Could Bill Ackman's 'Birthright' Plan Make Every Retiree a Millionaire?

But let's assume his numbers are correct. Just giving everyone $1 million at retirement isn't a very efficient solution and would create its own issues. People don't really do a good job spending down wealth at retirement and so we need to focus on increasing "pension-like" income in retirement versus savings.

Big picture: I don't think this is a very good idea. It's playing off the general misunderstanding of compound interest and isn't really a viable policy solution. Maybe he's just trying to stir the pot, though!

2. It may work, but …

Steve Vernon, Research Scholar for the Stanford Center on Longevity:

Earlier this year at the Stanford Center on Longevity we studied a similar proposal from Ric Edelman of the T.R.U.S.T. Fund for America. Here's the link to the report that explored a number of innovative ways to improve retirement readiness. Page 35 discusses Edelman's proposal.

The numbers in the [above] example are correct, and the concept could work as described. But while the idea can work in concept, the devil is in the details. Eventually the assets would grow to a considerable sum in total. But here are some questions:

• Is there a Board of Trustees or some group that manages the money? How would they be selected?
• Exactly how would the money be invested — in an index fund, or would managers be paid? And who selects the managers?
• When is the retirement age when money can be withdrawn?
• Can the beneficiaries do anything they want with the lump sum of money, or will it be required to be paid out periodically?
• What happens to remaining accounts when someone dies?
• Who votes the shares? Over time the total voting power could be quite substantial.
• Is the money supplemental to Social Security, or would Social Security be reduced to reflect the asset?
• What happens if stock returns are poor? While annual returns from stocks have averaged in the 8% range over time, for various time periods returns have been higher and lower.
• Which babies get the asset? Would you include babies who are eligible for citizenship — born in America but not to citizens? What about babies born to American citizens who are living abroad?

These questions aren't deal-breakers on the concept — they just need to be addressed to evolve the concept from an interesting idea into reality.

3. It's a bad idea that only gives money to Wall Street.

Maria Freese, Social Security policy analyst, National Committee to Preserve Social Security and Medicare:

While we applaud the [New York Times' attention to] our nation's retirement problem, we strongly believe the American people would prefer to dedicate scarce federal resources into strengthening and expanding America's most effective retirement program, Social Security, than putting billions of federal dollars into the hands of Wall Street.

We strongly believe accounts such as these would ultimately turn into step one of a longer-term effort to privatize Social Security. The competition for federal dollars for many important priorities would undoubtedly result in pressure to divert the 'seed money' from payroll taxes rather than continuing to spend general revenues. This would destroy Social Security's role as the bedrock of American workers' retirement.

An additional challenge for these accounts is the difficulty of keeping them intact over a decades-long working career for retirement. We have heard anecdotally of many people who have found themselves taking distributions from their retirement savings just to make ends meet during this pandemic.

Regardless of any restrictions initially placed on these accounts, there inevitably will be political pressure to make them available for other, non-retirement priorities, much as IRAs and 401(k) plans can be drained today. Social Security does not have these problems. American families would be much better served by dedicating additional resources to Social Security than experimenting with untried, risky private investment accounts.

— Related on ThinkAdvisor:

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• Americans' Feelings of Financial Security Are at Pre-Pandemic Levels: Survey
• Why a New Type of Alpha Should Be Retirement Portfolios' True Goal