The “R” word often gives people sleepless nights. The mere thought of not working from 9 to 5 and getting a six-figure regular income can scare a workaholic to death.
That’s why most people start saving from an early age, often even sacrificing their temptations so that they can enjoy a comfortable retired life. But things aren’t so simple for some.
Sometimes, the family’s recurring needs and a limited income source can restrict a person’s ability to save consistently, which can result in an inadequate retirement fund. According to Trump administration’s economic advisor Kevin Hassett, a large chunk of U.S. individuals lack adequate retirement savings, and the reason is that a majority of households own less than 2% of U.S. wealth.
Hassett suggests the Thrift Savings Plans (TSP) similar to the Federal employees’ TSP for such individuals. Hassett says the plan can prove to be a wealth-building vehicle for the lower-middle-class segment that often struggles to make ends meet. Let’s try to understand if Hassett’s statement stands true.
First things first – What is TSP?
A TSP is a defined contribution retirement plan for U.S. government employees and military personnel. It’s similar to the private sector employees’ 401(k) plan that allows them to invest their money into numerous funds.
Hassett regards TSP as the best policy offered by the Federal government. He says that if the scheme is made available to the common person, it can immensely help in stabilizing society.
How can TSP offer retirement security to everyone?
The TSP already has 6 million participants, among which 3 million are still working individuals. Hassett and Teresa Ghilarducci, a retirement expert and economist at The New School, propose enrolling everybody under the TSP.
They estimate that if an average household enrolls in a TSP for 40 years, they can save approximately $138,000 to $610,000, excluding fees and taxes. This estimate, of course, will vary depending on the rate of ROI and the government match.
Hassett and Ghilarducci’s model estimates the average annual returns to be between 3 and 7 percent. Their model states that if the Federal government matches contributions up to 3% a year, it would cost them around $60 billion. However, their yearly expenses would hike up to $100 billion if they calculated contributions at 5% a year.
Further, Hassett suggests that both Democrats and Republicans should support this plan because it will save millions from poverty. He said that when everyone gets an equal opportunity of earning money, they’d naturally be happier.
Wrapping it up
Not just America, several other economies in the world suffer from the uneven distribution of wealth among society. And if the government doesn’t take adequate actions, the wealth gap will only increase with time. As such, the people in power should find ways to promote equality and a healthy earning environment for everyone.