The stock market took a dramatic tumble last week with the Dow Jones Industrial Average falling over 3,500 points. This index had the largest drop since 2009 and is down 12.4%.
While fears about the Corona virus pandemic and global trade disruption are a major factor, investors are facing up to uneasy realities of the Bernie Sanders impact if he becomes the Democratic presidential nominee.
Even Fareed Zakaria, hardly a conservative, highlighted on CNN yesterday, his assessment of Sanders' multi-trillion dollar socialism plans reworking our economic system.
He called it fantasy to claim success of transformational Scandinavian government programs. Zakaria detailed how Sweden, Denmark and Norway now admit major flaws in this decades long program from lagging economic growth to the unfair tax burden on middle class.
It's no exaggeration to contend that if Sanders was elected the retirement savings of every American would be at risk.
Not only are Sanders multi-trillion dollar spending proposals on Medicare for All, Green New Deal, student debt forgiveness, universal child care widely unrealistic, he lacks ideas promoting growth and employment.
Though hardly mentioned, the next president will also have to begin to grapple with Social Security issues.
Trustees administering the program warn the reserves will be tapped out in 14 years due to longer lifespans and much lower "worker-to-retiree" ratios.
This would trigger an across the board 15 to 20 percent cut in payouts.
Sanders proposes stabilizing Social Security and increasing benefit payments by raising payroll tax or "FICA" caps beyond the current $137,700 income limit.
Wage earners between $138,000 and $250,000 would be exempt.
However, payroll taxation would resume on income earners $250,000 and up. Permanently.
Raising U.S. payroll taxes abruptly would slow economic growth, impacting fragile markets. Not only making it harder for the program to remain stable over the long run but reducing the value of $29 trillion in private retirement accounts, public and corporate pensions that people are counting on for later years.
Whoever he is, the next president will have to reassure Americans that their retirement future is secure.
President Trump stressed in his State of the Union stressing that he "will always protect your Social Security"
But, in truth, the only way to protect Social Security is to keep our economic engine running. Spending items like Social Security and Medicare remain on automatic pilot and account for some 70% of the federal budget. That’s one reason Trump’s new budget plans seeks to reduce fraud and double payments in areas like Social Security disability benefits.
It’s clear Trump isn’t going to impose actual cuts in those popular programs.
One can expect Trump to push for reforms that would both improve retirement options and keep Social Security solvent — safe for future generations.
The period just after the 2020 election may be the perfect time to make strides to protect Social Security.
The need for reform is obvious. According to the Congressional Budget Office, Social Security’s core old-age and survivor benefit program spent $894 billion in 2019. That number will almost double to over $1.5 trillion in 2028.
The good news is that there are practical ways to deal with this looming crisis that can sustain the program without tax increases that would cripple the economy.
Below are just a few ideas that many could agree would help address retirement savings gaps:
1.) To minimize risk of elder poverty, increase benefits for those with lower earnings by using a different approach to calculating Cost of Living Adjustments.
Lower Income households would receive a higher adjustments therefore increasing benefits to ensure they stay above the poverty line and wealthy households would get a lower COLA adjustment. Higher income earners are not dependent on Social Security as a meaningful part of their retirement income.
Conservatives could profile this plan as a way to address concerns over rising income inequality.
2.) Eliminate the "penalty on senior wor" that’s known as the Retirement Earnings Test (RET). By taking a bite out of a social security check if you still have a job, it impacts lower or middle income workers who may claim Social Security early but still need or want to keep working to build up retirement resources.
3.) Create a new, portable, automatic enrollment plan for all earners to have more savings and income available at retirement.
Similar to a 401(k), employers would match small weekly employee contributions that are automatically deducted from an employee’s paycheck.
These new plans fine tune investment choices and optimal timeframe. Approximately 80% of savings would be invested in stock, bond or conservative index funds and savings would not be available for withdrawal before the age of 62.
A board of independent investment experts would oversee approved investments to assure quality.
All this would ensure money grows steadily for retirement needs so employees fully benefit from the long term returns of their investments.
There is a saying in the financial industry that the time to raise money for a growing business is when you don’t need it. The same wisdom is appropriate for a plan to bolster retirement security for Americans.
One thing is certain: Relying on Sen. Bernie Sanders to fix our retirement future would be akin to trusting a fox with the nest eggs of America’s retirees.
Clara Del Villar is Director of Senior Initiatives at FreedomWorks Foundation. Her financial industry career included senior roles in Investment Management, Private Asset Management, and Capital Markets. Her entrepreneurial ventures involved digital media as Founder, CEO of The Hispanic Post; energy tech as founder of InEnergy and health tech. She is a former advisor at 60Plus Foundation. Currently, she is a Board Director at General American Investors Co. and Executive Committee of Weill Cornell Women’s Health Symposium. She earned a BSFS at Georgetown University. To read more of her reports — Click Here Now.
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