By Thomas Kostigen
A lot of Americans have begun receiving payments from the government, whether in the form of stimulus checks, paycheck protection loans, or unemployment insurance. And there is a call for more—with the Biden Administration promising yet another round of COVID-19-related benefits. Some factions of government are even calling for basic income to be made permanent.
Might this universal basic income (UBI) movement be a retirement replacement? Indeed, that is the key question that former International Monetary Fund assistant director Warren Coats recently addressed in a blog post about our Social Security system and the new face of retirement that UBI could bring about.
Coats posited that a flat rate consumption tax in place of the corporate and personal income taxes and the payroll tax combined with a UBI (rather than Social Security) would “fulfill our desire to help those in real need but would return the responsibility of individual decisions of how that assistance is to be used to the individuals involved.” He carefully notes that “most people work for more than the income it generates–the self-esteem of being a useful member of society is also important–a UBI would remove the economic disincentive of many current welfare programs of working resulting from the loss of benefits when income reaches a modest level.”
A UBI therefore does two things: 1) it empowers people to make individual decisions about how they utilize their allowances, versus social welfare benefits that are dictated. And 2), it depoliticizes the system. As it stands, a UBI that would replace the average Social Security benefit of $18,000 per year per U.S. adult would add up to—with other program expenditures added— about $5.2 trillion. That is more than double what the government lays out now.
There are, of course, different math equations to play out and figure different incomes and tallies. But nearly every tally would necessitate higher taxes, both corporate and personal.
Former presidential candidate Andrew Yang had famously promoted the idea of a UBI during his campaign. At first, the idea seemed too radical. Then COVID-19 came along and the ensuing stimulus payments didn’t seem so radical at all; they seemed de rigueur.
Yang, in his new candidacy for New York City mayor, is calling for a UBI for all New Yorkers. He calls his program “human centered capitalism.” He says this is the opposite of reduced tax rates for the wealthy, or trickle-down economics. “When we put the money into our hands, we can build a trickle-up economy from our people, our families, and our communities up,” Yang says. His economic philosophy has received support from both Democrats and Republicans.
This is all to say that our retirement future is sure to change—and relatively quickly in the near future. The mentality, norms, and acceptance are there. Politicians are discussing UBI frequently. Legislation is likely to follow. A radical retirement change is on the horizon for many if not most Americans.
A good financial advisor can map out different retirement scenarios for your retirement future. This will impact how you invest today for tomorrow. So even while retirement could be a ways off for you, portfolio planning can’t wait. A UBI is a scenario that needs to be taken into account today, along with the prospect for higher taxes tomorrow.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.