Kotlikoff Joins Laffey Presidential Campaign as Chief Economic Advisor

The Plan for Social Security

Based on the campaign’s website, Laffey’s proposals to address Social Security’s funding woes are based in the plan Kotlikoff has been advocating for years. The basic idea is to reset the retirement contract that America makes with its citizens. The plan includes scrapping Social Security and starting a fundamentally new system based on government-managed individual investment accounts.

To do that, Kotlikoff recommends freezing the current Social Security accounts of those, for example, currently at age 40. When these workers retire, they would get Social Security benefits based on their earnings up to age 40.

Kotlikoff’s plan would generally require workers to put 10% of their pay into their personal retirement account, generally to be matched by employers. The government would make progressive matching contributions on behalf of the poor or unemployed, he says.

These accounts would then be government-invested “by a computer in a global index fund of stocks, bonds and real estate investment trusts” of major markets. Everyone would get the same rate of return, and the government would guarantee a return on contributions.

Between ages 57 and 67, each birth cohort’s balances would be used to purchase Treasury inflation-protected securities (TIPS). In turn, each cohort’s TIPS assets would be used to pay for inflation-indexed life annuities that begin at 62 and are fully phased in by 67.

If a person dies before 67, their heirs receive the balance not yet converted to TIPS.

“In short, our politicians have constructed a fiscal monster,” Kotlikoff recently told ThinkAdvisor. “Its economic damage can’t be eliminated piecemeal, for a simple reason. Each of our fiscal system’s programs contribute to all or most of the system’s problems. … In short, all aspects of the system need to be reformed in unison.”

A Serious, Sensible Candidate

In a new discussion with ThinkAdvisor following the campaign’s announcement, Kotlikoff said he is pleased to be contributing to a Republican presidential campaign that is “actually about the issues instead of lying and name calling.”

“If people don’t know about Steve’s full background, they should really look into it. He has had an amazing life journey, from growing up in serious poverty to graduating from Harvard Business School and running a highly successful bank,” Kotlikoff said. “As mayor, he did so much to get his home town of Cranston, Rhode Island, into better fiscal shape, and that is experience that the country needs.”

Kotlikoff urged the financial advisor community to carefully review and consider the Laffey platform in the weeks and months ahead, especially the proposals regarding Social Security and those related to health care and tax reform.

“We don’t agree on all the social issues, but Steve is a serious, sensible person with a mature and grown-up perspective, and a conviction to actually address problems,” Kotlikoff said.

(Pictured: Economist Laurence Kotlikoff)