The Plan for Social Safety
Based mostly on the marketing campaign’s web site, Laffey’s proposals to handle Social Safety’s funding woes are based mostly within the plan Kotlikoff has been advocating for years. The essential thought is to reset the retirement contract that America makes with its residents. The plan consists of scrapping Social Safety and beginning a basically new system based mostly on government-managed particular person funding accounts.
To try this, Kotlikoff recommends freezing the present Social Safety accounts of these, for instance, at the moment at age 40. When these employees retire, they’d get Social Safety advantages based mostly on their earnings as much as age 40.
Kotlikoff’s plan would typically require employees to put 10% of their pay into their private retirement account, typically to be matched by employers. The federal government would make progressive matching contributions on behalf of the poor or unemployed, he says.
These accounts would then be government-invested “by a pc in a worldwide index fund of shares, bonds and actual property funding trusts” of main markets. Everybody would get the identical charge of return, and the federal government would assure a return on contributions.
Between ages 57 and 67, every delivery cohort’s balances can be used to buy Treasury inflation-protected securities (TIPS). In flip, every cohort’s TIPS property can be used to pay for inflation-indexed life annuities that start at 62 and are totally phased in by 67.
If an individual dies earlier than 67, their heirs obtain the steadiness not but transformed to TIPS.
“In brief, our legislators have constructed a fiscal monster,” Kotlikoff not too long ago instructed ThinkAdvisor. “Its financial harm can’t be eradicated piecemeal, for a easy purpose. Every of our fiscal system’s applications contribute to all or many of the system’s issues. … In brief, all features of the system have to be reformed in unison.”
A Critical, Smart Candidate
In a brand new dialogue with ThinkAdvisor following the marketing campaign’s announcement, Kotlikoff mentioned he’s happy to be contributing to a Republican presidential marketing campaign that’s “truly in regards to the points as an alternative of mendacity and title calling.”
“If folks don’t find out about Steve’s full background, they need to actually look into it. He has had a tremendous life journey, from rising up in critical poverty to graduating from Harvard Enterprise College and working a extremely profitable financial institution,” Kotlikoff mentioned. “As mayor, he did a lot to get his house city of Cranston, Rhode Island, into higher fiscal form, and that’s expertise that the nation wants.”
Kotlikoff urged the monetary advisor group to rigorously overview and think about the Laffey platform within the weeks and months forward, particularly the proposals relating to Social Safety and people associated to well being care and tax reform.
“We don’t agree on all of the social points, however Steve is a critical, wise particular person with a mature and grown-up perspective, and a conviction to really handle issues,” Kotlikoff mentioned.
(Pictured: Economist Laurence Kotlikoff)