Retirement planning for under 30 Americans
While a majority of Americans now opposes President Bush's plan for privatizing Social Security by creating private retirement accounts, those who do support them do it not because it will make the program any better but do it for more selfish reasons: it will give them more control over their money. (Related article: What is an ownership society?)
Another interesting finding from the latest Pew poll is that young Americans (less than 30) still enthusiastically support the private accounts (two out of three). The reasons are understandable. If you look 30-40 years ahead it is hard to imagine that a program like Social Security will be around. The pace of socio-economic changes in America has made us lose faith in almost all of our institutions. With jobs flying overseas, falling incomes, concerns about America's competitiveness in a world driven by lower prices, young Americans want to hold on to whatever money they earn. (Related article: Americans prefer retirement security over wealth)
But it is important to understand that so far not all the details of personal retirement accounts have been publicized enough and some of the features are very unattractive from a financial planning perspective. As young Americans make up their minds, they need to think about these issues. No one argues about the value of private retirement accounts, but the biggest problem is the way President Bush has designed them. No wonder that financial experts suggest that all Americans should stay away from private retirement accounts and even Fed Governor Edward Gramlich says that these accounts make him nervous.
Due to the huge costs of administering these accounts, monthly benefits will only increase if accounts grow at a rate of 3 percent above the inflation rate (it is extremely difficult for even the smartest investors to generate this kind of returns). If accounts earn less than that amount, monthly benefits will decrease. (Related article: Tips on stable retirement income)
If privatization were put in place today, where would the money to pay pensions to today's retirees come from? The payroll taxes that now pay their pensions would be going into private retirement accounts. This is exactly the reason AARP is so concerned about privatization. Or in other words, we will need to borrow more, as President Bush has proposed. With such huge deficits already ailing the economy, hardly any economist supports huge borrowings. It appears that tax increases, which no one is really talking about, is the only way to get it done, but it is doubtful if young Americans would love to have higher taxes along with their private retirement accounts.
Recommended article: How to make personal finance decisions?
Another interesting finding from the latest Pew poll is that young Americans (less than 30) still enthusiastically support the private accounts (two out of three). The reasons are understandable. If you look 30-40 years ahead it is hard to imagine that a program like Social Security will be around. The pace of socio-economic changes in America has made us lose faith in almost all of our institutions. With jobs flying overseas, falling incomes, concerns about America's competitiveness in a world driven by lower prices, young Americans want to hold on to whatever money they earn. (Related article: Americans prefer retirement security over wealth)
But it is important to understand that so far not all the details of personal retirement accounts have been publicized enough and some of the features are very unattractive from a financial planning perspective. As young Americans make up their minds, they need to think about these issues. No one argues about the value of private retirement accounts, but the biggest problem is the way President Bush has designed them. No wonder that financial experts suggest that all Americans should stay away from private retirement accounts and even Fed Governor Edward Gramlich says that these accounts make him nervous.
Due to the huge costs of administering these accounts, monthly benefits will only increase if accounts grow at a rate of 3 percent above the inflation rate (it is extremely difficult for even the smartest investors to generate this kind of returns). If accounts earn less than that amount, monthly benefits will decrease. (Related article: Tips on stable retirement income)
If privatization were put in place today, where would the money to pay pensions to today's retirees come from? The payroll taxes that now pay their pensions would be going into private retirement accounts. This is exactly the reason AARP is so concerned about privatization. Or in other words, we will need to borrow more, as President Bush has proposed. With such huge deficits already ailing the economy, hardly any economist supports huge borrowings. It appears that tax increases, which no one is really talking about, is the only way to get it done, but it is doubtful if young Americans would love to have higher taxes along with their private retirement accounts.
Recommended article: How to make personal finance decisions?
posted by eCreativa Media @ 9:40 AM
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