Category Archives: finance

How $1,000 Invested at Birth Could Change Everything


KidSave’ accounts may be part of a long-term solution to the retirement income problem.

In the presidential debates, we’ve heard more about Donald Trump’s anatomy than what may be the most pressing financial issue directly in front of millions of boomers: Where will they find monthly retirement income that is guaranteed for life?

The retirement industry can talk about almost nothing else, which in hindsight seems a predictable turn. Did we really believe Americans would manage their 401(k) plans well enough to stash away 25 years of post-career financial security? We haven’t come close, and in this sense the 401(k) has been a colossal failure. Now the first wave of pensionless retirees is about to land, and politicians have almostnothing to say on the subject.

One reason is that there are no quick fixes, which is why it may be time to dust off a long-term solution first floated in the 1990s and still championed by one of its architects, Bob Kerrey, the former democratic senator from Nebraska. He would like every child born in the U.S. to receive $1,000 in a “KidSave” account that would compound over 65 years before being tapped. “For most people it’s not income that matters,” says Kerry, now with investment firm Allen & Co. “It’s wealth accumulation.”

In other words, retirement security is less about what you earn and more about how much and how soon you save. Compound growth over seven decades can do a lot of heavy lifting.

Kerrey reiterated his support for what he calls “wealth accounts” last week during a discussion on the financial impact of longevity, hosted by Bank of America Merrill Lynch at the Museum of American Finance in New York. These wealth accounts would be funded at every child’s birth through a government loan, to be repaid when the child enters the workforce some 25 years later.

The initial $1,000 by itself wouldn’t make a huge difference: at 6% a year over 65 years it would produce just $44,145 in tax-deferred savings. But the existence of a wealth account from birth would encourage more saving, Kerrey believes. These accounts would be strictly off limits for 65 years and in his estimation could be enough to guarantee adequate income that will never run out later in life. If parents or grandparents, say, kicked in $20 a month for 20 years the nest egg would swell to more than $240,000 at the child’s retirement.

KidSave accounts enjoyed bipartisan support years ago but stalled amid efforts to boost other types of savings accounts and shore up Social Security. As previously envisioned, the initial deposit might be $2,000, indexed annually for inflation. That alone might produce $250,000 at age 65, Heritage Foundation found in its assessment of the program nearly two decades ago. Another version of the program called for $1,000 at birth and five annual payments of $500, which could generate a nest egg of nearly $140,000.

Why dust off KidSave accounts now? They are a relatively painless way to address a retirement income shortfall in the, yes, distant future. But as the youngest boomers and then Gen Xers retire with virtually no guaranteed income other than Social Security, the shortfall will only grow. Everything is on the table now as policymakers try to fix the retirement income issue via things like expanded Social Security, guaranteed retirement accounts, 401(k) annuities, better home reverse mortgages, and breaking down legal barriers to working longer.

Kerrey noted that without change every American now under age 40 will receive a 25% cut in Social Security benefits at retirement. We need interim steps. But we also need a long-term plan. The candidates have touched on ways to fix Social Security and cut ballooning student debt.

Saving for tomorrow, tomorrow

Saving for tomorrow, tomorrow

Some say this gentleman speaks a little differently. Regardless, overlook that and concentrate on this good, simple message!

It’s easy to imagine saving money next week, but how about right now? Generally, we want to spend it. Economist Shlomo Benartzi says this is one of the biggest obstacles to saving enough for retirement, and asks: How do we turn this behavioral challenge into a behavioral solution?




Although there is still some debate about whether or not you should pay off your mortgage early, the truth is that the math is almost always in your favor. By paying off your mortgage early you will end up paying as little as half your mortgage payments, which is far less than any tax write-off you would otherwise receive.

“It’s a pity,” mortgage expert Marc Eisenson, author of The Banker’s Secret, told The New York Times. “There are millions of people out there who faithfully make their regular mortgage payments because they don’t understand […] the benefits of pocket-change prepayments.”


When you sign on the dotted line and take on that 30-year fixed-rate mortgage at 6%, as much as 80% of your mortgage payments will go toward interest. Ouch. In fact, your interest payments will tack on an additional 100% or more to your loan value. To find out how much you’ll pay in interest on your own home, use this calculator.

In order to maximize your payments and end up paying less interest, you simply need to start making payments against your principal along with your normal monthly payment. So the next time you write your monthly mortgage check, write a second check for the “principal only” portion of next month’s payment.


For example, the average American home is $270,000. (This strategy, however, works whatever the cost of your home). A 30-year loan at 6% requires an initial monthly payment of $1,618.

With this technique you would make your usual monthly payment, and then you would also write a second check for an extra $270, which will cover next month’s principal balance. If the whole $270 – or whatever your number is – seems out of reach right now, pay whatever you can. It will still add up. If you continue to do this every month, you will never have to pay interest on the principal that is pre-paid.

To be clear, you are not paying extra money; you are simply paying a little bit sooner, and saving yourself potentially hundreds of thousands in the process. Imagine being free from mortgage payments in just 15 years instead of 30. Would that make those small sacrifices now worth it?

If you aspire to home ownership – or if where you live, owning a home makes more financial sense than renting – taking this one simple step can eliminate one of the single largest expenses of your life.


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