To strengthen retirement security and reduce long-term reliance on government programs, I propose a reform combining Individual Retirement Accounts (IRAs) with a 401(k)-style Social Security component.
First, introduce two targeted IRA programs: a $5,000 IRA for youth upon reaching adulthood and a $35,000 IRA for the workforce for individuals entering full-time employment. These one-time contributions, invested with tax advantages, would grow over decades, providing a significant financial foundation.
Second, add a 401(k)-type component to Social Security, allowing workers to contribute a portion of their earnings to a personal retirement account, with government-matching contributions for lower-income earners. This hybrid model would provide individuals with greater control over their retirement savings while preserving the safety net of the existing Social Security system.
With an average 6% annual growth rate, a worker participating in this combined system for 20 years could accumulate approximately $140,000, building wealth and financial independence.
This dual approach not only addresses retirement security but also encourages early financial planning and long-term savings. It is a sustainable solution to modernize Social Security while empowering Americans to secure their financial futures.
Cato’s “6.2 Percent Solution” proposes a voluntary personal retirement account funded by a portion of payroll taxes, combining market growth with Social Security’s safety net. Building on this, I suggest adding a $5K IRA for youth, a $35K workforce IRA, and a 401(k)-style Social Security option. This hybrid approach strengthens retirement security and modernizes the system for future generations.
Cato Releases ‘6.2 Percent Solution’ for Social Security | Tax Notes" Cato Releases '6.2 Percent Solution' for Social Security | Tax Notes