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Tuesday, November 11, 2008

The Privatization of Retirement Accounts

The latest fear stirred by Republicans is the implementation of Guaranteed Retirement Accounts. What has been discussed by Democratic House congressional members was to take personal retirement accounts, including 401Ks and IRAs, and convert them to accounts managed by the Social Security Administration and create what would be called a Guaranteed Retirement Account (GRE). GREs would guarantee a fixed 3% annual rate of return. In place of tax breaks workers now receive for contributions and thus a lower tax rate, they would receive $600 annually from the government, inflation-adjusted, as outlined by Teresa Ghilarducci, a professor of economic policy analysis at the New School for Social Research in New York, while testifying before the House Committee on Education and Labor, on October 7, 2008.

It has sure roused more finger pointing at those socialized Democrats. The Republicans are afraid of a part of this proposal that would limit anyone inheriting the GSA savings of a loved one, who would die before retirement, to only half of the account balance. If that loved one were to die after retirement, they would only be allowed to pass on the part of the GSE that they paid into, as well as the interest acquired, but not the employer’s part of the contribution.
Here are some facts about retirement ages. The average white male American will live to 5.7 years past the retirement of 65, which is 70.7 years. Another statistic showed that the average white male will live to 74.8 years. The average black male American will not live to that age, but to 68.2 years. 88% currently received their retirement income only from Social Security. 19% currently received income from private pensions and annuities, as well. 29% received income from assets, too. This example showed that black Americans do not benefit as much as white Americans from retirement benefits of any sort. Older African Americans, on average, received more than 44 percent of their total income from Social Security. African American women over the age of 65, on average, relied on Social Security for 56.8 percent of their income. Social Security has been the only source of income for one in three African Americans over the age of 65.

Today, most retiring Americans will not have enough money to actually retire. Most equity-based accounts have lost nearly 45% of their un-guaranteed value. People have been pulling their investments out of 401K accounts with penalties, and suffering the losses further crushing the stock market and their savings. People are justly afraid of losing their life savings.
As many have debated, the stock market could see a DOW of 6000, which would be another 25%, totaling a projected loss of a whopping 65% loss in the portfolio of many hardworking Americans. By having a GSA program, it might keep top-tier taxpayers from taking their 401K accounts outside the country reducing America’s budget deficit and national debt because it would encourage foreign investors to buy US bonds and Treasuries boosting the value of the dollar. America would grow overall because such accounts could be used as investment instruments for technology for the 21st century and, once again, help America become more of an exporter of finished goods, and improve our nation's self-sufficiency.

Yet, there are red-flag wavers throughout the Republican regressive movement warning against such a move. We have the Heritage Foundation warning Congress against raising taxes on their wealthy constituents, or increasing regulations, which the lack-thereof was the cause of much of our economic problems. I guess, they like what their regressive philosophy has done to the nation. For most, the Heritage Foundation is a dinosaur, and regressive to the national security of the nation.

None of what the Heritage Foundation warned the Congress against doing did not work over the last 30 years to sustain this economy, jobs, retirement accounts, control of the debt, stimulate the economy for sustainability and improve wages for workers. Corporations already pay the lowest taxes due to right-offs, and loopholes. In addition, Bush’s tax cuts did not stimulate the economy at all.

Now, we get this great piece of advice from Jerry Bramlett, president and CEO of BenefitStreet, Inc, and independent 401K plan administrator, which was found in Karen McMahan’s, Carolina Journal article, “Democratic Leaders in the U.S. House Discuss Confiscating 401(K)s, IRAs.” He said, “one of the best ways to ensure retirement security would be to have the U.S. Department of Labor develop educational materials for workers so they could make better investment decisions, not exchange equity investments in retirement accounts for Treasury bills, as proposed in the GSAs.” What is this guy talking about? Does he mean they he, and others, do not provide such handouts to their clients, nor outline for them good and sound invest advice strategies before taking their money? That is what it sounded like to me. Is he saying that does not want to see investors, who have been losing their 401ks, which are being managed by investment firms that are still taking out management fees from dwindling uninsured retirement funds, transferred to insured investments? Maybe Mr. Bramlett should have warned his colleagues that they needed to have been warning their clients about the signs of a market collapse, instead of scolding the investors who were afraid of losing their life savings when they pulled out and ran to safer ground.

These supporters of investment companies who have been managers of investment plans, taking fees and commissions, but not acting on behalf of their clients swiftly enough, or at all, while the retirement plans of hardworking Americans swirled down into the disappearing stock market sink hole, should wake up and take responsibility. These retirement/investment managers, and their companies still made their fees and commissions even as the portfolios went down the drain. Now these guys (and gals) who were supposed to be the stewards of our investment-retirement portfolios are crying and whining about a newly considered Guaranteed Retirement Account program, which might actually protect retirement accounts from disappearing, since they would have every American contributing into this guaranteed powerful investment account.

Hey 401K administrators in the private financial sector, where were you when we needed you the most? Where were you when we needed you to act swiftly, and with precision to save falling accounts? Were you asleep, or dilly-dallying around? So much for your keen professional judgment and skills. The reason you are paid is not when everything is moving smoothly, but when it appears that there is a brick wall ahead and your client is about to crash into it.

GSAs would be a boom for the country, and retirees. It would not prevent anyone to take their after-tax incomes and invest in un-insured and riskier investment vehicles of their choice. There would no restrictions on inheritance, for most, or where one would choose to invest. Minority retirees, and whites who might not live to appreciate a long retired life might benefit from such a program. Also, middle Americans, who are spending most of their incomes on everyday essentials, such as rent/mortgage, insurance, utilities, health care, food, gas, clothing, taking care of elderly or sick family members, and have a difficult time saving would greatly benefit from a government directed guaranteed retirement account, too.

Thanks for reading, jerry

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