The First Country to Figure This Out Wins Big
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Good news!
We’re living longer. In the United States, young people can plan to live beyond age 90.
Bad news!
Most people nearing retirement have enough savings to last less than a decade after they stop working.
The net result is that private pensions are strained; Social Security is unstable; and 401(k) accounts are substantially underfunded.
One Solution
Morgan Housel and I cannot fix this problem today. But our plan would transform levels of prosperity for the next generation. It would be easy to set up. It would cost governments far less than their current systems. And it would leverage the most precious asset in investing – time.
Here’s how it works:
- Parents and family members would be able to put $5,000 into a fund the year their child is born.
- Governments would match contributions for lower-income parents, along with a tax credit.
- That money would be invested in a global total-market stock index fund.
- The account would not be accessible until age 65. No exceptions.
- The funds would grow and be withdrawn tax-free.
This is similar to a Roth IRA in the US. The big difference is that you could contribute from birth, and let the money grow for more than a half century. That’s far superior to waiting until your employment years to contribute. Time is a key reason that so many people are falling behind.
At a 9% annual return – about what the market has returned over the last century -- $5,000 invested at birth is worth $1.4 million by age 65. This is probably the equivalent of about $700,000 in today's dollars, after inflation.*
This doesn’t entirely replace Social Security. But, wow, would it make a difference.
We’ll call it The Jumper Fund.
The first country to figure this out wins.
*This sentence was added after the article was published. It still amounts to a remarkable start for every child. With the hope, of course, that they will start IRAs and 401Ks as they make their way through life.
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9 年Nine % not likely going forward. Government should not be able to utilize these funds. They, by law should be segregated and never used for anything but prudent investments. Fiduciary level practices only. There should be a minimum guarantee of 3%. This would need to be adjusted for inflation up or down.
If the government hadn't raided SS, this is what we would have ostensibly. What's to stop them from stealing from these funds?
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9 年excellent program!
SERVING OTHERS: Delivering peace-of-mind investment management
9 年@Mike Johnson, 100% agreed - others holding one's money for 65 years? That's crazy! Even for 1 year in my view is a no-no. As someone said it well, "for unmitigated success gather around you folks that are better than you in what they do, and focus yourself on to only what you are best at". So, having someone manage it (if their skills are better than mine) with $0 cash withdrawal authority, while my money remains within my beneficially owned account, is the only thing that works for me. And I'd need to know upfront each attenuating scenario that'll allow me to cancel the management. Now, that works for me.