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I wrote this for my blog and will use it in the future, but I thought HD was a good place to get feedback.
First we eliminate all existing retirement vehicles – 401k, 403b, IRA, Roth , etc. all terminated, no longer permitted.
They are replaced with one standard plan whether employer-based or not. One set of limits, rules and regulations. All contributions on an after-tax basis. All earnings tax-free upon withdrawal but not before age 55 or disability. Voluntary employer contributions permitted, taxed as ordinary income upon distribution.
Social Security
Increase the payroll tax from 6.2% to 10% on employers only.
Social Security will be solvent over the next 75 years, but 20% of the gap between spending and revenue remains in the 75th year, meaning the program is not yet sustainable. Apply adjustments to funding gradually to assure sustainability by the 75th year. I used the CRFB modeling tool
Possible consequences
Employers may attempt to adjust future wages, some may modify retirement benefit contributions, [but employers will still need to compete for workers] there may be some minor price adjustments, some minor stock market impact, but so what, all of it will eventually be absorbed into the economy. A transition period. I would simply allow transfer of all existing funds into the new plan. There may also be room for improvements in the Social Security formula.
The benefits are obvious
The greater ability to retire, increased net retirement income, less administrative complexity and cost, a more mobile workforce especially at older ages, increased sustainable buying power among retirees.
Now all we have to do is convince every employer in America, 340 million people and the ideologues in Congress.
Many years ago someone (who I can’t remember) proposed the Universal Savings Account (USA). It was such a good I could never forget it.
Any plan that would mandate a reasonable required contribution (15-20%) and benefit should be based on defined contribution should work. The defined benefit plan should be eliminated. But to tell the true, you can talk or discuss as much as you want, but the way the US government works, with so many people just looking after themself, the system would never change. We just created another “Trump” accounts for selected kids born within next few years or have parent with income less than a set amount. So …
I doubt you would say that if you were retired and every month your pension was deposited in your bank account. Actually we would all be better off if defined benefit pensions were universal, but is never happening.
Only about 15% of the private workforce has one these days.
Both me and my wife retired from State. My wife retired more than 12 years ago from State with a pension of 60K/year for life plus full medical benefit. She took another job with the county (define contribution plan) and qualify for another retirement check from the county when she choose to retire. I got a check from State when I turn 60 more than 4 years ago for working with the state first 13 years after college. (State also will pay for my secondary medical insurance when I am qualify for Medicare.) When I first work with the State we only contribute 3% of our salary, now it is almost 10% (mandatory). Even we are the beneficial of define benefit plan, I do not think it is feasible for the future of the country. The insurance cost by itself almost more than 1K/month per retiree. (I remembered back in 1985, insurance are so cheap that most employer cover 100% premium, co-pay for doctor is $5, brand name $10). I do not remember the exact number, but I think my retirement account balance is less than 35K when I left, but I get a check for 1.6K for life when I turned 60. That make no financial sense.