Social Security cannot afford to pay all of the benefits it has promised. Beginning in 2017, it will run cash deficits that get bigger every year.
Recently, CBO released its budget analysis of HR 1041, the “Social Security Kidsave Accounts Act.” The bill, a version of which has been introduced in both chambers, would establish a $2000 “Kidsave” account for every child born in 2006 and thereafter. The money would be invested in the Thrift Savings Plan that federal employees can benefit from, and would have a 60% stock/40% bond default investment allocation. At age 30, the government would recoup its initial $2000 down payment, making the bill revenue-neutral over the very long-run. Even with these limitations, Kidsave accounts are a powerful testament to the force of compound interest. A child born in 2006 and participating in the default options within the Kidsave program would have over $150,000 after inflation at age 67. Just imagine if younger workers could benefit from what Albert Einstein called “the most powerful force in the universe”—compound interest.
The system has a problem, and we need to fix it. Personal accounts are the solution.
“Kidsave”Accounts Demonstrate Power of Compound Interest
Source: Congressional Budget Office