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 I hear that you plan to give away 99 percent of your Facebook shares
- valued at $45 billion - for philanthropic purposes. What a great
idea!
Your timing makes sense - as a new parent, you naturally begin to
think about legacy and the world in which your children will live.
While you and your wife, Dr. Priscilla Chan, begin the search for
ways to make an impact, here is a suggestion: rescue the future
retirement security of every child in America with a "Baby Roth"
account.
The price-tag: $500 per child, with $500 extra each for low-income
babies, which would add up to $38 billion over 10 years.
The funds would go into a tax-advantaged savings account that could
grow, with compounding, into sizeable nest eggs at retirement age,
according to the founder of the idea, Ray Boshara, director of the
Center for Household Financial Stability at the Federal Reserve Bank
of St. Louis.
The idea has been proposed in legislation several times over the
past decade to no avail. But all that is needed is a simple change
to eligibility rules that require earned income for contributing to
a Roth account - and the money.
It is a simple, brilliant idea that puts time on the side of our
children. Boshara estimates that an initial contribution of $500 to
an infant's account, with subsequent annual contributions of $250,
would grow to $131,800 at age 65, compared with just $35,300 for an
account started at age 25, assuming a 5 percent annual investment
return (before fees).
The hope is that the initial $500 would encourage parents to make
later contributions, and then for each recipient to keep funding the
accounts through their lives up to the standard Roth IRA limits.
You would be tackling a problem that is accelerating. As it stands
now, ownership of retirement accounts has fallen in recent years -
just 40 percent of households owned any type of retirement account
in 2013, down from 48 percent in 2007, according to Federal Reserve
Board data. And 57 percent of workers have saved less than $25,000
for retirement, according to the Employee Benefit Research
Institute.
At the same time, valuable traditional defined benefit pensions have
all but disappeared in the private sector. And Social Security is on
track to replace less pre-retirement income in the decades ahead -
the result of higher retirement ages legislated back in 1983 and
expected higher health care costs, which will eat into net benefit
amounts.
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Several large states are moving to create mandatory-participation
workplace retirement plans for all workers not already covered by an
employer 401(k).
The federal government has rolled out the myRA, a no-fee simple
starter account aimed at bringing more savers into the fold.
And a bipartisan consensus on emphasizing retirement saving seems to
be surfacing in Washington as part of a broader set of retirement
security reforms.
Next month, for instance, a Bipartisan Policy Center task force will
issue recommendations on retirement security and personal saving
that is expected to include a mandatory national savings program,
along with ideas for reform of Social Security and financial
literacy initiatives.
Mark, I understand that $38 billion might be more than you want to
commit personally - and that would only cover the first 10 years!
But I bet you could convince some of the other Silicon Valley
tycoons who have been rushing to give away millions lately to chip
in, too.
Ideally, you would set this up as a starter investment, with
taxpayers agreeing to start funding the program after it is off the
ground.
And who knows - your daughter Maxima might even benefit from a Baby
Roth herself someday. She would be eligible to start drawdowns
sometime in 2076.
(Editing by Beth Pinsker and Andrew Hay)
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