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thought experiment: taxpayer-funded retirement accounts for all newborn citizens

Some random billionaire threw this idea out to “save capitalism”:

each child born in the U.S. would receive $6,750 in a government-funded basket of index funds that could only be tapped at retirement. Assuming 8% returns over 65 years from birth to retirement [that’s a lot of faith in American financial markets over the next 6+ decades], that total would ultimately exceed $1 million, and it would cost the government about $26 billion a year, if the birthrate holds.

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For reference, $100k in 1955 is roughly equivalent to $1 million today, so a million in 2085 will have considerably less buying power.

Regardless of what your thoughts on this idea, let’s think this through.

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There are about 143 million Americans who pay taxes (2017). If we divide that $26B by the number of taxpayers, that gives us about $180. So, for grins, make the median average taxpayer put in $180, the lowest taxpayers put in a buck, and the 1%ers put in like $18k (they can afford it). In return for this investment in their future, each child born after this program becomes a thing owes a year of service to their country between the age of 18 and 30, serving in the military, Peace Corps, a school, a hospital, etc (perhaps you could opt out during this window by returning the funds in your account to the government?).

Social Security survivors benefits are paid to widows, widowers, and dependents of eligible workers. This benefit is particularly important for young families with children.

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The benefit to slowly phasing out Social Security over time (decades) in favor of a individual retirement account is that it’s a real asset, that’s inheritable by heirs, regardless of when the owner of the account dies (if I understand it properly, if you and your spouse die before you’re eligible to draw, but once your kids are no longer dependents, they get nothing, correct?).

Clearly, there would need to be a supplementary system to this as a social safety net for anyone who would would become a citizen after they were born, and would not have such an account, and to continue to support disabled workers who receive SS benefits.

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In 2020, about 65 million Americans will receive over one trillion dollars in Social Security benefits. [26 billion doesn’t sound like so much now...]

By 2035, the number of Americans 65 and older will increase from approximately 56 million today to over 78 million.

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There are currently 2.8 workers for each Social Security beneficiary. By 2035, there will be 2.3 covered workers for each beneficiary.

At this pace, we probably can’t wait around decades for a change to occur... but with fewer and fewer earners per recipient as time passes, something’s clearly going to have to change (I’m also on board with not spending $700+ billion on defense).

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What do you think? Where are the failure points in such a program? A large amount of money in a retirement account doesn’t help someone struggling through poverty in their 50s, clearly... This isn’t UBI, but more like a “birthright” for all citizens born here, that would be paid back in service to the country.

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