Retirement continues to be a tricky issue. With the cost of high employment loans, caregiving costs, and low wages, saving for one’s retirement ends up being on the backburner. Let us look at baby bonds and how it can help in achieving a seamless retirement.
Imagine a world where a worker is finally retiring. You have not been able to save much for her retirement fund because of the cost of your student debt, your caregiving responsibilities, and your average income. Nevertheless, you is still able to enjoy her retirement freely! No, this is not because you have high premiums on Social Security (though that can be an avenue for funds during retirement). This is because of baby bonds – or an interest plan her parents had invested for your back when you were a newborn.
All about Baby Bonds
Baby Bonds, defined
Baby bonds supplement the social security system, which can potentially solve the crisis of difficult retirement across employed individuals. Ric Edelman first developed the concept that can potentially replace the government’s social security system concept. While many concepts are contributing to baby bonds, Edelman’s perspective focuses solely on retirement security. He entitled the TRUST fund for America, which stands for Tomorrow’s Retirement for US Today. Edelman is considered a financial expert as he started his own financial services back in 1987, which later merged with Financial Engines in 2018. Edelman also authored several books about Finance, including “The Truth About your Future.” He also hosts a weekly podcast with the same name.
So how do baby bonds work in Edelman’s perspective? Each newborn baby is given a $7500 starting account where this money comes from investors from corporations or pensions from those who already purchased previous government bonds. It is also worthy to note that capital investment purely comes from investment value and none from taxpayers’ money. The capital investment is then invested through time with the potential earning value of over 30 years. The bonds collected would then be paid off to investors (similar to how savings bond work), while the rest of the money cannot be touched until the person turns 66 where they can finally withdraw the money (similar to how the SSS works).
The plan, however, is not yet full proof. There are still some kinks to be figured out, such as tax laws or how the government can encourage more investors into this kind of program.
Why Baby Bond is needed
The ongoing pandemic proved that baby bonds could be a potential answer for the ongoing retirement crisis. With unemployment rates rising globally, more people are starting to tighten their belts and spend their money on bare essential items. Even before the pandemic began, US citizens were already facing the retirement crisis with roughly half of Americans not participating in employer-sponsored retirement funds and opting to spend their hard-earned cash into essentials like caregiving activities education. Hopefully, the baby bond program can help ease US citizens into having a more sustainable retirement future.