Bankrupt at birth occurs at the precise instant of a person's entrance into the world and the start of their century of life. The costs of all of the responsibilities that your presence in this world imposes on you will accumulate over the next century. These are your liabilities in life. They are timedable. They are quantifiable. And if you can't pay them off when you begin your century of life, you have committed the original sin of being insolvent at birth.
One of the largest and most significant liabilities is longevity risk, which is the risk of not having sufficient funds to live out your existence after retirement.This obligation for an individual born today, assuming their lifestyle is based on today's median annual family income of $60,000, is over $8,000,000 (assuming 3% inflation) by the time they reach age 65 for a 35-year retirement (assuming 3% inflation). This necessitates annual contributions of more than $26,000 per year beginning at age 20 for the next 45 years (assuming 7% returns).
Even if you are very young, say in your twenties, the amount you would need to save each year to finance a comfortable retirement lifestyle would devour the majority of your annual income. Consequently, you have competing life priorities, such as purchasing a home and funding for your children's college education.
The transfer of pension funding responsibility from employer to employee makes it difficult for the majority of average citizens to allocate resources between the present and the future. The optimal solution would be to begin addressing the retirement funding issue as soon as possible, when costs are lowest. And it must be done in partnership with the government, which has a vested interest in ensuring that retirees have sufficient financial resources to continue living independently without substantial government assistance.
Here is the concept. Using the same rationale as the individual retirement account, the government should issue """"birth bonds"""". A parent or grandparent would acquire these zero-coupon, 4% bonds from the government for the benefit of their children or grandchildren. Similar to the contribution to the conventional IRA, the purchase of the bonds would be tax-deductible at that time. The issue amounts would range from a minimum of $2,000 to a maximum of $5,000 per year per child for the first five years following birth. Over the course of 65 years, $2,000 would mature at $26,245 and $5,000 would mature at $65,613 with semi-annual compounding. Perhaps a catch-up purchase could be contemplated for children under the age of ten. When the bonds mature at age 65, the proceeds would be used to purchase a required annuity for the children's benefit. The income from the annuity would be entirely taxable when paid out to the child, but would accumulate tax-free until that time.
This accomplishes three goals: (1) the federal and state treasuries receive an immediate influx of cash when birth bonds are purchased; (2) the child will have access to an asset later in life to supplement their retirement, social security, to finance long-term care or other medical needs, and to meet other late-in-life obligations; and (3) the federal and state governments receive a guaranteed future income stream from the taxes paid out on the benefits.
Here is a program that is not an entitlement, gives the government a new source of cash now, has a relatively modest short-term tax break for the middle class, guarantees a flow of future tax revenue to the government, is not equity-based so market performance is irrelevant, may help alleviate funding concerns regarding Social Security, and may help provide more security for future generations. Moreover, it is always less expensive to fund a prospective obligation now than to wait until it becomes due.
If you support this notion, please forward this article to anyone you believe could be a champion for the cause. Today's systemic financial problems necessitate the consideration of numerous alternative solutions. Here is one I possess.""
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