Supplemental Transition Accounts for Retirement Proposed

New Proposal to Fund Retirement and Delay Social Security Benefits

Supplemental Transition Accounts For Retirement – STARTs 101 New Proposal to Fund Retirement and Delay Social Security Benefits
Let’s face it: Americans are woefully unprepared for retirement. Surveys consistently tell us that far too many workers have insufficient retirement funds or even absolutely nothing saved for retirement at all.

Sadly, these workers will be too dependent on Social Security benefits to have a comfortable retirement.

Many of these workers will claim benefits before their full retirement age (FRA) and receive lower benefits as a result.

Many Claim Benefits at Age 62

In 2013, 42 percent of men and 48 percent of women claimed benefits at the minimum age of 62, reducing their benefits by up to 30 percent.

A joint proposal by researchers at AARP, George Mason University, and the Brookings Institution would address this issue with a new program designed to fill the benefits gap.

Supplemental Transition Accounts for Retirement (STARTs) are designed to cover the transition phase from early retirement to FRA and possibly beyond.

Before Drawing Social Security

Retirees with a START account would have to exhaust this account first before drawing their regular Social Security benefits.

For beneficiaries planning to claim at age 62, START would allow Social Security benefits to grow until they reach FRA (or are at least closer to FRA). This would increase monthly benefits by up to 30 percent.

By waiting later to claim START benefits, you may be able to hold out claiming Social Security benefits past your FRA – adding up to 8 percent extra per year in your benefits between your FRA and age 70.

Where the Money Comes From

Where will the money come from? Just like Social Security, it comes partly from you and partly from your employer, with an added progressive contribution from the government designed to help low-income families.

As proposed, every employee will be required to add 1 percent of earnings to the START program as a payroll deduction.

Employers add another 1 percent to the pool. Employee contributions are post-tax dollars while employer contributions are pre-tax.

Income Percentages

As with Social Security, the percentages refer to income up to the limit subject to Social Security payroll taxes ($127,200 for tax year 2017 and $128,400 in 2018).

The federal government will kick in up to an additional 1 percent of earnings for low-income couples with an adjusted gross income (AGI) below $40,000, single taxpayers with an AGI below $20,000, and head of household filers with an AGI less than $30,000.

The contribution phases out with higher income, disappearing at $50,000 for couples and $25,000 for singles.

Self-Employed Contributions

As with the standard payroll tax, self-employed workers will make both employer and employee contributions – making life even more difficult as an independent contractor.

According to the proposal outline, the average monthly Social Security benefit would rise by 5 percent to 7 percent overall.

Lower-income workers, those most in need of extra funds, would see a 10 percent increase in monthly benefits.

Poverty Reduction

As a result, STARTs are projected to reduce poverty for those age 62 and above by 0.4 percentage points by 2045 and 0.6 percentage points by 2065.

Skeptics point out that this is effectively a parallel program to Social Security with income redistribution thrown in.

If the government can’t manage Social Security efficiently, why should this program be any different?

Divert from 401(k) Plans

Conversely, would START consume money that employees would normally invest in their 401(k) plans, which could produce a higher rate of return?

The START program has an uphill battle, especially if it is rightfully labeled as a mandate.

Don’t expect a START program to help you prepare your retirement – start your own program instead.

Reassess Your Retirement Plan

If you already have a retirement program in place, re-assess it to make sure that you are on track while you still have time.

In short, you should be responsible for your own retirement. Give that responsibility to the government at your own risk.

Regardless of where you plan to retire, the number one factor in ensuring that you can retire on your terms is your 401(k).

This article was provided by our partners at moneytips.com. Photo ©iStockphoto.com/DNY59

If you enjoy reading our blog posts and would like to try your hand at blogging, click here to get started.

Read More

Join our newsletter

If you like Critical Financial, subscribe and get our latest content via email.

Powered by ConvertKit

Share this post:

Recent Posts

Leave a Comment

*

May the 4th Be with You: Star Wars Swag on Amazon

May the 4th Be With You: Star Wars Day Swag

It began as the punniest holiday ever but quickly grew into an earnest (if somewhat random) celebration of the long-running (and still... more →
People count the money to buy a house in future success.

Avoiding Mortgage Scams: Don’t Fall for Unreasonable Promises

If it sounds too good to be true, it probably is. That’s sound advice for almost all aspects of life, including the search for... more →
Eat for free for a whole month via the meal kit companies discounts for new customers.

How To Get a Month of Free Food: 9 Meal Kit Companies Offering Discounts to New Customers

Play your cards right and you might be able to line up a month’s worth of free meals if you were to try out all nine of the meal... more →
Generate extra cashflow -- here are 97 ways.

96 Awesome Ways to Generate Extra Cashflow

Who doesn’t want more money nowadays? We’ve got you covered on that front. Here comes a long list of different ideas on... more →
Valentine's Day gifts that won't destroy your budget

Valentine’s Day Crafts Are Romantic Rescue from Crazy Inflation

Fall for the hype this week and you’re out an average of $143.56 for Valentine’s Day. Crafts and other do-it-yourself tactics... more →

Ultimate Guide to Bitcoin — FREE Ebook!

Have we got something for you: a free ebook about bitcoin! more →
Get a flu vaccine.

Why You Need To Get a Flu Vaccine Right Now

Flu vaccines aren’t just for the elderly  anymore. Here are 25 reasons you should go get vaccinated. more →
Financially successful

Acquire the Trait All Financially Successful People Have

Financially successful people tend to all have a lot of self-discipline. Improving your discipline in one area of your life often spills... more →

What’s the Best Free Recipe App?

The Apple Store and Google Play together offer more digital cookbooks than you probably have room for on your mobile device. So which... more →
New tax law might slow down housing market.

What Will the New Tax Law Do to the Housing Market?

The new tax law will have a profound impact on the housing market, although in ways that go beyond the deductibility of mortgage interest... more →

4 in 5 Households Will Get a Tax Cut in 2018

Four out of five U.S. households will get a tax cut as a result of the legislation that President Donald Trump signed into law today. more →
Will bitcoin reach $100,000?

When Will Bitcoin Reach $100,000?

Bitcoin has accelerated its pace of appreciation in recent months, and if the current levels between $15,000 and $19,000 make you itch... more →
The Dow Jones topped 24,000 -- now what?

The Dow Jones Crossed the 24,000 Threshold. Now What?

Stocks appear to be increasing in volatility, yet the markets closed on Monday, December 4 with the Dow Jones Industrial Average is... more →
Peer mortgage

Should You Get a Peer-to-Peer Mortgage?

If you can’t get approved for a home loan from a bank, you might want to look into applying for a peer-to-peer mortgage. more →
Investment gifting is awesome.

4 Things To Know Before You Donate an Investment

While donations of any kind are appreciated, gifting investments benefits both the giver and the receiver. Here are four key things... more →
Are you wondering: What's the Relationship Between the Stock Market and Federal Debt?

What’s the Relationship Between the Stock Market and Federal Debt?

Wouldn’t it be wonderful if gains in the stock market could actually reduce U.S. government indebtedness? If that were true,... more →
Investing Prowess, self-directed IRA

Have Confidence In Your Investing Prowess Use a Self-Directed IRA

More and more people are taking control of their IRAs and applying their investment knowledge in hopes of a more comfortable retirement.... more →