For many months, various contingents have railed for and against Personal Savings Plans as possible replacements for Social Security, IRAs, 401(k)'s and the like.

Democrats, Republicans, the AARP and their ilk have made statements to assure everyone that PSPs are either very desirable or the worst possible thing that could happen to anyone.

Some of the arguments, such as those appearing in Fortune Magazine, March 21, 2005, report that, when faced by a large number of alternatives, the "average wage-earner" freezes up and is incapable of making any kind of reasonable decision or assessment of where they should put their money, even if forced to save it.

I've worked out a brief plan, spelled out below in table form, to break the ice on this problem. While many investors do have the skills and capability of determining for themselves where their money could or should be invested, it is obviously true that many Americans have not had any such experience in investing, and, in their naivete, might make very poor decisions regarding asset allocation. For the most part, if they're just beginning to invest, starting from "zero-level," it makes perfect sense that their initial investments be extremely conservative and limited in scope. Most financial investment counselors should agree.

Therefore, I propose that, in their deliberations and law-making, Congress consider the following table to specify the maximum and minimum number of investment vehicles [stocks, bonds, mutual funds, money-market accounts, etc.] that participants in PSPs be allowed to invest:

Here's the rationale/logic/"rules":

• New investors get to put money into one very conservative investment vehicle (e.g., money-market funds). All along the way, from $1000 up, financial advisers must be made available to them by their employers or from outside their company's advisors. A "Consumer Reports" for the advisors must be available for all covered employees, in order to compare the results from other advisors that other employees might be using.
• When their financial base has grown to over $5000, they may invest in anything else, but only one more type of investment, at that level.
• By the time their foundation has built to $50-$100,000, they should be diversifying their holdings to a dozen or more holdings. By that time, they've had time and experience and advice on what to do, so more mutual funds and even equity stocks should be made available as potential members of their portfolio.
• At the $500,000 level and up, their portfolio should contain equities, bonds and mutual funds.
• By the time they reach the multi-million-dollar level, what they invest in should be pretty much unlimited, and up to them.
• The last column is included as a forced diversification, to make it impossible for companies to force employees to put all of their retirement funds into "company stock" as we've seen with Enron and the like. Diversification is mandatory.
• Note: all such investment plans must be 100% "vested" to the employee, immediately upon creation, and 100% portable to future employers' plans. Employers' contributions are immediately 100% vested, with no waiting periods. Employers may or may not contribute, as they choose. Employees' contributions plus employers' contributions may not exceed limits specified by Congress. Currently, that total would be 14% of gross salary.

Why is this important?

Here are some excerpts from a John Mauldin letter, (John@FrontLineThoughts.com) starting with the quote:
"Merrill Lynch released a new survey a few weeks ago called the New Retirement Survey, wherein they polled 3,448 baby boomers, both from the general population and the more affluent segment about their views on retirement."

42% of baby boomers do not know how much money they will need to be able to live comfortably in retirement. 60% had less then $100,000 of total savings other than their home, and 46% had less than 50,000. Of course 7% were not sure how much they had saved and 12% decline to answer, so it would be a reasonable assumption to think that 70% had less than $100,000.

26% felt they would need between $25,000 and $50,000 annual income to be comfortable in retirement, and another 27% would need as much as 75,000. (23% were not sure what they would need -- so much for financial planning.)

Let's look at that last group.

To generate $75,000 of income, with a reasonable degree of safety and adding enough to principal to be able to take care of the effects of inflation, you need a portfolio worth about $1.5 million, give or take $100,000.

• Only 2% of the respondents said they had as much as one million.
  
• Only 3% had more than $500,000 with another 5% having more than $250,000.
  
• Less than 10% of the boomer generation had more than $250,000,
  
• yet 70% said they would need more than $25,000 annual income to live comfortably.

Even subtracting for Social Security and other pensions, there are going to be a lot of baby boomers who are going to be disappointed about their retirement if they have to live off their savings. To our credit, we seem to recognize that. Thus, less than 20% of us expect to be able to enter retirement without working for pay again.

Don't like those numbers?

Here's a quote from Fortune Magazine, July 12, 2004:

A 45-year-old making $100,000 today plans to retire at age 65.
Depending on his lifestyle in retirement, here's how much he'll need:

Try the retirement income calculator at T. Rowe Price's site.

Now that you've digested this idea, consider what would happen if the exact same kind of plans were created for the following:

• Unemployment coverage
• Catastrophic Medical coverage
• Medical Insurance coverage
• College Education funding
• and more.... your ideas are welcome here......