Liberty Maven

We are barreling toward socialism at an alarming rate, and every day I become more and more afraid for the future of our country.  Teresa Ghilarducci is an economist at the New School for Social Research in New York who wrote a policy paper on the subject of retirement account, and followed that up with a book entitled, When I’m Sixty-Four: The Plot Against Pensions and the Plan to Save Them.  She was called to testify before Congress on her harebrained scheme to have the federal government take over all our private 401K plans (which have historically realized at least 10% annually, on average) and “guarantee” a rate of return of 3% over inflation. From ABC News:

Here are the basics of her proposed Guaranteed Retirement Accounts:

• Employees would make mandatory contributions equal to at least 5 percent of the earnings. Workers could contribute higher amounts if they wish.
• Those contributions would be offset by a $600 federal tax credit each participant would receive.
• As with a 401(k) plan, workers would have individual accounts they could track. The balance of each account would depend on each worker’s contributions and income level.
• The Social Security Administration would handle account management, and the Thrift Savings Plan — a well-regarded retirement plan for federal employees — would manage the money.
• Participants would be guaranteed a fixed rate of return that exceeds inflation by 3 percent. For instance, if inflation stood at 2 percent, the worker would earn 5 percent; if inflation reached 3.5 percent, the worker would earn 6.5 percent. Participants could receive an inflation-beating return above 3 percent if the government’s investment returns were high enough.
• At retirement, participants’ account balances would be converted into a lifetime stream of income that adjusts for inflation. There would be options to take partial lump sum payments, opt for lower payments in return for survivor benefits and, upon death, leave a portion of a financial account balance.

The intent of the plan is not to replace Social Security. Rather, Guaranteed Savings Accounts would supplement Social Security, Ghilarducci said.

Given the government’s horrendous track record (i.e. Social Security, Fannie/Freddie, Medicare, Medicaid, etc.) it’s preposterous to think the government would handle your 401K money wisely.

And then there’s this little nugget:

The portion of Ghilarducci’s plan that has drawn the greatest criticism is her suggestion to eliminate the tax breaks received for contributing to a 401(k) plan or an IRA.

There are so many things wrong with this idea I don’t know where to begin.  And it’s scary that people, even foolish journalists at ABC.com, are taking it seriously.

A major concern of mine, which I bet you don’t see anyone talking about, is that this plan is based on the currently published inflation rate, which is widely known to be severely manipulated. The fed and the government play so many number games it’s difficult to keep things straight. If we calculated inflation using the same formula we used in the 1970′s, we’d all be bemoaning a rate of 12-13%. (To understand this better, I strongly recommend you watch Chris Martenson’s Crash Course, specifically “Chapter 10: Inflation” and “Chapter 16: Fuzzy Numbers” — they are not only fascinating but quite eye-opening).  I wouldn’t mind a “guaranteed” rate of 15%, but we all know we can’t rely on government guarantees, don’t we?

Whatever happened to people being responsible for themselves?

Read the whole article here.  Try not to vomit all over yourself.