reimagining the private retirement system 2016 iome challenge · to assist millennials and...

19
Reimagining the Private Retirement System 2016 iOme Challenge

Upload: others

Post on 06-Jul-2020

0 views

Category:

Documents


0 download

TRANSCRIPT

Page 1: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

ReimaginingthePrivateRetirementSystem

2016iOmeChallenge

Page 2: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

Contents

EXECUTIVESUMMARY.................................................................................................................................1

Introduction.................................................................................................................................................2

Background..................................................................................................................................................2

Education.....................................................................................................................................................4

GenderDifferencesinRetirementPlanning................................................................................................6

LackingTrustinWallStreet..........................................................................................................................7

GovernmentPolicy.......................................................................................................................................8

Implementation..........................................................................................................................................11

PrivateSolution..........................................................................................................................................13

Conclusion..................................................................................................................................................14

References..................................................................................................................................................15

FiguresandTables

Figure1PersonalFinanceEducationintheUnitedStates,2016.................................................................4Figure2DowJonesIndustrialAverage........................................................................................................7Figure3myRACapandContinuedSavingswithaRothIRA........................................................................8Figure4ProgramExpenditureasPercentofTotalGDP.............................................................................10Figure5ProgramExpenditureasPercentofFederalBudget....................................................................10Figure6PersonalSavingsRate...................................................................................................................12

Table1AverageNumberofJobs..................................................................................................................3

Page 3: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

1

EXECUTIVESUMMARY

ToassistMillennialsandsubsequentgenerationssaveforretirement,itisessentialfor

theU.S.federalgovernmenttoadoptseveralpoliciesrelatedto:educationrequirements,the

myRAprogram,SocialSecuritytax,andtheSaver’sCredit.Personalfinanceeducationiscrucial

forstudents’understandingofhandlingtheirfinances;thus,itshouldbemandatoryforallhigh

schoolstudentstotakeacourserelatedtothistopic.Withoutthisbackgroundinmanaging

theirownmoney,furthergovernmentpolicieswouldstruggletoachieveeffectivenessamong

theMillennials.

Uponsuccessfulcompletionoftherelatedfinancialcoursework,individualswouldthen

befurthersupportedbygovernmentpoliciespromotingretirementsavingsandmakingthe

processeasier.TheproposedchangesinthemyRAprogram,SocialSecuritytax,andtheSaver’s

Creditwouldaccomplishjustthat.Ioutlinethespecificgoalsofeachproposedpolicyinthis

paper.Withcoordinationofneweducationrequirementsprovidingtheframework,andpolicies

providingthesupport,Millennialswillhavethenecessarytoolstosuccessfullysavefor

retirement.

Toimplementthesepolicies,theircontentandspecificitiesneedtobestrongly

disseminatedthroughmediachannelssuchaspublicserviceannouncements(PSAs).Thiseffort

shouldbecustomizedfordifferentdemographics,suchasgender,inordertoreachdifferent

audienceswithdissimilarhumancapitalandconcerns.

Alsooutlinedistheimportanceoftheprivatesectorandtheirroleinreimagining

personalretirementsavings.Whilethegovernmentplaysanimportantroleinmaking

retirementsavingeasier,itisfundamentallyuptotheprivatesectortoprovideinnovativeideas

andtoolstofurtherimprovetheefficiencyofgovernmentpolicies.Somethingassimpleasa

smartphoneapplicationcouldbeagamechangerforpersonalretirementsavingsasMillennials

turnawayfrombrickandmortarbanks.

Page 4: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

2

Introduction

TheGreatRecessionwhichlastedfromDecember2007throughJune2009wasthe

worstfinancialcrisesintheUnitedStatessincetheGreatDepression.1;2Itseffectsarestill

presentnowadays.AccordingtoKatzandKrueger(2016),overthelastyearsallofthenet

growthinUSemploymenthasoccurredinalternativeworkarrangements(e.g.temporary

workersandfreelancers),notfulltimejobs.3Thereisnodoubtthatthisfinancialmeltdownhas

shapedtheMillennialGenerationintermsoftheirconfidenceinWallStreetandtheiroverall

handlingoftheirpersonalfinances.Addthistothefactthatyoungadultstendtoswitchfrom

jobtojobdirectlyafterhighschoolorcollegeandthat,historically,personalretirementsavings

hasoccurredthroughtheemployer,itisrealizedthereisapotentialproblem.TheU.S.federal

governmentmustworkbesidetheprivatesectortoreimaginetheprivateretirementsystem

andensureadequatepersonalretirementsavingsforMillennialsandsubsequentgenerations.

Background

Forseveraldecades,employersprovidedtheiremployeeswithretirementaccounts:

pensionsor401(K)s.Pensions,whicharedefinedbenefitaccounts,guaranteeamonthly

amounttobepaidtotheretireefortheremainderoftheirlife.Themonthlyamountisusuallya

calculationbasedontheiraveragesalaryandthetimespentwiththeemployer.Theseplans

tendtobeexpensiveandriskyfortheemployerandareunabletobetransferredifthe

employeechangesemployers.Inanattempttosolvethisproblem,themarketturnedto

401(K)s,knownasdefinedcontributionaccounts,whichallowstheemployeeandemployerto

contributetoaretirementportfolio.Typically,employerswillcontributeasetpercentin

additiontomatchinguptoacertainpercentofwhattheemployeecontributes.Whilethis

approachallowstheemployeetomovetheir401(K)withthem,theyfacethecyclicalnatureof

themarket.Youngadultstendtohavemanydifferentjobsovertheirearlyworkingage.A

reportbytheBureauofLaborStatistics(2015)whichtrackedmultipleagegroupsbetween

Page 5: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

3

1978and2012,foundthatindividualsfromage18to48onaverageheld11.7jobs.Young

adults,thosebetween18to24yearsold,heldanaverage5.5jobs.3Thisholdstrueacross

severaldemographicsasseeninTable1.Additionally,itisimportanttonotethatasage

increases(untilage39),thenumberofjobsheldonaveragedecreases.While401(K)scanbe

rolledoverwithnewemployment,thisprocesscanbelongandcomplicated,notsomething

anyone,especiallyyoungadults,wouldwanttodealwithmultipletimesduringtheirlife.

Table1AverageNumberofJobs

Source:BureauofLaborStatistics(2015).3

Page 6: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

4

TheU.S.governmentcreatedtheSocialSecuritySystemin1935toprovideasafetynet

forseniors.Thesystempreventscloseto14.5millionseniorsfromlivinginpoverty.4Social

Securityisfundedbycurrentworkerspayingin,allowingforretireestowithdraw.Thisworks

fineaslongaswhatis,onaverage,paidinisequivalentormorethanwhatisbeingwithdrawn.

Recently,thereisdoubttheSocialSecuritySystemwillbeinexistenceforgenerationspayingin

sincetheBabyBoomerGenerationrecentlystartedcollectingfromSocialSecurity.Withthe

populationsizeofBabyBoomers,combinedwiththeirincreasedlifespan,itisprojectedthat

theSocialSecuritytrustfundwillbecomeexhaustedaround2037.5WiththefirstMillennialsset

toretireatleasttenyearsaftertheexhaustionofthetrustfund,itisimportantforthiscohort

toincreasepersonalretirementsavingstoprotectthemselvesintheso-calledgoldenyears.

Education

Figure1PersonalFinanceEducationintheUnitedStates,2016.

Source:CouncilforEconomicEducation(2016)6

Page 7: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

5

SeventeenStatesintheU.S.currentlyrequirehighschoolstudentstotakeapersonal

financecourseasshowninFigure1.6Personalfinancecoursesteachstudentshowtowrite

checks,makebudgets,savemoney,payforschool,planforretirement,andothermeasuresto

balancetheirfinances.Studentsshouldgraduatehighschoolwithabasicunderstandingof

personalfinance;therefore,thefederalgovernmentshouldrequiresuchcoursesbetaken.

In-schoolcreditunionsandbankswouldalsoincreasefinancialawarenessamonggrade-

schoolstudents.Thesecreditunionsandbankssetupanactualbranchinsideelementary

throughhighschoolstoencouragefinancialliteracyandgoodsavinghabitsfromayoungage.

Parent(s)wouldbelistedasthecustodian(s)fortheirstudent’saccount.Toexposestudentsto

thedifferentfinancialservicescreditunionsandbanksprovide,athree-stepexposureprocess

couldbefollowed:

ElementarySchool:Savingsaccountswithwithdrawalsavailable.MiddleSchool:Savingsandwithdrawswiththeadditiontosmall-shorttermloans.

(example:upto$100,byparentconsent)HighSchool:Savings,withdrawals,small-shorttermloans(example:upto$500,by

parentconsent),withtheadditiontoCD’sandbasicretirementsavingsaccounts.

Thesefinancialsystemsalreadyexistinsomeschoolstoday,thoughnotprovidingasin

depthservices.Whilecreditunionsandbankswouldnotdirectlyprofitoffofthesestudent

branches,thissystemprovidesawaytogrowpublicrelationsandmarketing.Someofthe

currentcreditunionsandbanksprovideastipendandcollegescholarshipsforstudent

employees.7Itwouldbeagreatopportunityforfinancialserviceprovidersandstudentsalikeif

in-schoolcreditunionsandbanksfoundtheirwayintoeveryschoolsystemnationwide.

Itiskeyforpersonalfinanceeducationtotakeplaceingradeschool,preparingstudents

beforetheyarefacedwithloansforcollegeexpensesandcreditcardoffers.Mandatingthis

educationtotakeplacebeforehighschoolgraduation,thegovernmentcanmakecertainthat

virtuallyallyoungindividualsarereceivingabackgroundinhandlingfinances.Thisrequirement

inadditiontoin-schoolcreditunionsandbackswillprovideentiregenerationsaframeworkin

personalfinance,includingretirementplanning.

Page 8: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

6

GenderDifferencesinRetirementPlanning

AspreviouslyshowninTable1,onaveragetherearenomeaningfuldifferencesinthe

numberofjobsheldbymenandwomenwhenassessingitattheaggregatelevel.However,

QuickandMoen(1998)arguedthat,relativelyspeaking,fewerwomenspendasignificant

amountoftimeplanningforretirementthanmen(53%ofmenvs.37%ofwomen).8According

totheseauthors,whencomparedtomen,womenarelesslikelytohaveafuturetime

perspective(FTP)–thetendencytolooktowardthefutureratherthanfocusingonthepresent

orthepast.Ontheotherhand,thisbehaviorcouldinpartbedrivenbythehistoricalevidence

thatwomentendtohavelowerdisposableincomes,thusalowerabilitytosavemeaningful

amountsofmoney(USCensusBureau,2000).9Itisnoteworthythatthisbehaviorinwomenis

notonlyapplicabletoretirementbutalsotoothertypesoffinancialplanning(Glassand

Kilpatrick,1998;SimmonsandBetschild,2001).8;10

Notonlydowomentendtohavelowerdisposableincomewhencomparedtomen,they

oftentimesfacelowerpayforthesamejob.AccordingtotheWhiteHouse,in2014,women

earned79centscomparedtoadollarformen.ThispaygapisevenworseforAfrican-American

andLatinawomen,earning64percentand56percentofwhatamanmakes,respectively.11

Thispaygapwillleavewomenwithpotentiallyhundredsofthousandsofdollarsormorelost

overthecourseoftheirworkinglives,someofwhichcouldhavebeencontributedtowards

retirement.

Morerecently,Jacobs-Lawsonetal.(2004)corroboratethefindingsofpreviousstudies

ingenderdifferenceswithintherealmofplanningforretirementandrecommendthat

educationalandtrainingpoliciesaimedatboostingthisandothertypesoffinancialdecisions

needtobetailoreddifferentlyamonggendersbecauseaone-size-fits-allapproachhasproven

tobeineffective.12Besidestailoringeducationalandtrainingpolicies,moreworkmustbedone

toclosethepaygap.TheUnitedStatesshouldprovideitsdaughtersthesameopportunitiesas

itssons;thisstartswithequalpayforequalworkandskills.

Page 9: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

7

LackingTrustinWallStreet

ManyMillennialslacktrustinWallStreet;asurveybyGoldmanSachs(2015)foundthat

only18percentofMillennialsfoundthestockmarkettobethebestwaytosaveforthe

future.13TheDowJonesIndustrialAveragelostoverhalfofitsvalueduetotheGreatRecessioncausedlargelybythehousingbubble.OnOctober9,2007,theindexread14,164.53atclose.

Thatnumberhaddecreasedby7,361.72toanewindexof6,547.05onMarch9,2009.14

Historically,thestockmarket,theDowJonesIndustrialAverageincluded,increasesovertimeat

ahigherratethaninflationortreasurybills.Unfortunately,thereareswingsinthemarket

whichbringsrisktothoseneedingtowithdrawduringtimesofeconomicturmoil,whenstock

pricesarelowasseeninFigure2.

Figure2DowJonesIndustrialAverage.

Source:DowJonesApril18,2006toApril19,2016.FRED(2016)15

IndividualslackingtrustinWallStreetmayprefertosetuparetirementaccountin

whichtheirsavingsareexposedtolessrisk,regardlessofthehealthoftheeconomy.Such

accountsalreadyexist,including:CD’s,moneymarketaccounts,savingsaccounts,andTreasury

notesandbonds.Whiletheseaccountsdonotcarrythesamepotentialearnings(andlosses)as

thoseinstocks,theyhavelowervolatility,somethingofvaluetorisk-averseindividuals.

Page 10: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

8

GovernmentPolicy

TheFederalGovernmentshouldfocusonthreemajorpolicychangesinadditionto

mandatorypersonalfinancecoursestaughtingradeschool.Thesepolicieswillinclude:changes

tothemyRAretirementprogram,theSocialSecuritytax,andtheSaversTaxCredit.

MyRAisaU.S.Treasurybackedretirementprogram,whicheliminatestheburdenofa

largeopeningdepositandfeesofanormalIRA/RothIRA.SinceU.S.Treasurybondsbackthis

program,thereisvirtuallynoriskinvolved.Thismakesiteasyforanindividualtostartsmall

andtoseetheirmoneygrowwithoutthecyclicalnatureofthestockmarket.Anotherbenefitis

thattherearenofeeswithmyRA.Inadvertisingfortheprogram,myRAillustratesthe

guaranteedgrowthundertheprogramwithmorevolatilityunderaRothIRAaccount.

Currently,anindividualcanonlysaveupto$15,000intheirmyRAbeforemovingittoaprivate-

sectorRothIRA.16Thiscapshouldberemovedallowingpeopletocontinuetosavethrough

myRAwithouttheneedtotransferaftertheyreach$15,000insavings.Similarto401(K)s,

employerscanstillcontributetotheiremployees’myRAaccounts.

Figure3myRACapandContinuedSavingswithaRothIRA

Source:myRA(2016).16

Page 11: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

9

For2016,theSocialSecuritytaxisassessedonanindividual’sfirst$118,500ofearned

income.17Anindividualwhomakesoverthisthreshold,paysthesameamountofSocial

Securitytaxasanindividualwhomakesexactly$118,500.Itistimetoremovethetaxcap,

taxingallearnedincomeatvaryingrates.Earningsuptoandincluding$250,000wouldbetaxed

atthecurrentrate:12.4percent(6.2percentemployee,6.2percentemployer).Earningsabove

$250,000toonemilliondollars,thetaxratewouldbe4.2percent,each.Earningsaboveone

milliondollarswouldbetaxedat2.2percent,each.

Example:

Gavinhastotalearningsof$12.5millionayear.$250,000wouldbetaxedat12.4percent(6.2percentemployee,6.2percentemployer).$749,999wouldbetaxedatatotalof8.4percent(4.2percentemployee,4.2percentemployer).Lastly,hisremainingearnings,$11.5million,wouldbetaxedatatotalof4.4percent(2.2percentemployee,2.2percentemployer).

TheadditionalrevenueraisedbythisnewsystemcouldhelpfundamyRAprogramfor

graduatinghighschoolstudents.Uponcompetitionofatleastonepersonalfinancecourse,a

myRAaccountwouldbesetupandseededforeachgraduatinghighschoolstudent.

AccordingtotheU.S.DepartmentofEducation,3.3millionhighschoolstudentsare

expectedtograduateinthe2015-16schoolyear.18IftheFederalGovernmentfundseach

student’smyRAaccount$500,thetotalexpenditurewouldequate$1.65billion–lessthan

1/100thofapercentofthetotal2014GDPoftheUnitedStatesandlessthan1/20thofa

percentofthetotal2015U.S.FederalBudget.19;20

1.65billion/17.419trillion≈0.009percentoftotalU.S.GDP

1.65billion/3.8trillion≈0.043percentoftotalU.S.FederalBudget

Page 12: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

10

Figure4ProgramExpenditureasPercentofTotalGDP

Source:TheWorldBank.(2016)19

Figure5ProgramExpenditureasPercentofFederalBudget

Source:WhiteHouse(2015)20

Bycombiningpersonalfinanceeducationwithanactualseededretirementaccount,thefederal

governmentwouldbepavingthewayforretirementsuccessofyoungadults.

Underthetaxlaw,individualsareabletoapply$2,000ofretirementsavingstowardsa

RetirementSavingsContributionsCredit(Saver’sCredit)whenfilingtheirtaxes.Thisnumber

shouldincreaseto$5,500ayear,thetotalcontributionlimitforIRAsandRothIRAs.Thiswill

increasetheincentivetosavemore,astheclaimableamountontaxeswouldalsoincrease.

Millennialswouldadditionallybenefitfromthiscreditiftheywereeligibletoclaimitwhilestill

attendingschoolfull-time,somethingnotallowedtoday.21;22Thereneedstobeacareful

Page 13: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

11

balancebetweenaugmentingthepersonalsavingsratewhilestillpromotinginvestmentand

economicgrowth.

Theabovepolicieswouldprovidesupporttotheeducationmandateframework.By

eliminatingthecaponmyRAandprovidingaseededmyRAaccounttograduatingseniorswith

completedcoursework,youngadultswillbeinspiredbywatchingtheirmoneygrow.This

inspirationmatchedwithexpandingtheSaver’sCreditwillresultinmoreindividualssavingand

morefrequentsavingtowardsretirement.

Implementation

Tobeabletoimplementthesepolicies,thegovernmentshouldrunanaggressivepublic

serviceannouncement(PSA)campaigntoinformthemassesaboutwhowillbenefitfromsuch

changes.PolicymakersshouldbepreparedforbacklashfromWallStreet,fromraisingtaxes,

andfrompromoting,toanextent,savinginsteadofdebt-drivenconsumption.

MyRAwasselectedduetotheminimalriskassociatedwithit.Backedbygovernment

treasuries,myRAaccountstheoreticallywillbedrawableaslongastheUnitedStates

governmentexists.Sincethegovernmentispromotingthisformofzero-riskretirement

planning,WallStreetwouldmostlikelylobbyagainstsuchpolicy.Retirementplannersmayalso

voiceconcernasmakingretirementplanningeasierwiththesepoliciescouldlowerthedemand

fortheprofessionalongwiththeloweringofitsearnings.Essentially,theU.S.government,by

makingtheprocesstosaveforretirementeasier,iscuttingoutthe‘middleman’whoprofits

fromfeesassociatedwithplanningandfrequentrecklessspeculationandexploitationof

people’signorance.

Thosemakingover$118,500ayear(currenttaxcapforSocialSecurity),mayalsoreject

policywhichwouldincreasetheirtaxburden.Increasingtaxesisusuallypoliticalsuicide;

however,withincreasedpublicawareness,especiallytothoseinthelowermiddleclass,

increasingtaxesonwealthierAmericanshouldbefoundjustified.Itisonlyequitablefor

Page 14: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

12

wealthyindividualstopaySocialSecuritytaxesontheirtotalearningsifthosemakingunder

$118,500ayeardotoo.

Byincreasingtheincentivetosavewithtaxcreditpolicies,thecurrenteconomymaybe

worseoff.Thepersonalsavingsrateisadouble-edgedsword–itisgoodforindividuals’

retirement,butitalsomeanslessconsumptionistakingplacecurrently.Duringeconomic

downturns,suchastheGreatRecession,thepersonalsavingsrateincreasesduetomarket

uncertaintyandoverallfearofcurrentmarketconditions;thiscanbeseeninFigure4.By

promotingsavingwithalargerSaver’sCredit,thegovernmentwouldbepromotingsavingsand

mostlikelyreducingthedeficitinthebalanceofpayments,aswellassmoothingthenational

debt.Itiskeytorememberthatindividualssavingforretirementwilleventuallyspendit;

therefore,consumptionmaydecreaseinthepresentbutwillbemadeupinthefuture.

Figure6PersonalSavingsRate

Source:FRED(2016).23

Page 15: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

13

PrivateSolution

Thefederalgovernmentcannotbeexpectedtoreimaginetheprivateretirementsystem

alone;thesolutionmustcomefromprivatesector.

Millennialsareconnectedtotheworldunlikeanygenerationbeforethemwiththeuse

ofmobiletechnology.Theyareabletocheckthenews,surftheweb,paybills,transfermoney,

andhavemuchmoreattheirfiguretipsthroughsmartphones,smartwatches,andtablets.

SystemssuchasApplePayandAndroidPay,allowuserstopayinstoreswiththeirmobile

deviseswithouteverreachingintotheirpursesorwallets.

Anapp,shortforapplication,shouldbecreatedforthesemobiledevicestohelp

millennialsvisualizeandtosaveforretirement.Usersofthisappwouldbeabletolinkbank

accounts,creditcards,andtheirmyRAaccounttotheapp.Then,workingmuchlikeApplePay

orAndroidPay,userswouldsimplyusetheirsmartphoneorsmartwatchtopayfor

transactions.Whenprocessingeachtransaction,userswouldbepromptedwithascreen

inquiringaboutapercent(i.e.thedesiredsavingrate)beingaddedtothetransactionwhich

wouldbedepositedintothemyRAaccount.

Example–

Taylorbuys$23.45worthofgoodsatagrocerystore.Shepaysforthetransactionusingthenewmobileappandselectsthat5percentbeaddedontohertotalforretirementfunding.Taylorwouldbecharged$24.62;$23.45forthegoodsand$1.17tobedepositedintohermyRAaccount.

Overtimethesesmallone-timedepositsinadditiontoroutinedepositswouldadduptoa

substantialamountinretirementsavings.

Inadditiontomakingcontributionseasier,theappcouldprovideinformationonthe

healthofanindividual’sretirementaccountbasedonretirementcalculations.Theuserwould

bepromptedtoentertheirretirementgoalssuchasageofretirement,averageexpenditures

duringretirement,andlifeexpectancy.Theappwouldthentakethisdataandprovideusers

withhowwelltheyaredoingtoachievetheirgoals.Itisexpectedthat,bylinkingretirement

Page 16: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

14

savingstospendinghabitsratherthanincome,thismobileappmayprovidebetterestimates

forretirementgoalsandimproveanindividual’sfinancialdiscipline.

AsurveybyScratch(2013)foundthatMillennialsoverwhelminglyfeltnegativelyof

banks.Theresultsshowthat72percentofMillennialswouldrathergotothedentistthatlisten

tobanks,and73percentsaidtheywouldbemoreopentoreceivingfinancialservicesfrom

Google,Amazon,Apple,PayPal,orSquarethanfromanationwidebank.24Combiningthese

resultswiththenewappprovidesevidenceofitspotentialsuccessamongMillennials.

Conclusion

TheU.S.federalgovernmentshouldimplementaseriesofpoliciestohelpMillennials

andfuturegenerationbettersaveforretirement.ByeliminatingthecaponthemyRAprogram,

individualswillbeabletosave,withoutlimit,intoanessentiallyzeroriskaccountwithnofees.

IndividualsshouldpaySocialSecuritytaxesontheirfullearningswithnocapinplace,though

basedonaregressivetaxrate,inordertofundanewretirementinitiativeforgraduatinghigh

schoolseniorsandpromotethesustainabilityoftheUSretirementsystem.Changestothe

Saver’sCreditwouldallowworkingindividualstoreceivegreatertaxbreaksforsavingmoney

andwouldallowfull-timestudentstotakeadvantageofit.Toreinforcethesethreepolicies,the

federalgovernmentshouldmandatethatallpublicschoolstudentsberequiredtotakeatleast

onepersonalfinancecoursebeforegraduationofhighschool.Abasicunderstandingof

personalfinancewillallowthesestudentstotakefulladvantageoftheoutlinedpolicies.

Thegovernmentshouldnotbeexpectedtoreimagetheprivateretirementsystem

alone.Asitisaprivateissue,itisessentialforthemarkettoplayalargeroleindesigningnew

toolsforyoungergenerations.Entrepreneursshouldtakefulladvantageofmobiletechnology

toassistyoungadultsinsavingforretirement.Bylinkingretirementsavingstospendinghabits,

thesenewtoolsmayprovideabettermeasureofexactlyhowmuchsavingswillbeneededin

retirementyears;thus,makingMillennialsconfidentoftheirfinancialsecurity.

Page 17: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

15

References

1CouncilofEconomicAdvisers.(2010).TreatmentandPrevention:EndingtheGreatRecession

andEnsuringthatItDoesn’tHappenAgain.Retrievedfromhttps://www.whitehouse.gov

/administration/eop/cea/speeches-testimony/treatment_and_prevention

2BureauofLaborStatistics.(2012).TheRecessionof2007-2009.Retrievedfrom

http://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf

3Katz,L.F.&Krueger,A.B.(2016).TheRiseandNatureofAlternativeWorkArrangementsin

theUnitedStates,1995-2015.Workingpaperavailableat:

http://scholar.harvard.edu/files/lkatz/files/katz_krueger_cws_v3.pdf?m=1459369766

4BureauofLaborStatistics.(2015).NumberofJobsHeld,LaborMarketActivity,andEarnings

GrowthAmongtheYoungestBabyBoomers:ResultsfromaLongitudinalSurvey.Retrieved

fromhttp://www.bls.gov/news.release/pdf/nlsoy.pdf

4NationalAcademyofSocialInsurance.TheRoleofBenefitsinIncomeandPoverty.Retrieved

fromhttps://www.nasi.org/learn/socialsecurity/benefits-role

5SocialSecurityAdministration.(2010).TheFutureFinancialStatusoftheSocialSecurity

Program.Retrievedfromhttps://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html

6CouncilforEconomicEducation.(2016).EconomicandPersonalFinanceEducation

inOurNation’sSchools.Retrievedfromhttp://www.councilforeconed.org/wp/wp-

content/uploads/2014/02/2014-Survey-of-the-States.pdf.

7NPR.(2014).AsBanksOpeninSchools,AChanceforStudentstoLearntoSave.Retrieved

fromhttp://www.npr.org/2014/06/04/318489887/as-banks-open-in-schools-a-chance-for-

students-to-learn-to-save

Page 18: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

16

8Glass,J.C.,&Kilpatrick,B.B.(1998).Financialplanningforretirement:Animperativeforbaby

boomerwomen.EducationalGerontology,24,595-617.

9USCensusBureau(2000).TablePINC-05.Retrievedfromhttp://

ferret.bls.census.gov/macro/031999/perinc/new05_000.htm

10Simmons,B.A.,&Betschild,M.J.(2001).Women’sretirement,workandlifepaths:Changes,

disruptions,anddiscontinuities.JournalofWomenandAging,13,53-70

11WhiteHouse.(2016).YourRighttoEqualPay.Retrievedfrom

https://www.whitehouse.gov/issues/equal-pay

12Jacobs-Lawson,J.M.,Hershey,D.A.,&Neukan,K.A.(2004).GenderDifferencesinFactors

thatInfluenceTimeSpentPlanningforRetirement.JournalofWomen&Aging16(3-4),55-69.

13Bost,C.(2015).MillennialsDon’tTrustStockMarket,GoldmanSachsPollShows.Retrieved

fromhttp://www.bloomberg.com/news/articles/2015-06-24/millennials-don-t-trust-the-\\

stock-market-says-goldman-sachs-poll

14TheWallStreetJournal.(2016).DowJonesIndustrialAverage.Retrievedfrom

http://quotes.wsj.com/index/DJIA/historical-prices

15FRED.(2016).DowJonesIndustrialAverage.Retrievedfrom

https://research.stlouisfed.org/fred2/series/DJIA

16MyRA.(2016).HowitWorks.RetrievedMarch24,2016,fromhttps://myra.gov

17SocialSecurityAdministration.(2016).BenefitsPlanner:MaximumTaxable

Earnings(1937–2016).RetrievedApril1,2016,fromhttps://www.ssa.gov/

planners/maxtax.html

Page 19: Reimagining the Private Retirement System 2016 iOme Challenge · To assist Millennials and subsequent generations save for retirement, it is essential for the U.S. federal government

17

18NationalCenterforEducationStatistics.(2016).FastFacts.RetrievedMarch30,

2016,fromhttp://nces.ed.gov/fastfacts/display.asp?id=372

19TheWorldBank.(2016).GDPatmarketprices(currentUS$).RetrievedApril1,

2016,fromhttp://data.worldbank.org/indicator/NY.GDP.MKTP.CD

20WhiteHouse.(2015).FiscalYear2015BudgetoftheU.S.Government.Retrieved

April2,2016,fromhttps://www.whitehouse.gov/sites/default/files/omb/budget

/fy2015/assets/budget.pdf

21IRS.(2016).RetirementSavingsContributionsCredit(Saver’sCredit).Retrieved

April2,2016,fromhttps://www.irs.gov/Retirement-Plans/Plan-Participant,-

Employee/Retirement-Savings-Contributions-Savers-Credit

22IRS.(2016).RetirementTopics–IRAContributionLimits.RetrievedApril2,2016,

fromhttps://www.irs.gov/Retirement-Plans/Plan-Participant,Employee

/Retirement-Topics-IRA-Contribution-Limits

23FRED.(2016).PersonalSavingsRate.Retrievedfrom

https://research.stlouisfed.org/fred2/series/PSAVERT

24Scratch.(2013).TheMillennialDisruptionIndex.Retrievedfrom

http://www.millennialdisruptionindex.com/wp-content/uploads/2014/02/MDI_Final.pdf