Swedish Retirement

Guest blog by Jim Huller, President of Maximum Wealth Advisors

If Sweden Can Do It, Why Can't We?

About the only thing being discussed these days in Washington is the bitter fight over healthcare reform, meanwhile another looming problem not getting the attention it deserves is Social Security. This side of Hurricane Katrina, it's easy to forget that a re-elected President Bush set out to use his "political capital" to take on reform of this destined to implode program.

Most politicians would rather not take on the "third rail" of American politics, nevertheless, if we don't make changes soon there will be no Social Security for the millions of young people who are now paying into the system and would like to receive something in their retirement. For a look at what could be a template for Social Security Reform in the US, I wanted to highlight what Sweden did in the 90's to take on its similar dilemma. While Sweden is thought of as a liberal nation, legislators on both sides came to the conclusion that private accounts were the best answer.

You might not know this, but Sweden was the first nation in the world to put a government-run retirement system into place. The old system was a tax-financed, pay-as-you-go entitlement program, like what we have with Social Security. Unfavorable demographics began wearing on the plan, so the choice basically came down to raising taxes/cut benefits or give workers private retirement accounts - sound familiar?

While making needed changes, Sweden has put in a safety net that guarantees a minimum amount individuals receive, a floor if you will on expected benefits. As the transition occurs, older workers receive payments from both plans. Workers pensions will be based on the amount of taxes they have paid into the system, giving them an incentive to work. The end result is a plan that lowers taxes, reduces government spending, and provides for a more stable system.

Sweden has abolished the death tax and has a lower corporate tax rate than the United States. If we want to shore up Social Security, and improve our economy shouldn't we take a page from the Swedish playbook? The longer we bury our heads in the sand, the worse we make it for ourselves.