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Automatic Saving and Re-distribution schemes

January 19, 2016

Automatic Saving and Re-distribution schemes by Lushfun

Was caught somewhat by this article and wondered. What happens when something like this goes state by state and eventually you would not be able to opt out. Theoretically social security that gets deducted from someone’s salary is the ‘pension’ of their sunset years but here you have yet another ‘save for rainy day’ via diversion from your purchasing power of today.

 

“More than half of the states have legislation that could implement (five states), study (18), or has considered (four) retirement savings plans, according to the Georgetown University Center for Retirement Initiatives.” (link 1)

Pensions coming back for the public at large? At their own expense no less, it seems. Where would these funds and fund flows go? Wherever they go the fees and assets they purchase are bound to be overvalued and in a degree not good long term since they would be predicated on ever larger flows once the initial funds are committed to transferring purchasing power into those “assets”.

Imagine all these asset retirement plans be invested into safe bond type instruments only to lock them up for the next decades. Then a couple of years down the road we enjoy large bouts of inflation where your purchasing power in said retirement accounts gets not just systematically destroyed but continues to be transferred into instruments that at best will carry a percentage of their former purchasing power. Automatic IRAs are slowly being pushed through in one form or another.

 

Side-effects of things like this will create a somewhat peculiar transition period. When the economy at large will have more discretionary income transferred out of personal control we may see certain changes in various asset or product prices drop, and perhaps more use of credit to make up the difference. But considering that the consumer is tapped out in the credit arena, this will give that necessary push for deflation to work its’ magic. On the other hand since most states have budget problems they may mandate purchases of their bonds by these things and fill them up to the brim by sort of taxing current savings of their own populations in aggregate through lower returns and essentially making the likelihood of horrible outcomes for both the state and people within it. Illinois comes to mind.

Whenever someone tries to legislate control over a flow of funds it never quiet reaches the intended target of what they promised. Theoretically it looks like a good idea but the amount of questions and portability (what if you leave the country? or move to a different state? what if you want to take the funds out?) will only rise. Problems of wanting to grab at how these things are distributed and what is “fair” will make these things worse and worse from a personal point of view. I just see it as a second social security tax where the benefits are never guaranteed but the withholding is, and quiet effectively you are simply getting paid less currently for the imaginary pot of crap at the end of the rainbow.

 

 

Be cautious dear reader.

1) http://calpensions.com/2016/01/18/state-plan-for-automatic-ira-may-surface-soon/

2) http://www.brookings.edu/research/papers/2009/07/automatic-ira-iwry

3) http://www.nytimes.com/2015/01/06/upshot/illinois-introduces-automatic-retirement-savings-program-a-first-for-the-nation.html?_r=0

 

 

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