Big Solutions: Retirement Freedom in America

In a column for the Atlanta Journal-Constitution, Kyle Wingfield comments on recent news about household debt in America. Quoting the USA Today, Wingfield notes that:

“One out of five families owes more on credit cards, medical bills, student loans and other unsecured debt than they have in savings …” “[T]he number of families surveyed at the end of 2011 that have no savings at all increased to 23.4 percent, compared with 18.5 percent in 2009.” “Among homeowners, 1.7 percent said that they expect to fall behind on their mortgage payments in the near future … slightly less than in 2009, when 1.9 percent expected to run into mortgage problems.” “Sixty percent of workers say that the value of their savings and investments is less than $25,000 … retirement confidence is at historically low levels.” “[N]early half of families say they have no debt at all from credit cards and other unsecured loans, the same percentage as in 2009 …. Unfortunately, the number of families who are underwater in debt has risen.” “Now, 10 percent of families owe more than $30,000 in unsecured debt, up from 8.5 percent in 2009.”

Wingfield then makes a good point about the election in November:

The stats won’t matter because people pay attention to stats, but rather because they tell a story of a large number of Americans for whom things haven’t gotten more secure in the past three years. For some of them, things have gotten shakier. … There’s a reason you hear Mitt Romney harping on the economy, while Democrats try to change the subject. If the families represented above turn out at the polls in November, this is the topic they’re going to be most interested in — and I find it hard to believe they’ll think the current trajectory is the right one for them.

He is right, of course. But there is a deeper debt problem here, a problem that is all too often overlooked in discussions about household finances. This debt problem is inflicted on us by government.

The federal government has promised virtually every American basic retirement security. As even the modestly observant citizen knows, the federal government is having more and more problems keeping this promise. Social Security is inherently unsustainable, as is Medicare, by the way. By paying taxes into these systems, without any realistic chance of getting anything back, younger Americans are going into debt to themselves, but not by their own fault. They are being forced to forfeit a large part of their own retirement savings by paying FICA taxes that they otherwise could use to build their own retirement security.

The debt that we have accrued as a result of government is ultimately the product of the rosy dream that welfare statists have of turning America into a second Europe. As is evident from the daily news flooding us from Europe, that dream is a nightmare that we want to escape at all cost.

And escape it we can. An obvious way to do it is to get government out of our personal finances. Let’s do a little experiment to show what this means.

Suppose a young college graduate starts working at the age of 22. He makes $30,000 a year, on which he pays 15.3 percent in FICA taxes. Assume, now, that over his lifetime he is out of work for a total of three years for various reasons, including  furthering his education. Let’s also assume that he gets a few promotions and makes one or two career leaps by changing employer. All in all this puts him on a lifetime income trajectory where his annual earnings increase by five percent per year, on average.

Let’s allow this person keep his FICA taxes isntead of sending them to goverment, and that he instead puts them in a private long-term savings account. This would easily allow him to build his own retirement security out of this money alone. Assuming an investment with an eight-percent annual growth, coming from dividends, interest and capital gains, this single-income earner would have $2.5 million in the bank at the age of 65. This is, again, just from the money is now paying as FICA taxes. If he also sets aside another three percent of his net-FICA earnings he would add close to $500,000 to his retirement account.

A two-income family starting out with two jobs paying $30,000 right out of college would, under these assumptions, retire with a good $6 million in their retirement account. In addition, they would have a house that they have paid off, IRA’s and additional savings. With a little bit of extra commitment, good planning and some spending discipline, our couple should easily be able to build a $10 million retirement fund. This from starting at a modest $30K today, having a total of six years to spend home with kids or in graduate school, and not making any extraordinary career leaps.

I can already hear the “THAT’S IMPOSSIBLE” cries from Europeanized East Coasters. And of course – so long as we believe that this is indeed impossible, it is going to remain impossible. But America did not solve its big problems by thinking that everything that no one else has tried is impossible.

America did not solve her big problems by applying small solutions. It is time to return to the Big Solutions America of our Founders; the Big Solutions America that built the skyscraper, the assembly line, the power grid; the Big Solutions America where private companies built railroads and invented mail order retail.

While Europe is sinking under the burden of its self-imposed welfare state, hunkering down under self-inflicted austerity, America still has a chance to return to prosperity and self determination. That choice includes getting government out of our personal finances. It includes returning control over our own money – to us. It includes allowing people to care for their own families, their loved ones and their communities without the involvement of heavy-handed bureaucrats. And it includes being allowed to control your own destiny without having to surrender large portions of your hard-earned money to the government. 

The election in 2012 offers a distinct choice between two very clear visions of America: another Europe, or another century of freedom and prosperity. Take your pick.