blessed in business… could still access the retirement savings, allowing them to enjoy an early retirement.

In order, to apply for retirement insurance, a needs test should be met.  A reasonable needs test could be less than $100,000 in investment assets excluding one’s personal residence.  Regardless if the needs test is met; the choice to receive benefits is an individual choice. To continue to enhance the solvency of the fund, incentives could be offered in the form of increased benefits for delayed entry. The longer an individual delays taking benefits; through extending one’s work career or managing their savings; the greater their benefit.

For example, assume one’s benefits at 70 would be $3000 per month or $36,000 per year. But if an individual delays retirement until the age of 75, the benefit could be increased to let say $3600 per month or $43,200 per year; a 20% increase in benefits.  If the person can further delay their retirement until they are 80 the benefit could further improve to $4200 per month or $50,400 per year; a 40% increase from the retirement base. Rewarding individuals for delaying drawing on the insurance fund and instead utilizing personal savings and work is critical to the survival of the fund. The fund should not replace personal savings just augment; should one be blessed with good health and long life.

It is time to relieve companies, unions and governments the burden of managing individual retirement needs.  The responsibility, obligation and incentive resides with the individual not a third party.


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