WANNA RETIRE? PLAN AHEAD...... WAY AHEAD

Jesse Helms, former North Carolina Senator, was a Conservative’s conservative.  You could count on him to vote ‘NO’ on anything put forth by the left, and on most things put forth by the right.  He treated the federal purse like his own wallet and almost always voted on the side of reducing expenditures, and not incurring new ones.

In the 90’s Helms supported a bill allowing personal retirement accounts as a supplement to Social Security. [It went down in flames.]  Ahead of his time, he proposed privatizing Social Security and getting the government out of the retirement business. [His fellow Senators backed away from him like he was contagious.]  Bush 43 made a valiant effort to privatize Social Security and lost most of his ‘political capital’ doing it.  The left went berserk and screamed ‘HE WANTS TO TAKE AWAY YOUR SOCIAL SECURITY’.  Today we are paying the price for this demagoguery.  This can’t be fixed quickly, and it will NEVER be fixed if we don’t BEGIN.

There are two types of employer sponsored retirement plans:  Defined Benefit and Defined Contribution.

A defined benefit retirement plan is a type of pension plan in which an employer/sponsor promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age.  It also assumes that the employer will stay afloat long enough to fulfill these promises.  Monies are placed in accounts for the employee – very small amounts early in their tenure, but as the employee approaches retirement, the contributions increase drastically in order to arrive at that ‘promised amount’.  The biggest employer offering a defined benefit plan is the government.  Not just the federal government but most state governments as well. Social Security is also a defined benefit plan.  We are promised $X when we reach a given age, no matter WHAT we have personally contributed to the plan.  And there is no time limit on how long you can collect it.  The federal government is bleeding dollars because of this, yet those we elect refuse to do anything about it. And sadly, we have a citizenry too stupid or too apathetic to realize this cannot continue.

The private sector figured out years ago that the DB retirement plans would be a drain on the bottom line, and most went to the Defined Contribution, such as the 401K.  They tell you how much they are going to pay into your retirement plan NOW, allow YOU to invest in it as well, the plan is in YOUR name and usually under your control…. and you can plan your golden years when you are young.

If the government would go to the defined contribution plan (in other words, privatize Social Security and let the individual manage their own account within parameters set by the government) eventually, by attrition, the current SS system would simply fade away (or as Newt famously said – and was destroyed for saying – it would die on the vine).  A phasing IN of private accounts would one day get the government mostly OUT of the retirement business – at least for those citizens who WORK for a living.  The government also needs to change the retirement plan for all new hires, moving away from DB and into DC plans.

BTW – if you are eligible to have a ROTH IRA and don’t have one….. DO IT!  It’s the very best retirement plan ever created for the working person.  You contribute dollars you pay taxes on NOW (unlike a 401K), you get NO tax benefit NOW (unlike a 401K) but when you withdraw from it, you pay NO tax on the principal – only the earnings.  The attractive part of this is – you have NO IDEA what tax bracket you will be in when you retire, especially if people like Obama want to keep increasing the tax RATES.

Check this link to see if you qualify:

http://www.moneychimp.com/articles/rothira/contribution_limits.htm

http://www.smartmoney.com/taxes/income/when-roth-ira-withdrawals-arent-taxfree-1293571638217/