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This Juneteeth here’s a simple, fair and cheap policy suggestion that could transform the retirement picture for Black Americans—and for everyone else.
Funding a $5,000 a stock market account for every newborn American baby—with taxpayers’ dollars—would be enough to give each American an expected $10,000 a year in extra retirement income once they turn 65.
That would increase the median retirement income for all Americans by about a quarter and for Black Americans by a third.
And it would double, or better, the retirement income of the poorest one fifth of all U.S. retirees.
What’s in it for taxpayers? Simple. It would benefit all of us.
And the cost would be bupkis. Less than $20 billion a year—a rounding error in federal finances and barely a third of the amount of waste that is actually discovered and eliminated from federal spending each year.
The magic ingredient? Compounding. Stocks generate average returns of 5% a year above inflation (and maybe more—that’s the subject of debate). So $5,000 in U.S. stocks over 65 years should end up worth around $120,000—in real, inflation-adjusted dollars.
At current prices, that can buy an immediate annuity that will pay a lifetime income of around $8,600 a year. But about a fifth of Americans don’t live to 65, alas. Their accounts, plowed back into the general fund, would boost the income for survivors to $10,700. (Or, conceivably, could be used to help finance the next generation of accounts.)
What would that mean? According to the Congressional Research Service, as of a few years ago the median retiree had a household income of $37,000. This extra income would boost that by about a quarter. The median Black retiree had a household income of just $28,000 (which, to give you an illustration, was just half the median white retirement income). So this policy would boost their annual income by about a third.
As there are about 3.7 million new American babies each year, the cost would be about $18 billion and change.
To put this in context, it’s about a third of the government waste that’s been found and eliminated in each of the past couple of years. It’s also about 2% of the cost of Medicare per year.
The net cost to taxpayers would be less. The policy would cut the welfare costs of supporting the poorest retirees. It would move more retirees into the middle class, raising taxes. And it would stimulate economic growth, by investing more money in U.S. stocks.
Oh, and it would also give more Americans a stake in the fortunes of the stock market, and of U.S. business. We’d be making millions of baby capitalists: Literally.
As few Americans of any ethnic background receive a significant inheritance, it would also help level the playing field a little with those who do.
The ideas of individual retirement accounts and “baby bonds” aren’t new. Various versions have been floated by people as diverse as George W. Bush, Hillary Clinton, New Jersey Sen. Cory Booker, and financial adviser Ric Edelman.
But this policy would be different because it would be financed by taxpayers yet invested in the stock market. Using a simple total U.S. stock market index fund, such as Vanguard Total U.S. Stock Market (
VTSAX,
or
VTI,
) would avoid any risks of corruption, favoritism or politicization.
A recent survey found that 22% of Americans would vote for a party to the left of the Democrats or the right of the Republicans. Such people may find plenty to dislike about a policy that could be, for example, accused of benefiting Black people too much, white people too much, of being too socialist, or of too capitalist. That would leave the policy with few natural supporters—other than the other 78% of us.
