Former treasury secretary proposes investment savings accounts

[Rose Siding]

Knight Ridder Newspapers



WASHINGTON - One new proposal emerging from the national debate on how to overhaul Social Security could make every American a millionaire at age 65.

Paul O'Neill, President Bush's first treasury secretary and a former chief executive officer of aluminum giant Alcoa, proposes having the government stake every American baby at birth to an investment savings account. By the time the child retires, the account would contain $1 million or more. The idea is drawing attention from an unusual coalition of lawmakers from both parties, liberals as well as conservatives.

To move away from Social Security's chronic funding problems, O'Neill suggests that the government put $2,000 in a special investment account for every newborn American. The government would invest $2,000 more each year until the child reaches 18.
...
Some lawmakers in Washington are listening to him.

"I like the concept a lot, because it really takes the power of compounding and gets you a longer run at it. And for financial people, that's the real power of compounding, that you stretch it out over a more extended period," said Sen. Kent Conrad, D-N.D., the ranking Democrat on the Senate Budget Committee.

http://www.realcities.com/mld/krwashington/10963978.htm

[nothingshocksmeanymore]

1. O'Neill has always wanted to do away with SS..that was his mission

in becoming treasury secretary

[struggle4progress]

17. Exactly my reaction. Very expensive. Costs balloon. Debts mount.

Government goes bankrupt.

Ya think maybe Paul is fishin for kisses from Grover?

[LoZoccolo]

2. It's called a Roth IRA - do it your self.

I would think that Republicans would not be for making the government do something that you can go and do yourself.

[oneighty]

3. Pie in the sky

worthless paper money and way too much of it. Every person a millionaire.

Sure.

180

[The_Casual_Observer]

4. Assuming some unrealistic interest rate, which would never be

realized if that much money were being pumped into the accounts. I have grown tired of claims like this that depend on steady 10% or higher interest rates.

[MidwestTransplant]

7. It would require exactly 10% per year.

What people don't realize is that if something goes up 100% then drops 50% you are back even.

[whistle]

5. Why not just give every new born $1 million and let that investment

...go to work for them over their lifetime. That we could could do away with parents, relatives and the whole family structure altogether. Just let bankers raise our kids!

[Doremus]

6. This is all well & good for people who aren't born yet.

It doesn't do squat for the millions of us who are already here. Of course they couldn't care less about a small detail like that...

[oneighty]

8. Is it true?

Is it true that capitalism cannot succeed unless there are losers?

If every body were rich there would be no profits?

Present day Social Security is partly successful because there are losers. No?

Just curious. This scheme sounds strangely like the mechanical perpetual motion machine.

180

[NYC]

9. How much will $1 million be worth 65 years from now?

How much rent can you pay? How much food can you buy?

Maybe giving each citizen $2,000 a year will amount to $1 million at the end of 65 years, but what will it be worth? Maybe peanuts.

[tcoursen]

10. the article

The article said that the amount 65 years from now would be the equivelant of what 1 million dollars would be today. The money would be gaining interest and growing for 65 years. It would be worth a lot of money.

There is nothing wrong with this plan as far as what the individuals would have at the end of 65 years. It doesn't really on overegearated returns or anything like that.

[papau]

11. It only works if taken from new tax or voluntary withholdings - borrow and

the net effect is no new savings, wuth the account growth matched by the National Debt growth.

Just another pass a debt to our grandchildren plan from the GOP.

A variation the Dems might buy is the end the wage cap on payroll taxes and SS benefits - and while there is excess funds in SS, credit everone with 3% of pay in an account, plus a 100% match for the next 3%, up to a max of $25,000 per year. But with an automatic trigger to kill the gift and the match if payroll tax revenue reduces to less than what is now supporting Soc Security.

A safe addon account incentive.

[Warren Stupidity]

13. i'd go for that one

So far I've declared every 'raise the cap' scheme to be bullshit as they will just spend the surplus until the crossover point and then go right ahead and come up with some bogus excuse to default on the trust fund t-bills anyway. We got screwed by the greenspan 'reform' 'cause they just spent the surplus and now, predictably, are declaring a crisis as the payback date starts to loom.

[Warren Stupidity]

12. what is wrong is its using a rosy scenario

5% 18 years 2,000/year = 63,891

65-18 = 47 years at 5% = 632,902

Hmmm... and that is not inflation adjusted.

6% real growth gets you to about 1,000,000
so that is 6% over inflation or somewhere around 10%.
Not very realistic.

A more realistic scenario would be 3% real growth,
and that brings in about 250,000.

250000/20 - annual payout of 12,500 plus the interest you earn on the principal while you spend it down.

Sound familiar?

[NYC]

14. And that is still only $1,000,000.

Not what would be the equivalent of $1,000,000 today. Your figures result in $1 million.

So, what kind of return would be needed to come up with the $ amount that would give you $1 million in 2005 standards? More than the 6% you used in your calculations.

If a loaf of bread costs $75 in those days, $1 million won't go far.

[Warren Stupidity]

15. take the inflation issue out

of the picture. 6% over inflation gets you 1,000,000 in inflation adjusted 'real' dollars. But 6% is a bullshit number to use to calculate future value, especially if we are talking about 6% over inflation, which is what we are talking about (or at least what I am talking about.) What's the government selling its inflation adjusted t-bills for these days? I'm pretty sure they aint' giving you 6% over inflation.

Like I said, a more realistic 'real return' is 2-3% over inflation, and that gets you 250,000 in real dollars, or something like 13-14K annual over 20 years of retirement.

These clowns keep pulling this bullshit: using vastly optimistic scenarios to sell their latest privatization scheme. There is no free lunch. O'Neill is just trying to find some new clever way to frame the privatization program. Their religion tells them that socialism is bad, that social security is therefore bad, so they have to find new clever ways to justify killing it.

[papau]

16. True :-)

There is no free lunch

[NYC]

18. It's the Pollyana retirement scheme.

I truly hope this doesn't get passed in any way, shape, or form.