Well, just hold on to your Gen X and Millennial assets because the next financial crisis in the United States will likely have nothing to do with either generation—except for the fact that they may well be paying for it.
Baby Boomers’ ‘Golden Years’ Will Take Your Gold
That means tens of millions of Americans will have to keep working through their “golden years,” move in with their middle-aged children or live in near poverty with little more than a meager Social Security check each month to see them to the end of their days. That doesn’t even count the exploding health care costs for these aging boomers.To add to this financial disaster scenario, since the 1980s, the number of Americans living into their 90s has tripled. Longer life expectancies of the United States’ biggest demographic, coupled with a medical care inflation rate that well outpaces the average cost of living, spells disaster for an entire generation of Americans.
The Old System Isn’t Working
But why aren’t Americans saving enough for retirement? Isn’t that what IRAs, 401(k)s, and other pre-tax retirement plans are for?Do We Need Another Statist Program?
If the current retirement system has shown us anything, it’s that too many Americans will fail to save enough for retirement. There is a desperate need for another way. But the last thing Americans need is for the federal government to have more control over our money, or to raise our taxes to cover the retirement deficit that is surely coming.That said, what if a portion of what is already deducted from Americans’ paychecks was automatically redirected into large, pooled investments that have the advantages of scale for minimal fees and the investing advantages of a long-term horizon? Furthermore, what if employers were to match employee contributions? Finally, what if the yield were to, on average, double the current 3-percent average and the principal was guaranteed?
The result would be that many millions more Americans would have enough money–combined with Social Security payments, to retire with dignity. It would be necessary, of course, to prevent future politicians from raiding such a program for other uses. It would also have to be revenue neutral: No new taxes!
Enter the Guaranteed Retirement Account (GRA)
In the real world, there’s such a solution that is working in places such as Canada and Australia, among others. It could possibly work in the United States, as well. It’s called the “Guaranteed Retirement Account,” and is endorsed by “Rescuing Retirement” authors Teresa Ghilarducci, an economics professor at the New School of Social Research, and Tony James, CEO of the Blackstone Group, a leading American investment management firm.It’s admirable that the authors seem to present a viable way to solve this very real and imminent crisis. At the same time, they’re trying to do so without adding more costs in the form of taxes to the average U.S. citizen. Some additional upsides may be that such long-term pools of monies could provide immediate support for the stock market and minimize volatility. They may also provide efficient funding sources for infrastructure projects that might not otherwise get built or would have to issue debt to do so.
Is there the possibility of abuse, waste, or fraud, as in every other government-run program? Absolutely. Those risks would have to be managed and the punishment for mismanagement should be high and publicly enforced.
- Mandatory contributions
- Lowering fees through scale investing
- Raising annual yields through long term investing
The bottom line is if something doesn’t change—and soon—Gen Xers and Millennials will be made to foot the bill to pay for the care and feeding of their parents and grandparents. They can forget about paying off student loans. They’ll be paying for Boomers’ retirements and health care for the next 30 years.