Posted on 05/06/2020 7:00:04 AM PDT by Kaslin
Congress passed and President Donald Trump signed into law the CARES Act to provide emergency measures to help us get through the economic crisis caused by the COVID-19 shutdown.
A crucial objective was to provide funds to the many individuals who suddenly found themselves cash-strapped and unable to pay bills because, through no fault of their own, they were out of work.
Two major provisions are $1,200 cash payments for individuals, and relaxing rules to allow withdrawal from or loans against IRAs, 401(k)s and other defined benefit retirement plans without penalties or tax consequences.
The cash payments received most of the attention. But the provisions for getting cash from retirement plans were a highly desirable addition. Ideally, it's best to be able to manage through a crisis with your own resources rather than government money.
If there is anything foreseen, it is that the unforeseen will always be part of our lives. We all should manage our personal affairs with this in mind. Living day to day, week to week, paycheck to paycheck is not how anyone should be managing their life.
You might say: "I'm working two jobs. I spend practically nothing on entertainment, and I still barely make it to the end of the month."
And here is where the right government policy can help you be freer to manage your own life.
I've been writing for years that Americans should be allowed to invest their payroll tax in their own personal retirement account. The payroll tax is what's used now to finance Social Security.
Many still think that Social Security is some kind of retirement investment plan. No, it's just another government tax and spend program.
Every year, retirees get Social Security payments. The funds come from the payroll tax that practically every working American pays.
It seemed like such a good idea when then-President Franklin D. Roosevelt signed it into law in 1935. Every working American would pay a small tax, and those funds would immediately go out and provide retirement income to retirees.
But back then, there were more than 40 Americans working for every retiree.
Today, our world is much different. Fewer are getting married. Fewer are having children. And the miracles of modern medicine give us a much longer life.
So instead of 40 working for every retiree, today there are around three.
According to the annual report issued by the Trustees of the Social Security Administration, in 2035, just 15 years from now, Social Security will only have funds to cover 76% of the benefits promised to retirees.
Either taxes must be raised, or benefits must be cut. Who wants either?
Doing so would make a bad deal even worse. According to a study commissioned by the Committee to Unleash Prosperity, the average annual return of Social Security over the last 40 years was about 1%. Over the same period, the stock market returned more than 6% annually.
According to the Federal Reserve, only 43.6% of working households earning $40,000 or less annually say they have any retirement savings. This means the only retirement provision the rest have is the payroll tax being taken out of their paycheck designated for Social Security.
Social Security Trustees are now telling those who are 52 years old or younger and expect to retire at 67 that they can expect just 76% of their benefits.
Now that President Trump is talking about the payroll tax as a policy tool to deal with this crisis, we should act.
Let's allow working Americans, or at least those earning $40,000 or less, to divert their payroll tax into their own retirement account.
They will get independence and have far more wealth when they retire.
And when the unforeseen is upon us again, when there is another crisis, they won't have to pray that the government will send them money. They will have their own savings, which they can tap into to get themselves through the crisis.
So the Left will now use this “caring” act as a way to get Americans to erase their own safety nets, and quickly become more dependent upon government.
What are the specific IRA benefits or tax reduction?
Government will still have to subsidize the accounts when they go down in stock market crashes. You think retirees will be allowed to get nothing when the market crashes? Just like government is now paying for everyone’s salaries during covid unemployment, there will have to be bailouts for personal retirement accounts during recessions and depressions. Mark my words
“Let’s allow working Americans, or at least those earning $40,000 or less, to divert their payroll tax into their own retirement account.
They will get independence and have far more wealth when they retire.”
LOL! Not gonna happen. Just remember that half the people you know are dumber than you, and another half of those people are even dumber.
How many times have you heard someone crowing about their ‘tax refund’ as if they were getting FREE MONEY - when it was Mother Government CONFISCATING it and using it interest-free for the year?!
People, as a whole, barely understand a single thing about their paycheck deductions, investing, saving and living within and BELOW their means! They can’t budget - even for food - but they have every new, shiny thing in their possession. In my experience (just among family and friends) I know people with less income than I’ve had with more STUFF (phones, cars, fancy hair and nails, etc.) than I’ve ever had.
My prediction? If Mother Government does this, even MORE elderly will be on the dole when they hit retirement age and beyond. (All by design, Comrade?) It’s beyond the skill set of most people to manage retirement finances...which MUST be started when you’re in your 20’s if you’re going to weather the self-inflicted storms Mother Government throws at you along the way. Like this virus, for starters! 30 MILLION of us out of work for weeks on end. And for what?
JMHO - but you know I’m right! ;)
Yep, but many people don't need these retirement accounts just yet, and what is actually happening is the poor are getting poorer and the middle class and up are doing better. Precisely what the Dems and media don't want to happen. Remember, most lower middle class people are out of jobs right now, the shut down is hurting the Dem base.
Those SOBs haven’t forgotten that some of us are smart enough to save. It grinds their gears that they don’t have complete control of that money. Whenever they mention it, the hair on the back of my neck stands up.
If the left wants to make their war on us go hot, start messing with our retirement accounts.
The 10% penalty for hardship withdraws are waived if it is COVID-19 related. RMD's are waived for this year if they haven't been taken. There is no guarantee they would offer similar rules in the future..
I am on Social Security. I had my first payroll job when I was still 17- working full time in an office after graduating high school.
I paid into Social Security for over 50 years.
What makes this author think that those of us on Social Security are getting a gravy rain ride?
I didn’t set up SS, nor do I control how they run SS.
There are so many people drawing SSDI that are faking their ‘disability, how come this author doesn’t go after that segment???
Just like 401Ks, people who were approaching their retirement would be moving from the growth funds to the safe ones, or even out of the stocks all together.
Just like 401Ks, people who were approaching their retirement would be moving from the growth funds to the safe ones, or even out of the stocks all together.“
In an ideal world. In real world there will be recessions, and no “safe” funds. The govt will be asked to backstop, and it will do so. Right now the government is backstopping for everybody, with PPP, stimulus checks and medical coverage for covid treatment. It’s essentially Medicare for all right now. It will be the same with “individual retirement accounts”
In 2044. The youngest baby boomer will be 80 year old. That will offer us 24 years to fix the program. I say eliminate it entirely and get those millennials under age 40 to start over. Those 40-65 can be paid off or accept a lesser amount from the general tax fund as the program ‘withers on the vine’. Problem solved.
Problem solved.“
There isn’t any problem to solve. Social Security is not in deficit. It is financed by dedicated taxes, not from the general fund. The proceeds from social security taxes and repayments of social security bonds will cover the full level of benefits for another 2 decades or so. After that, they’ll still cover more than 75 percent of current benefit levels going forward into the next century. Congress could choose to leave the program alone and give everybody 20 years notice that benefits will decline by 20 percent in 2040 or so and will stay at that level for succeeding generations
Has anyone taken a look at their retirement accounts lately...?
don't, give it a year. If Trump is re elected it will rebound in a year or so.
How many people, outside of government, have defined retirement packages?
Also, who is going to loan them money based on an income stream that will be insolvent in 10 years?
People on this site said that 10 years ago.
A 401(k) or traditional IRA balance is nice to look at - but it is the government's money. Some day in the not-too-distant future, they are just going to take it.
Oh, they'll probably give you a nice, shiny IOU backed by the full faith and credit of the United States Marine Corps, but at the end of the day your claim is going to be well behind that other players.
It isn't easy, but try to base your retirement planning on post-tax income - a Roth IRA is OK, but learning to manage your own taxable securities and real estate investments is even better. You'll sleep a lot easier.
I think you have that exactly backwards. There is no dedicated fund and the Supreme Court has ruled the the SS tax is nothing more than a special tax and they owe nobody nothing. It is indeed allocated every year out of the general fund.
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