America Should Have Publicly-Funded Savings Accounts

The savings rate in the U.S. and many other developed nations is extremely low. Most people don’t have $2,000 in savings for emergencies or other expenses if a car breaks down or some other essential comes up. So then that leaves the question, how do we get people saving money? Economically, savings are important because when savings are up, banks can lend out more money and banks become more stable. Its also important for households because when expenses come up they can pay for them in cash rather than going into debt or collapsing their entire lives due to these expenses. When we extrapolate that forward to retirement that situation gets more dire. Social Security was created as government sponsored and backed “old folks insurance.” It allowed people to pay into a system and be taken care of in their old age. However, that system is no longer sustainable for a variety of reasons. Between actuarial problems of fewer younger workers and more older workers and Congress raiding the Social Security fund for government expenses, no one is certain how many Americans will retire considering their non-existent savings.

Privatized Retirement

401(k)s, IRAs, and other privately funded saving schemes benefit the wealthy and not the poor for the simply fact that the wealthy have the room within their income to pay all of their bills, thrive, and be saving money for their retirement. As wages have not increased since 1977 in any meaningful way, many Americans are having trouble making ends meet much less save money. What would they give up in order to save for a far off goal. It is very hard to tell your kids, “We can’t buy you a new backpack” or “You can’t participate in that sport” because of saving for retirement. The rise of a privatized retirement has benefited many wealthy people in the private financial services industry and at large banks where the money is used for various investments and loans. However, this system of gutting a public/community based solution for a private solutions leaves 80% of Americans out in retirement cold.

How do we solve this problem? We nationalize the entire retirement system.

How This Would Work

While its extremely unlikely that this would ever get through Congress, all current 401 (k) and IRA accounts would be folded into a personalized and centralized account held by the Federal Reserve. Then all withdrawals would be subject to a 35% tax plus any capital gains. This would fund the Social Security system as well as create accounts for the future. Rather than have people pay into Social Security they would pay into their account and the Social Security system would be phased out except for those with account balances under $1,000. They would receive regular benefits at minimum wage, indexed for inflation. The retirement tax would be reduced to 10% over 25 years in order to fund those who unable to fund their accounts. All account funds would be matched by the government under $100,000. People would also be able to borrow against it for qualifying expenses as people do now with withdrawals.

The Bottom Line

No one should have to sit through retirement wondering if they are barely going to survive or have to depend on family. People pay plenty of money for their retirement and there is no reason we can’t utilize this transfer of wealth for everyone’s benefit. Rather than having a huge amount of untaxed privileged money in the system, we can use that wealth to create a stable old age benefit for all.