Dems to seize 401k assets… not!
Unfortunately, hyperbole is getting the best of people (mostly conservatives/libertarians) who believe that Guaranteed Retirement Accounts (GRAs) are a form of asset seizure by the central government. GRAs—which may or may not ever come into fruition—are a bad idea in my view, but they do not represent an asset seizure (FactCheck.org has a decent write-up). I make this point because this is the type of frenetic hyperbole that makes conservatives/libertarians look like idiots (bad, since I tend to associate myself with conservative and libertarian ideals).
Having said that, I really don’t like GRAs. The “guaranteed” idea is misleading, the rate of return is awful, and greater reliance on the central government of the United States is disturbing to me. Generally, I believe the federal government should have fewer and more defined areas of focus rather than greater breadth of involvement in our daily lives.
GRAs would have a low rate of return (3%), which of course is zero percent after considering inflation. They would be subject to government whim, and I can see this sort of retirement savings program becoming highly politicized. My understanding is the government could invest that money as it saw fit, returning 3% and (I presume) keeping any profit above 3% for itself or for re-distribution to others.
If you’re an investor and you want a low (but stable) return, then invest in index funds covering cash equivalents, bonds, etc. Interestingly, you could essentially achieve the “GRA dream” by simply investing in a federal government bond fund in your existing retirement plan. Regardless, even a relatively stable (but low return) portfolio would still likely out-pace inflation (3%), meaning the GRA plan is still a bad bet.
Alternately, if you want to actually have money when you retire (and esp if you’re relatively young, like me), invest in a broad mix of stocks and bonds (via index funds or ETFs) and wait for the interest/dividends/cap gains to compound over time.