Millennials certainly are having a rough time in today’s economy: shackled by the chains of credit card and student loan debt, while having their dreams crushed because they have failed to attain a job in their career path. These are ingredients to a perfect storm in their autumn and winter years.
The future does appear to be bleak for a lot of youth: they are not saving and investing for the future, they lack tangible assets and there are fewer and fewer employment opportunities that pay well. This means there may not be a retirement for these individuals in the future – polls have found that a significant percentage of those 18 to 34 are foregoing the concept of retiring altogether.
What’s the solution? Mandated savings, according to an op-ed written in the New York Times over the weekend by Steven Rattner, former adviser to United States President Barack Obama, entitled “Saving Young People From Themselves.”
Instead of the president’s my Retirement Account (myRA) initiative, which Rattner referred to as a “symbolic and inadequate gesture,” the federal government should implement a mandated (force) savings plan, despite the state already taking money away from this generation to fund Baby Boomers (Social Security).
“The failure to save for retirement is setting up Americans in their 20s and early 30s for financially stressed golden years,” he wrote. “We should address this looming crisis via a radical restructuring of our retirement plans, including mandated savings.”
One solution he offered is one akin to Australia’s superannuation program. This would force workers to fork over nine percent of their pay into retirement accounts and tax incentives are provided if they deposit more.
Of course, there is already criticism over the plan because the superannuation industry has reinvested the funds into questionable investments. Also, the nation’s economy would be at dire risk if individuals started to access their own money earlier. There have been conclusions by pundits and politicos in the land down under that the scheme is not a viable long-term option.
“Young Americans are on track to be worse off in retirement than their parents. Let’s not just sit by and watch that happen,” concluded Rattner.
There are many problems with Rattner’s proposal. Let us tackle them:
A Future Unfunded Liability
According to the Government Accountability Office (GAO), the Social Security liability is currently more than $16 trillion (since these are government estimates it’s safe to assume that the figure is a lot higher). It takes today’s workers to pay for today’s retirees and the current ratio of worker-to-beneficiary is about three and that number will shrink to two in the next two decades when the trust fund is entirely exhausted.
Imagine if the government managed a mandatory retirement savings fund: politicians would raid it, there would be endless scandals and eventually it would run out of money. It’s a terrible plan that should be completely avoided.
Why does the government always want to use force? The entire Washington establishment is filled with mandates. There will always be people who are prudent and there will always be individuals who make financial mistakes. In either case, the person is responsible for their own decisions, whether they made wise decisions or false ones.
When a person earns money, it should be up to them what to do with it and not some bureaucrat.
The economy is in bad shape, but whose fault is that? It’s the government and the Federal Reserve’s disastrous policies that have contributed to today’s financial collapse and economic downturn. On top of that, the central bank is devaluing each person’s wealth through inflation, price inflation and zero percent interest rates, which means a dollar buys a nickel’s worth.
If Rattner truly wants to help youth attain jobs and be out of debt to save for retirement than abolish the minimum wage, return to a sound currency, eliminate the income tax to allow people to do what they want with their own money and get the government out of education to permit the market to truly determine tuition rates without politicians promising student loans.
I’m afraid I’ve got some bad news, Rattner, any mandated retirement account is doomed to failure, waste and insolvency.