Politics are slowly heating up with the 2014 congressional elections only about five months away. After that, we will get into presidential politics as candidates start to test the waters.
Actually, possible presidential candidates are already making calculated moves. One possible candidate for the Republican ticket is Florida Senator Marco Rubio.
Rubio recently addressed the issue of retirement and Social Security. It’s not a topic candidates and politicians want to touch upon a whole lot, as it’s a subject that can quickly alienate voters.
Social Security is in the red by many trillions of dollars. There is no Social Security Trust Fund — it is a filing cabinet filled with a bunch of IOUs, mostly of government debt.
Of course, even if the government made good on the promises of the Treasuries (through more taxes and/or higher inflation), Social Security would still have staggering unfunded liabilities.
So far, politicians have been able to play kick the can. There are “reforms” every so often, usually in the form of higher payroll taxes. But for several decades, the government has simply spent most of any surplus money that has come in for Social Security. To add to the problem, Americans are living longer on average.
Rubio made several suggestions in regards to retirement in the U.S. First, he said the retirement age should be raised for younger workers, and he proposed that the Social Security tax should be eliminated for those continuing to work after they hit the age of 65.
Rubio also suggested that those with greater wealth should see a reduced growth rate in Social Security payments. Finally, he proposed that workers who don’t have a retirement plan through their employer be given an option to enroll in a federal savings plan.
In other words, Rubio is trying hard not to offend any group of voters too much, while also trying to sound productive with his proposals.
His proposal to raise the retirement age for younger workers is something that is going to happen regardless of what anyone says. Rubio is simply stating something other politicians won’t admit.
His proposal to eliminate Social Security taxes for workers over age 65 is actually a good one. Unfortunately, this is also the one thing that is the least likely to pass.
Rubio’s proposal to reduce the growth in Social Security benefits is just a form of means testing. It is inevitable. The left will gladly support this plan unless they say it is not enough. Many people say wealthier people should not receive any Social Security benefits, but they are certainly not advocating that they should stop paying the taxes for them.
The last part of Rubio’s plan is the most interesting. He wants to offer a Thrift Savings Plan. It would be a government retirement program for the approximately one-third of U.S. workers who do not have a retirement plan option through their employer.
Another MyRA Plan
Rubio’s proposal sounds very similar to a plan being implemented by President Obama. I discussed Obama’s MyRA plan after he announced it during his last State of the Union speech. The MyRA program is supposed to begin at the end of this year.
Considering the great job the government has done with Social Security, are we now going to trust it to run more retirement plans for Americans? Whether it’s Rubio’s federal savings plan or Obama’s MyRA plan, it will be planned, implemented, and managed by politicians and bureaucrats.
Even if these proposals are being made with the best of intentions, we know how twisted things become when they enter the political arena. The government has a way of making these things sound good when they are first proposed, at least to some people. Think Obamacare.
What will happen when these government retirement plans go into full swing? Even if they are administered well from the beginning (unlike Obamacare), they will forever be used as political tools.
There will be changing tax rules. There will be rules on when you are allowed to withdraw “your own money.” There will likely be rules on how you are allowed to invest “your” money.
Of course, the biggest threat of all will be the government’s hunger for more money to spend in the future, particularly when it faces a situation of tight budgets and higher interest rates.
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A Government Plan for Suckers
These retirement schemes could turn out to be a real disaster. If taking Social Security taxes throughout the working lives of U.S. residents and then spending it all isn’t enough, let’s just rinse and repeat.
Remember the saying: “Fool me once, shame on you; fool me twice, shame on me.”
Will the American people get fooled again? I hope not.
We can’t be sure what Rubio has in mind with his plan, but we know Obama’s MyRA plan will “allow” you to invest in government-guaranteed securities. Yes, you can get a guarantee from the government, just as you have gotten other guarantees for Obamacare and Social Security.
Let’s all remember Obamacare and the slogan, “If you like your current plan, you can keep it.” The new slogan for government retirement plans can say, “Your retirement savings will be safe and secure in the hands of the government.”
The national government debt is over $17 trillion. The unfunded liabilities are currently estimated to be as high as $200 trillion. This is unfathomable. It is also unsustainable.
Americans tend to resist major tax hikes, especially if they don’t involve a world war. But they tend not to resist more debt.
Politicians will be hungry for money to spend, but their ability to raise taxes will be limited. Their ability to issue new government debt and have it bought by the Federal Reserve, along with the governments of China and Japan, will likely slow down considerably. They will want to find new sources of money.
With these proposed government retirement plans, the idea will be to have Americans “invest” in their retirement by buying U.S. government debt. This way, the politicians will have more money to spend so they can kick the can down a longer road.
In a couple of decades, when people want to retire and redeem their retirement investments, the money won’t be there. It will be spent, just as the Social Security Trust Fund has been spent.
But that will be their problem, along with the new set of politicians. The current politicians don’t have to worry about years down the road.
Stay Away
My best recommendation is to stay away from any new government retirement plan. You can plan and save for your own retirement without the help of the government.
You can buy your own investments for your portfolio and precious metals to guard against inflation. You can invest in residential real estate. Whatever you do, don’t invest in government retirement schemes. Regardless of their stated intentions, they tend to not turn out too well.
Even if investing in government debt is optional at first, the government can change the rules at any time and compel you to invest in the “future of America” — or, in reality, the needs of the big-spending politicians.
If we end up with some kind of optional retirement program that is anything like Social Security, stay away. The government will not give you a secure retirement. On the contrary, it will make it far more insecure by spending your hard-earned money.
Make no mistake: the government is coming after your retirement. But that doesn’t mean they’re going to get it.
Until next time,
Geoffrey Pike for Wealth Daily
