Introducing Birth Bonds to Help Overcome Bankruptcy at Birth
Have you ever done a full accounting of the liabilities you and your family will incur over a century of life? Very few people have.
Maybe you don't want to.
Or maybe you don't know how.
Either way, not doing this in today's economic climate will keep you in that state of bankruptcy you were born into for your entire century of life.
Bankrupt at birth occurs at the precise moment you enter the world and the clock starts ticking for your century of life.
Adding up over the next one hundred years are the costs of all the obligations that your presence in this world requires of you.
These are your life's liabilities.
They can be timed.
They can be quantified.
And, if you can't pay them off the moment you arrive to start your century of life, then, you have the original sin of bankrupt at birth.
One of the largest and most significant liabilities is longevity risk - not having enough money to live out your life after you retire.
This obligation for some one born today, assuming their lifestyle is based on today's median annual family income of $60,000, is over $8.
0 million (assuming 3% inflation) by the time they reach age 65 for a 35 year retirement.
This requires annual contributions starting at age 20 of more than $26,000 per year for the next 45 years (assuming 7% returns).
Even if you're very young, say in your twenties, the annual amount you need to save to finance a comfortable retirement life style would consume most of your annual income.
As a result you have a conflict over priorities in life, such a purchasing a home and paying for children's college tuition.
The shift of the pension funding liability from employer to employee puts most average citizens in a bind for how to allocate resources between the present and the future.
The optimal solution would be to start addressing the retirement funding problem right at birth when the cost is lowest.
And it needs to be done with the government as a partner because it has a vested interest in seeing that a retiree has the financial resources to continue living independently without needing substantial government assistance.
Here's the idea.
Using the same concept as what's behind the individual retirement account, the government should offer "birth bonds".
These would be 4% zero-coupon bonds purchased from the government by a parent or grand parent for the benefit of their children or grand children.
The purchase of the bonds would be tax deductible at that time, just like the contribution to the standard IRA.
The issue amounts would be a minimum of $2,000 up to $5,000 per year per child for the first 5 years after birth.
Over 65 years, $2,000 would mature at $26,245; $5,000 would mature at $65,613, compounded semi-annually.
Perhaps a catch up purchase for any child under the age of 10 could be considered.
At age 65 when the bonds mature the proceeds would be used to purchase a mandatory annuity for the benefit of the children.
The annuity income would be fully taxable when paid out to the child, but would grow tax free until that time.
This accomplishes three objectives: (1) The federal and state treasuries gets an immediate influx of cash when their birth bonds are bought; (2) An asset will be available to the child later in their life to supplement their retirement, social security, to finance long term care or other medical requirements and to meet other late in life obligations; and (3) the federal and state governments get an assured future stream of income 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 not an issue, may help alleviate funding concerns about Social Security and help provide more security for future generations.
More importantly, it's always cheaper to fund a future obligation in the present than it is to wait for it to come due.
If you believe in this idea, please forward this article to anyone you think might champion the cause.
Today's systemic financial problems requires many different ideas to be considered.
Here is one that I have.
Maybe you don't want to.
Or maybe you don't know how.
Either way, not doing this in today's economic climate will keep you in that state of bankruptcy you were born into for your entire century of life.
Bankrupt at birth occurs at the precise moment you enter the world and the clock starts ticking for your century of life.
Adding up over the next one hundred years are the costs of all the obligations that your presence in this world requires of you.
These are your life's liabilities.
They can be timed.
They can be quantified.
And, if you can't pay them off the moment you arrive to start your century of life, then, you have the original sin of bankrupt at birth.
One of the largest and most significant liabilities is longevity risk - not having enough money to live out your life after you retire.
This obligation for some one born today, assuming their lifestyle is based on today's median annual family income of $60,000, is over $8.
0 million (assuming 3% inflation) by the time they reach age 65 for a 35 year retirement.
This requires annual contributions starting at age 20 of more than $26,000 per year for the next 45 years (assuming 7% returns).
Even if you're very young, say in your twenties, the annual amount you need to save to finance a comfortable retirement life style would consume most of your annual income.
As a result you have a conflict over priorities in life, such a purchasing a home and paying for children's college tuition.
The shift of the pension funding liability from employer to employee puts most average citizens in a bind for how to allocate resources between the present and the future.
The optimal solution would be to start addressing the retirement funding problem right at birth when the cost is lowest.
And it needs to be done with the government as a partner because it has a vested interest in seeing that a retiree has the financial resources to continue living independently without needing substantial government assistance.
Here's the idea.
Using the same concept as what's behind the individual retirement account, the government should offer "birth bonds".
These would be 4% zero-coupon bonds purchased from the government by a parent or grand parent for the benefit of their children or grand children.
The purchase of the bonds would be tax deductible at that time, just like the contribution to the standard IRA.
The issue amounts would be a minimum of $2,000 up to $5,000 per year per child for the first 5 years after birth.
Over 65 years, $2,000 would mature at $26,245; $5,000 would mature at $65,613, compounded semi-annually.
Perhaps a catch up purchase for any child under the age of 10 could be considered.
At age 65 when the bonds mature the proceeds would be used to purchase a mandatory annuity for the benefit of the children.
The annuity income would be fully taxable when paid out to the child, but would grow tax free until that time.
This accomplishes three objectives: (1) The federal and state treasuries gets an immediate influx of cash when their birth bonds are bought; (2) An asset will be available to the child later in their life to supplement their retirement, social security, to finance long term care or other medical requirements and to meet other late in life obligations; and (3) the federal and state governments get an assured future stream of income 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 not an issue, may help alleviate funding concerns about Social Security and help provide more security for future generations.
More importantly, it's always cheaper to fund a future obligation in the present than it is to wait for it to come due.
If you believe in this idea, please forward this article to anyone you think might champion the cause.
Today's systemic financial problems requires many different ideas to be considered.
Here is one that I have.
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