AMAC’s ERA: An Important Component for Saving Social Security

social security cardsby Caroline Rayburn

As the representative voice of 1.2 million mature Americans and senior citizens, AMAC is deeply concerned with the solvency of Federal legacy programs – such as Medicare and Social Security.  Each of these programs provides vital benefits to a growing number of Americans and will require significant structural reforms to ensure their financial fortitude for current and future generations of retirees.  According to the Social Security Administration (SSA), approximately 58 million Americans receive Social Security benefits monthly – a number that is projected to increase as millions of Baby Boomers become eligible for retirement each year.[1]

While the program braces for an influx of new beneficiaries, Social Security faces a number of critical concerns.  The Trustees for Social Security project that Social Security will be an insolvent program by 2033 – a startling prognosis for a program on which millions of older Americans and AMAC members depend and to which they have contributed throughout their working lives.[2]  Already, American retirees are drawing Social Security benefits at a faster rate than U.S. workers are paying into the system.  This – compounded by the fact that Americans are living considerably longer – signals that the future of America’s Social Security program is at risk.

Today’s ratio of three workers per Social Security recipient – compared to the sixteen-to-one ratio of the 1950s, for example – is not sufficient to sustain the current Trust Fund payout rate.[3]  In terms of real dollars, the Social Security Trust Fund paid out $49 billion more in 2010 than it acquired from workers.  Under this existing structure, the payout trend is expected to continue – building to an estimated debt level of $6 trillion by 2036.  In 13-18 years, benefits are likely to be reduced by 25%.  Other components of Social Security – such as Social Security Disability Insurance – are in even worse condition, facing exhaustion as soon as 2016.

Future generations of Americans, in particular, stand to be negatively impacted as the Trust Fund approaches insolvency, unless immediate action is taken by Congress to address the problem.  In a recent study conducted by the Pew Research Center, “51% of Millennial Americans (ranging in age from 18 to 33) do not believe there will be any money for them in the Social Security system by the time they are ready to retire, and an additional 39% say the system will only be able to provide them with retirement benefits at reduced levels.”[4]  Strikingly, “only 6% expect to receive Social Security benefits at levels enjoyed by current retirees.”[5]

Though AMAC strongly urges Congress to address Social Security’s looming fiscal and structural problems through comprehensive legislative reform, it is perhaps more important than ever to encourage Americans to begin saving more of their own money in preparation for retirement.  AMAC has developed a new retirement savings account – the Early Retirement Account (ERA) – that enables individuals to plan responsibly for retirement.


The Early Retirement Account

AMAC recognizes that the average Social Security recipient presently collects between $13,000 and $14,000 per year.  For the vast majority of retired workers, this is the largest portion of their retirement income, and for many, Social Security is their only source of retirement income.  In 2011, SSA measured that “Social Security provided half the income for 64% of aged beneficiaries in 2011.”[6]  However, “Social Security was never meant to be the only source of income for people when they retire,” according to SSA. [7] In fact,

Social Security replaces about 40 percent of an average wage earner’s income after retiring, and most financial advisors say retirees will need 70 percent or more of pre-retirement earnings to live comfortably.  To have a comfortable retirement, Americans need much more than just Social Security.  They also need private pensions, savings and investments.[8]

Thus, the availability of an ERA addresses a problem facing many retirees: the lack of accumulated savings to supplement other sources of retirement income.  The ERA is a voluntary benefit available to all workers and is structured to enable workers to accumulate additional funds to supplement retirement income – similar in concept to an Individual Retirement Account (IRA) provided via the Internal Revenue Service (IRS) code – but with some fundamental design changes.

a)      As a voluntary benefit, workers would be required (at the start of their employment) to indicate whether they choose to participate or opt out of the ERA.  They would be allowed to start, discontinue or re-start participation at any time.


b)      Employers would be required to offer the ERA to all employees (both full-time and part-time) via payroll deduction.


c)       The minimum employee ERA contribution would be $5 per week, and the weekly maximum contribution would be $100 per week.  Employers would be permitted to contribute to employees’ ERAs in any amount or percentage, with the allowable contribution up to $50 per week.  Contribution levels would be indexed for inflation.  Employers may start or stop contributions at any time.


d)      The individual worker would be the sole owner of the ERA.  If the worker changes jobs, the ERA would be transferred to the new employer, who would be required to allow payroll deductions for continued contributions.


e)      No withdrawals from the ERA would be allowed until the worker reaches age 62, or upon death or total disability.  At any point between age 62 and 70 ½, workers would be allowed to receive payouts from the accumulated funds.


f)       In the event that the worker dies before withdrawing the accumulated funds, the death benefit would be the accrued value at the time of death.


g)      Similar to the IRA, employee and employer contributions to the ERA would be treated as pre-tax contributions.


h)      An appointed board of investment experts would establish a list of approved investment options, operating under the premise that 50% of the funds would be mandatorily invested in guaranteed interest accounts or annuities.  The remaining 50% would be allocated to investments approved by this board.  All administrative costs would be borne by the individual investment plan providers and not by the Federal government.


The ERA: A Lockbox for Retirement

                Unlike other forms of tax-deferred investment vehicles, such as the traditional IRA, the ERA does not contain provisions for loan withdrawals or hardship withdrawals.  The ERA adheres strictly to its own provisions in order to create a true lockbox for workers when they retire.  Though many Americans often choose to pay a penalty to access funds in their IRAs prior to the eligible age, they do so at the expense of their retirement and defeat the purpose for which the fund was established in the first place.  The total objective of AMAC’s ERA is to create a supplemental source of funds at a time when they are most needed.

In addition, AMAC developed the ERA for workers who do not have access to a personal investment account through their employers.  Fifty percent of businesses in America offer no 401k or pension plan, crippling workers’ abilities to adequately invest, plan and save for retirement.  The ERA gives all American workers an opportunity to prepare for the future and to manage their finances in a disciplined manner.  With an ERA, workers can watch their investment steadily grow over time and have peace of mind as they look forward to retirement.


Advantages of Investing in the Free Economy

                AMAC overwhelming determined that investing in the free economy – as opposed to investing in the Federal government – yields the greatest returns; thus, the ERA fully invests participants’ funds in the free economy.  With half of the funds invested in guaranteed, low-interest bearing accounts or annuities and half of the funds invested in secure companies – like those in the S&P 500 – AMAC expects the ERA to produce a substantial retirement fund over the course of workers’ careers.  Workers have complete control over the amount of money they choose to put in their ERAs – giving individuals the freedom to manage and adjust their accounts over time in accordance with financial ability and need.  ERA investments are risk-managed and intentionally avoid entanglements with precarious, start-up companies, currency exchanges or money markets.  Designed to foster a disciplined, long-term approach to retirement planning, AMAC strongly believes that the ERA enables Americans to retire comfortably while alleviating dependence on Social Security.


Examples of projected savings from the ERA

Assumptions:    50% of funds in a guaranteed account earning 3%

50% of funds invested in S&P 500 index, average return of 7%

Modest employer contribution of $50/per month, $600/year


Contribution ERA fund at age 62
25-year-old wage earner $15 per week $165,407
25-year-old wage earner $45 per week $352,389


Upon careful study and review of the historic rate of returns over the last 100 years, AMAC was able to calculate the amount of money an individual could potentially have in his or her ERA upon retirement at age 62.  Indeed, if a worker began investing modestly in an ERA early in his career, then he could have a strong retirement fund – accessible at retirement – on which he could rely to supplement other sources of income and to reduce personal dependency on Social Security.



AMAC’s Early Retirement Account is a viable, commonsense solution to a serious problem vexing older Americans today – that is, a lack of savings to supplement income at retirement.  The ERA is a straightforward, simple proposal that would allow hard-working Americans to invest, plan and save properly for retirement.  Taking advantage of low-risk, free-economy investment opportunities, the ERA enables workers to grow their funds steadily and securely.  For many people who do not have access to a 401k or pension plan, availability of an ERA may be their only opportunity to cultivate a robust savings fund that can follow them throughout their careers and help them retire comfortably when the time comes.

The current economic landscape in America demonstrates the desperate need for an investment vehicle like the ERA.  Restrictions on ERA withdrawals ensure that the funds are preserved for retirement and act to discourage and avert spending for alternative purposes.  This lockbox allots seniors the peace of mind they deserve following a lifetime of hard work.

As a whole, retirees continue to overly rely on Social Security as their primary source of income during retirement; yet, Social Security remains on an unstable fiscal path.  According to SSA, “Social Security is not sustainable over the long term at current benefit and tax rates.”[9]  While AMAC urges Congress to act immediately and comprehensively to reform this important program for generations of Americans, AMAC continues to emphasize personal responsibility when it comes to planning for the future.  AMAC strongly believes that the ERA fosters prudent fiscal behavior and protects seniors from experiencing financial hardship later in life.

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[1] “Social Security: Understanding the Benefits.” Social Security Administration. 2014. Pg. 4. http://www.socialsecurity.gov/pubs/EN-05-10024.pdf.

[2] Ibid., Pg. 37.

[3] Ibid., Pg. 36.

[4] “Millennials in Adulthood: Detached from Institutions, Networked with Friends.” Pew Research Center. Mar. 7, 2014. http://www.pewsocialtrends.org/2014/03/07/millennials-in-adulthood/.

[5] Ibid.

[6] “Social Security.” Social Security Administration. Pg. 2.

[7] Ibid., Pg. 4.

[8] Ibid.

[9] Ibid., Pg. 37.

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