Ok this is roughly what I have come up with. Let me know if it has any merit.
After listening to a number of small business owners, community members and fellow commuters. Many low income earners feel that they can not afford to save money for retirement because it will not be easily available should they or their family members get sick. I started thinking about these issues related to retirement and health care expenses and although the amounts are random I think the concept has merit.
I envisioned is a simple account with a limit of 20K pretax investment per year for full time
and 12k for part time employees. An additional 2K per year can be added for a non working spouse and 1K per other dependent but those must be registered as beneficiaries with their Social Security Numbers (SSN’s) on the account. If the spouse is working then they would be eligible for the same 20k or 12k limits, however only one should be able to add the dependents.
The funds in this account would be for retirement and health care expenses. Regarding retirement, I the same standard rules would apply except that you would have to wait until 67 to start withdrawing funds.
Funds may also be withdrawn for health care expenses penalty free for the primary and all registered dependents. Obviously a withdrawal will be taxed as extra income for that year. I feel that if your suddenly take ill and you have to consider living or your retirement which would you choose. Shouldn’t the money you save for retirement be available to help you get there is it is needed?
To manage the health care aspects I am thinking of the following two methods;
- A debit card based system
- A tax form itemization based
Neither of these methods are perfect, and there would have to be some measure to discourage fraud such mandatory jail time, but I haven’t really considered that yet.
Management of the plan would be rather simple, the employ would simply enroll at the financial institution of their choice, just like any other IRA and submit an allotment form similar to a direct deposit form with their employer. The employer can elect to contribute or not on that same form prior to submitting it their payroll service.
At the end of the year the employer can write off all of their contributions, unless there’s an easy way to manage it pretax?
This idea is to encourage everyone to save a bit more, especially low wage workers. I also want to empower them to make better financial decisions with their future as well as develop better relationships with their banks. They can work with their financial adviser or online directly adjusting the investment aspects of their account much like a 401k.
Ultimately the idea is to get people to save more in long term investments. This should in turn help banks build a reserve of standing capital that they would be able to weather times like we are currently experiencing. Hopefully avoiding any future hand outs from the government.