401(k) Specialist Issue 1 - 2021 - 46

401(k) END NOTES
Potentially the Biggest Retirement Change
in (Several) Decades
By Brian Anderson
IT'S AN IDEA THAT could take 70 years to
pay off. But taking a leap of faith now-or
at least in the not-too-distant future-could
end up being the most consequential
decision lawmakers could make to stabilize
retirement income for future generations.
What if the federal government seeded a
savings fund with a nominal amount for every
American child born moving forward, and
then let compound interest work its magic,
allowing the money to grow untouched
and untaxed for the next 70 years? Then the
money would be distributed to Americans as
they hit 70 by virtue of a monthly allotment,
supplementing their Social Security and any
other retirement savings?
Call them " baby bonds, " " birthright
funds, " or whatever else you like. It's not a
new concept, but it does seem to be gaining
momentum of late.
In December 2020, 401(k) Specialist wrote
a website article about the birthright funds
idea after high-profile hedge fund manager
Bill Ackman responded to an open-ended
request from The New York Times' DealBook,
asking for one idea the country could
act on right now to make it a better place.
Ackman put forth the idea of " birthright
funds " as a potential solution to the wealth
inequality problem by creating a way for
those with no investment assets to participate
in the success of capitalism.
" To do so, we need a program that
makes every American an owner of the
compound growth in value of corporate
America, " the chief executive of Pershing
Square Capital Management said.
The basics:
* Birthright funds would be invested at
birth in zero-cost equity index funds.
* They would compound tax-free for
approximately 65 years and unavailable
44
ISSUE 1 2021 | 401kSpecialist.com
Treasury Department would issue approximately
$23.4 billion in RISE Savings Bonds,
or $5,884 for each of the approximately 4
million children born each year. This figure
represents 0.1% of the value of the federal
government's marketable securities. The
money would be managed by an entity
established by Congress. "
RISE, Edelman projects, would provide
to recipients until retirement age. At
historical rates of returns for equities
of 8% annually, Ackman calculates
a $6,750 at-birth retirement account
would result in more than $1 million at
age 65, or $2 million at age 74.
* The cost to the government would be
$26 billion a year based on the average
number of children born in the U.S. each
year.
Then in January, The Washington Post
covered a new proposal called " RISE "
(Retirement Income Security for Everyone)
from Ric Edelman, founder of Edelman
Financial Engines.
Edelman's proposal, available in full
at a dedicated website, www.wecanrise.
com, would provide all future generations
of Americans a new source of retirement
income, starting when they hit age 70, sufficient
to place them at the median of U.S.
personal income ($38,761 in 2020, per the
Census Bureau)-essentially lifting all Americans
into the middle class in retirement.
It would work like this: " Starting next
year, and every year thereafter, the U.S.
more than $120,000 (median) to workers at
age 70. " Total median lifetime retirement
income from RISE would exceed $11.4
million, or 2.5x more than that provided by
typical 401(k) plans plus Social Security, "
the website states, and RISE would make it
happen with a single $5,884 Savings Bond
and extremely minimal cost to taxpayers.
" I believe that the fundamental reason
that we are in a retirement crisis in
our country is because we don't allow
people to save for retirement starting at
birth, " Edelman told The Washington Post.
" Instead of trying to figure out how to get
workers to save more, we need to get Americans
to save sooner. "
These kind of plans have been popping
up more frequently in recent years, but to
date lawmakers have shown no appetite
(beyond N.J. Senator Cory Booker's proposed
" American Opportunity Accounts " in
2019) to seriously consider something that
wouldn't yield tangible benefits for decades.
Certainly not surprising, with the " kick
the can down the road " rut Congress has
long been stuck in. But with a little foresight
and elbow grease on what should be
a no-brainer bipartisan issue, kids born in
coming years might actually look back as
adults at whatever session of Congress gets
it done with fondness for a change.
Brian Anderson is the Managing Editor of 401(k)
Specialist.
http://www.wecanrise http://www.401kSpecialist.com
401(k) Specialist Issue 1 - 2021

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