Bill Ackman: give every American cash at birth so they can retire a millionaire | Hacker News Reader

Bill Ackman: give every American cash at birth so they can retire a millionaire

businessinsider.com

40 pointspaulpauper77 comments

> At historical rates of equity returns of 8% annually, a $6,750 at-birth retirement account would provide retirement assets of more than $1 million at age 65, or $2 million at age 74, Ackman wrote.

The whole premise is deeply wrong. 20 years ago the S&P500 index was $1380.2 and it closed yesterday at $3702.25. That's a growth of 168%, or compounded annual 5% (more precisely 5.06%, but Ackman likes round numbers). Very, very far from 8%. So far that the investment outcome at the age of 65 will be $160k instead of $1MM.

But wait, this return is not deterministic. The annual volatility was 20% (the precise value being 19.8%). Even if the annualized return were 8% as Ackman postulates, your median investment outcome at 65 will be less than $275k. In other words in 50% of the cases you'll get less than that.

If you use the realistic growth rate of 5% and volatility of 20%, then you have a 50% chance to get less than $43k at 65 (starting with the $6750 at birth). If we see an inflation rate of 2% (this is much less volatile, it's quite deterministic actually, being the Fed long term inflation target), that's about $12k in 2020 dollars. Which is slightly below the official poverty level. For an annual income, that is. If you want to make that work for the rest of your life (today's life expectancy at 65 is about 18 years, in 65 years from now it's going to be higher), then you end up with less than $1k per year. That's in 50% of the cases.

Per https://dqydj.com/sp-500-return-calculator/ the trailing 20 years of SPY returns, critically including dividend reinvestment, is something like 7% outright or 5% adjusted for inflation.

Did your calculations refer to the real total return?

I saw Stephen Punwasi pull exactly this same trick wrt diamond engagement rings recently. Claimed that if you put $6000 into the market instead (instead of a ring) and got 11% per year you'd have over $1M at your 50th anniversary. Absolutely sure that he picked the unrealistic 11% only because it got the number over a psychologically meaningful threshold (which isn't even that meaningful because he ignored inflation). A more realistic outcome would have been around $69K BTW. This kind of dishonesty is everywhere, which is why we have to stay on our toes.

But back to the case at hand. Yes, the numbers are a bit off, but that doesn't invalidate the basic idea. That's another too-common fallacy. $160K is nothing to sneeze at, and your $43K is just as much a fiction as Ackman's $1M. S&P grew 168% over 20 years despite volatility. It's already factored in. It looks like you're doing the same thing with double-adjusting for inflation too. The fact is that the bond would yield enough to make a significant difference for the people it's meant to help. Your numerology doesn't change that.

I think people who think they need money _now_ (in some cases to buy luxuries) will sell their future payouts (and, probably, be angry about how little they would get for it)

If you make that illegal, this starts to look like a state pension for everybody (with one important difference being that the money paid out doesn’t depend on how long you live after 65. To me, state pensions seem the better option in that respect)

Indeed it does, but why is that a problem?

You give everybody, say, a million when they turn 65.

x isn’t good at managing money (maybe can’t even blame them, as they haven’t ever had any significant amount of money before), so they buy a $200k car/go to Vegas for a week/whatever (maybe incentivized by the ‘knowledge’ that “nobody in our family lives past 70”).

Turns out, x lives till the age of 80, but runs out of money years before that. Do you give them more, or do you say “it’s your own fault”?

y is good at handling money, but happens to have some expensive disease/happens to live till the ripe age of 110/whatever, and nevertheless runs out of money. Again, do you say “tough luck. You could have known you might live till 110”?

z, at 65, has a terminal disease and knows he’ll live for at most a year. He _can_ go to Vegas, travel the world, etc. One could argue that’s some compensation for dying so young, but is that fair?

Those problems can be avoided by just paying out a monthly pension to every 65-year old.

Also, but a different subject: what happens to the money invested for those who die before they turn 65? If their spouse/children don’t inherit the fund and get the money on the day they would have turned 65, did you really give them that investment fund? If the money is forfeited, it seems more like you gave them a endowment policy (https://en.wikipedia.org/wiki/Endowment_policy).

You can do what we do in Australia, every employer has to pay 9.5% of your income into a retirement account. It's like a social security tax but it goes into an account you own instead of the the general pension system. If you have a normal career you will have over a million in it by the time you retire. Obviously you will be a lot better off if you also own your home outright by that point.

This isn't far from the Social Security reform George W proposed -- letting people invest a portion of their SS into investment accounts (half of social security is paid by employers).

The political reception was... poor. Had to ditch it under pressure from AARP and attack ads from Democrats.

>The political reception was... poor. Had to ditch it under pressure from AARP and attack ads from Democrats.

Of course. Let people have defined benefits. Stop trying to turn every single angle on retirement into defined contribution.

I kind of wish that it had gone through, although there would definitely have to be rules on what you could invest in because you know some goof would be messing around with options & puts, and then have their entire private SS account go to 0, or worse.

Bring back the baby bonus and just pay it into super to kick-start it

It's a shame the super system in Australia is being undermined by early access. Spoke to a car dealership recently and their business has been through the roof because of it.

Could you please translate all this? What is super and why would a car dealer be through the roof?

Super = Superannuation. Basically a portion of your pay (9.5% currently) MUST be paid into a superfund to hold the money until you can access it upon retirement.

Car dealers are through the roof because the government allowed early access to a portion of it if "in distress" due to Covid-19 and lockdowns. However, many people who weren't in distress took the money (their own retirement money, remember) and bought a new car.

Thanks!

How different is it from 401K in US?

Because most companies give near zero match.

Or being self-employed and you get no-match and have to pay the other 1/2 of social security taxes. We should be supporting business, entrepreneurship, and innovation. I suggest we eliminate capital gains taxes for those making under $500k a year. That will incentivize people to invest even more into capital growth engines like (stocks, bonds, real-estate, business, crypto).

"Section 1202 of the IRC is commonly referred to as the QSBS exemption. If you are a founder, angel investor, or an employee of a successful early stage company, you need to be aware of certain qualifications that could help you protect up to $10 million (or 10 times your cost basis, whichever is greater) from federal taxes. "

https://www.svb.com/blogs/svb-private-bank/understanding-qua...

Hedge fund manager wants the markets juiced even more, what a surprise.

At this point seriously just let us pay our taxes directly to Wall Street, cut out the stimulus middleman.

Cory Booker had the same idea in 2018, with more detail on how to pay for it.

https://thehill.com/policy/finance/412594-booker-bill-would-...

Ackman is a big backer of Booker.

https://www.bloomberg.com/news/articles/2010-10-28/ackman-mo...

This proposal would seem to negatively impact the wealth generated thru the exploitation of the poverty class

Just raise taxes on rich people, use the funds to buy stocks in a social wealth fund and distribute the dividends and some proportion of growth to everyone equally every year.

Plenty of countries do this (even Alaska) it's easy, it's understandable, and it doesn't store away the money.

It would be worth it to look at the State of Alaska financial situation. The world of oil isn't going to last forever, and those dividends will be among the first to perish.

Sure:

>Despite a $2.7 billion transfer to the state treasury, the Alaska Permanent Fund earned enough from its investments to grow by $1.4 billion, or 2%, during the just-ended state fiscal year. As of June 30, the fund stood at $66.3 billion, up from $64.9 billion on the same date in 2018.

https://www.adn.com/alaska-news/2019/09/08/permanent-fund-gr...

If you'd like to know more look here: https://apfc.org/our-performance/

You know how rich people only have to exercise very mild discretion with their spending because of how much money their money makes? A social wealth fund is sort of like that but for everyone. I think those dividends will be lasting quite a long time.

Except they've already been reduced to less than 1/3 of the statutory earnings amount, and the state is rapidly depleting all other savings.

The writing is on the wall, all PFD earnings will go to run state government in the very near future.

> a social wealth fund

What is that?

https://en.wikipedia.org/wiki/Sovereign_wealth_fund

Given that the age of politicians has been increasing over the past few decades, and the median wealth of a Congressperson / Senator has also been increasing, I'm less and less optimistic as I get older that this would ever happen.

I tend to believe that rich politicians aren't going to vote to raise taxes on themselves - they're going to instead gut the middle class (hence the trends you see today.)

How about a simple cap on "interest"? Far easier to implement, far more practical, far more beneficial.

How about giving every American free college, healthcare and retirement, so they don’t have to be millionaires?

The lifetime value of a Nordic-style social security net is equivalent to retiring as a millionaire in America, IMO. And you get to enjoy life in a stable society.

Ackman’s solution is more libertarian and market-friendly.

Business leaders hate govt incompetence and waste much more than redistribution per se, as demonstrated by their relatively generous contributions to charity.

A welfare-state necessarily involves govt running a major part of it, horribly inefficiently.

The population of Norway is literally 1% that of the US. MAYBE 2% if we're generous.

When you're a small, homogeneous population, you can make systems like that work. Things break down, however, for larger, more heterogeneous populations.

This is a common complaint but I don't really understand it: American healthcare doesn't really seem to need to be "more diverse" than Nordic healthcare to me.

so is the implication that larger and/or less homogeneous populations are more at risk of breaking down? that could definitely be interpreted as not so thinly veiled racism.

Why are you assuming the relevant dimension is race? I would expect the more homogeneous lifestyle, environment, location, economic status, and perception of/relationship to the healthcare and educational systems would be more relevant characteristics to contrast the two populations.

Because that de-incentives people, entrepreneurship, and stifles innovation and growth. @pavlov per your profile, you work at Facebook (which I assume making well over $250k a year) and yet your pushing for a socialist agenda? Seems very hypocritical.

I've said this before here on HN, but Naval Ravikant (of AngelList) nailed the problem with government pay subsidies and universal basic income on a podcast with Joe Rogan.

"The moment you start having a direct transfer mechanism like that in democracy, you're basically doing away with capitalism which is the engine of economic growth. You're also forcing the entrepreneur out, or telling them not to come here."

"People who are down on their luck, they're not looking for handouts. It's not just about money, it's also about status and meaning. The moment I start giving money to you, I've lowered your status and made you a second class citizen.”

If it's hypocritical for rich people to advocate socialism, and just self-serving theft for a poor person to advocate socialism, then no one can advocate it in good faith?

I think your quotes are a bit strawmanning: they are good responses to someone is advocating for no private property. There's a large spectrum in the middle that includes single payer insurance and free college that are still very far away from "there's no incentive for anyone to make money anymore!"

People being “down on their luck” is usually through something else than “bad luck” - it’s far more often because of systemic problems (like how Black people have historically been marginalized, and continue to be).

So then people who have built wealth completely on their own (self-made) and built great US companies did so because they were not marginalized? That's nonsense.

LOLs way to twist my words out of context.

I was specifically referring to people less fortunate, usually given far less opportunities, often due to their race, religion or something similar.

And if you don’t believe that’s true, then that is nonsense.

No one has “built wealth completely on their own”. Every rich person, in every country on earth, has in some way been assisted in building their wealth, whether that’s directly, like Bezos getting $250k from his parents (nearly half a million in 2020 dollars), or indirectly, like Buffet building a substantial amount of his holdings on monopolies in an era when the federal government was aggresively downsizing its anti-trust investigation and enforcement efforts, or the modern internet giants building fortunes on the bones of the federal and state research that created and maintain the physical infrastructre of the web.

No one builds wealth entirely on their own. And the people who are the most "self-made", as in were born into poverty and ended up in upper middle class or higher income levels, the numbers of people like that are so low that they fall into the noise you'd see in any random distribution. There's no difference between these people and millions of others, other than just getting lucky.

> "per your profile, you work at Facebook (which I assume making well over $250k a year) and yet your pushing for a socialist agenda?"

I'm originally from Finland. Now that I've been living in America for a while, I can compare both.

The modest success I've had in life is largely thanks to Finland's safety net and accessible opportunities. I received free college education in a specialist field (film post-production).

When I started a little software startup in said field, the Finnish government gave me small grants and loans to help me along. I didn't have to worry about healthcare during those "ramen profitable" years. The company wasn't a big success by any measure, but it helped me build a network.

Thanks to so-called socialism, I didn't have student debt and didn't need rich relatives to go into business on my own. But that's not a story that fits the American idea of entrepreneurship, I guess.

Although my current job at $BIGTECH pays well, the expenses are also calibrated very differently. Preschool for my kid costs close to $3k/month, which is more than 10x what anyone pays in Finland. The quality of the education is similar. I plan to move back to Finland when the kids are a bit older. It's just a more stable place to raise a family.

Thanks for the thoughtful and honest reply. However don't you agree without US capitalism ($BIGTECH) you wouldn't be as financially successful? I.E. if you stayed in Finland what would you professional and financial situation be?

Yes, certainly. Although I was doing fine by Finnish standards working remotely for a foreign startup and doing a bunch of other stuff, with a great degree of freedom. It wasn’t a bad life.

There are many things to admire about American capitalism. When I was growing up in the ‘80s, it held an almost mythical appeal. But reinvention is also part of the American myth, and it might be time for another round of that.

Wealth and success aren't only measured in dollars

I'll believe anything coming from Wall Street when they stop mixing CCP companies in million of Americans' 401ks.

> Birthright funds would be invested at birth in zero-cost equity index funds, be prohibited from withdrawal until retirement, and compound tax-free for 65 years or more.

I'm completely onboard with this if we remove the 12.4% (self-employed) social security tax. If you make over $138k (and self employed) you pay around $17k annually into social security.

One small problem though. Just where exactly is the US government coming up with the annual $26B to fund these Birthright funds? Perhaps we abolish social security tax, and convert everybody under a certain age's SS into a Birthright fund which grows tax free until retirement.

"Birthright funds", as described by Ackman, are Social Security with more aggressive investments (equity index funds) versus conservative special issue US treasuries [1].

We could just as easily increase taxes progressively (the wealthy derive more income from, wait for it, investments and capital wealth [2]) and increase Social Security payments instead, without the rube goldberg index fund investment component (which would end up enriching someone like Blackrock or someone similar to manage these broker-dealer accounts).

At the end of the day, it's about capturing and distributing the wealth generated by the economy to the citizenry (and where does that wealth come from collectively? labor and productivity [automation and machinery]). We're just arguing over the how. Social Security is very efficient, by the way [3]. It costs only 0.6% of annual benefits distributed to administer the entitlement program. Between them and the IRS (tax collection), is that more efficient than running index fund accounts for every American? I argue yes.

Not following such a course results in disaster [4].

[1] https://www.cbpp.org/research/social-security/policy-basics-...

[2] https://www.brookings.edu/blog/up-front/2019/06/25/six-facts...

[3] https://www.cbpp.org/research/social-security/policy-basics-... (Control-F Fact #3)

[4] https://www.washingtonpost.com/business/2020/05/04/baby-boom... (Millions of baby boomers are getting caught in the country’s broken retirement system)

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