Personal retirement accounts are voluntary accounts that blend insurance and investment properties for both supplement retirement income and estate liquidity in a tax-efficient way.
The process
The funds are invested and accumulated within a policy in a tax-preferred way. Such savings can later be withdrawn to provide retirement income, or the policy can be kept as collateral to support retirement income. The tax advantage of the policy will benefit the beneficiary either way.
Here are the major advantages of personal retirement accounts:
- PRAs could become a significant source of capital for businesses in low-income communities.
- This hybrid can break the chain of poverty by passing on the enhanced wealth to beneficiaries.
- These accounts boost private savings at a macro level, thus reducing government liability.
- It provides flexibility, enabling workers to control retirement.
- Money would move within the community, strengthening its economic base
- Workers would also own social security.
- Inheritance at all income levels would increase.
However, there are a few problems associated with Social Security privatization/personal retirement accounts:
- Personal retirement accounts may worsen the purpose of long-term funding by moving money that is meant for payment of benefits.
- These accounts are exposed to greater economic risk. They concentrate the risk rather than spreading it out. They require enormous cuts in guaranteed benefits, which further increases exposure.
- Personal retirement accounts turn the insurance concept of Social Security into an investment opportunity, often destroying the essence of the same.
To sum up, this well-designed investment system is the perfect mix of insurance and investment, which helps personal retirement accounts maximize the overall benefits.