Impact of a Citizen’s Dividend on Retirement Income
by John Moser
The American Citizen’s Dividend, as described earlier, effectively expands Social Security to establish a minimum standard of living for all natural-born, resident, adult, American citizens, directing child and immigrant welfare to a condensed public aid system which can take advantage of its vastly diminished size to operate more effectively by accepting a higher relative risk of fraud and other excess costs in exchange for ensuring aid more frequently reaches those in need.
This raises an important concern: What happens to Social Security retirement benefits? A more modest payment covers the bare minimum living expenses, and is smaller than the average Social Security old-age pension. How does this affect retiree income?
We cannot reasonably reduce the total benefit for retirees receiving or expecting to receive Social Security old-age pensions. These individuals will have planned their finances on a known income; reducing that income would greatly harm their economic position. Long-term, we still want to know what impact future retirees will face.
The American Citizen’s Dividend does not replace Social Security with a privatization strategy, as had been discussed around 2005, lowering taxes and expecting each person to divert the difference into their retirement savings; instead, it provides a constant, lifelong income in excess of what many individuals are capable of diverting to savings. In contrast to the privatization strategy, this policy directly provides individuals with additional income which they can divert to savings, and provides low- and no-income individuals with an income to live from.
In transition, the American Citizen’s Dividend targets a balance between cost-savings and benefits retention. We pay the Dividend to retirees and lower Social Security retirement benefits by the amount paid in the Dividend, providing exactly the full benefit those retirees would receive under the current system. All retirees reaching the retirement age within fifteen years of the enactment of the Citizen’s Dividend are grandfathered for life, and receive this benefit until they die. This gives fair warning and a degree of just compensation to everyone else, leaving them over a decade to plan their retirement more thoroughly.
After that, it gets more complex. The below graph shows the retirement income average for an individual retiring in 2013 as under the current system; as during transition, as if the Citizen’s Dividend had just gone into effect; and as under a model in which the American Citizen’s Dividend had been in place since before 1969. The model used the calculated value of the Dividend in 1969, along with the calculated 4.33% yearly inflation.
The last model shows what a modern-day retiree might collect under the Citizen’s Dividend with various amounts of growth if he had saved only every Dividend payment from age 18 to age 62, and then paid himself a 20-year amortization expecting to live to age 82. Individuals who cannot save their Dividend payment obviously need it to survive, which is the whole point: you shouldn’t have to die because you can’t afford to save for retirement.
Financial advisers typically claim between 5% and 8% of growth per year in 401(k) and equivalent retirement plans; I’ve shown a more modest 3.5%, 5%, and 6%. Even the 3.5% brings a monthly retirement income $288 higher than current Social Security retirement benefits. Modern IRA 5-year Certificate of Deposit rates, at 1.45%, fall less than $60 short; no long-term investment plan should use such a low-return investment object in the earliest years, and the first decade of high-growth investments in any standard term-selected 401(k) fund would easily leave a zero-risk investment option ahead of modern Social Security retirement benefits.
One more chart: Let’s look at an individual’s 401(k) deferral at each income level if that individual were to save the entire Dividend as 401(k) retirement savings.
This is a double-whammy: Individuals with less income earn less in Social Security Retirement Benefits, and also need to store much more of their paycheck—which is already small—to save for retirement. The American Citizen’s Dividend corrects both of these problems; and, as current, higher-income individuals not satisfied with their retirement prospects can defer additional income to 401(k), which should more than double their income in retirement.
Rather than cut off Social Security retirement benefits, as proposed in 2005, the American Citizen’s Dividend provides Social Security to all Americans, allowing them to survive unemployment and underemployment, as well as to build strong savings for retirement. Social Security remains in place and continues to provide end-of-life benefits in the form of the Citizen’s Dividend, which should add to the recipient’s savings; reasonably high savings should be possible for all working Americans, as the Dividend provides enough to build a strong retirement fund on its own.