Sir,
I really appreciate your interest in these ideas. I am 65 years old and for the last 5 years have been trying to promote these ideas through such entities as the AARP and my Congressman. AARP didn’t understand the concept and would not allow me a dialog. My Congresswoman was replaced last week so I will start from square one with the new person. Again I really appreciate your interest.

Your points on the RMD, diversification, and being allowed to have SS withheld and used to pay taxes are well taken, however please read this dissertation and it should answer all of those points. This dissertation has been pared down from 18 pages several years ago. I only put the bare minimum on the original blog to see if there was any interest. Please please let me know what you think, you can not hurt my feelings.

IDEAS IN ACTION
Our world is changing faster today than it changed yesterday. This exponential level of change started with the advent of electricity and was fueled by the computer. Many new ideas and concepts do not have time to get off of the drawing board before they are obsolete.
The main problem with most new ideas is that their costs are directly proportional to the implementation or construction time. While computers have reduced design time to virtually nothing the financing and construction time for buildings, roads, bridges, tunnels etc requires years. We certainly need most of these long range projects as long as they are well planned and thought out so they do not become obsolete before completion. While we are formulating future plans however there are many things that can be done today to at least alleviate and sometimes cure some of our problems and make our lives better today. If we apply the rule “the cost is directly proportional to the implementation time “and the implementation time is one day then the cost is virtually nothing!
I have several ideas involving transportation that could be implemented within days, cost only some new signs and alleviate a significant portion of our traffic problems. Transportation, however, is not the subject of this dissertation. These particular ideas concern homes, mortgages, IRA’s, Social Security, helping the economy, anxiety relief for seniors, increasing tax revenue and saving the government money!

Most of us know that Social Security solvency, citizens not saving enough for retirement, the housing market and now a serious economic dive are today’s realities!

What is Washington doing about these problems? The general trend is to talk about problems until they get bad enough and then through money at them for a quick fix.

Why should Washington have to shoulder this burden alone? The citizens of this great country, as a group, are very capable of solving or at least alleviating many of today’s problems at little or no cost to the government.

The two ideas presented below require NO appropriation from Congress, nor do they require raising taxes or establishing any new tax. They do not take money from anyone or any group and then in turn give it to someone else. Finally the “ideas” do not require that citizens do anything differently than they are doing now! The “ideas” are very simply another choice!

Both ideas work very well individually however combined they provide greater benefits to the Government, the economy and the Nation.

The first idea is for Congress to allow citizens over 59 ½ to invest their IRAs in their principle residence.

The advantages of this idea; (I have not found any disadvantages)

Safe investment, ZERO RISK: There is no safer investment instrument that pays as much and allows the investor to use the instrument, than the principle residence!!! The only place that may be as safe is a federally insured savings account. The problem there is those do not pay very much and like every other investment instrument, except one, they will not let you use your money while it is invested.

A good investment/High yield: Many Seniors have been making mortgage payments since their mid twenties. Therefore, they have been investing in a principle residence for over thirty-five years, and obviously consider that to be a good investment! Consider the yield in this example: Assume $100,000, 30 yr fixed, 6% mortgage, monthly P&I = $600, 5 yrs into the loan, payoff is approximately $93,020. If $93,020 is invested then the yield is $600 per month, $7,200 per year or an APR of 7.7% as a starter!

Protects and increases the value of the IRA, maintains and grows the account for Senior and government: The investment is protected by the IRA LIEN (discussed later) and the CUSTODIAN. The value of real estate normally increases at a greater rate than any other ZERO RISK instrument and the appraisal is not often reduced by the local government. The senior’s IRA value continues to grow and there is a much better chance that there will be more to tax when mandatory distributions are required.

Seniors can use their equity without paying someone else for that privilege: Two of the most common phrases heard from the investment industry are “put the equity in your home to work for you” and “let us provide a home equity loan”, these phrases, while wonderful deals in certain circumstances, are saying “pay us for the privilege of your using your equity in your home”!

Simple and inexpensive to execute: This requirement is a must! Simple and inexpensive means less risk of fraud and easy for the retiring Senior and spouse to execute without costing any more than an investment in stocks, bonds and CD’s.

Requires only three people: The Senior, the spouse, and the IRA custodian are the only three people necessary, thereby again keeping the cost low!

This idea allows Senior Citizens to increase their income and decrease expenses: Paying off a mortgage effectively increases a senior’s monthly income by the amount of the mortgage payment. In actuality the expenses have been reduced which is better for tax purposes than increasing income. Yes, you would still owe the escrow, however you would be able to use your money until the taxes and insurance are due.
NOTE: The money that a person uses to make his / her mortgage payments comes from somewhere that is already under a tax umbrella; therefore the tax on this new income has already been paid!

This idea increases taxes directly and indirectly: In many cases the government will collect more tax because the mortgage payoff will eliminate the mortgage interest deduction and the money being spent would stimulate the economy constantly not just one time.

Promotes the economy: Seniors are generally finished accumulating and saving they want to spend. Seniors want to live in their homes, fix them up, remodel, add rooms or even buy a long awaited retirement home. Seniors want to donate to churches and charities, buy new appliances and even a new car. Seniors have the time and want to travel. As most people know the corner stone of a good economy is people spending money not investing on Wall Street!

Fantastic incentive: The ability to invest your IRA in your principle residence when you turn 59 ½, and payoff your mortgage, would be a tremendous incentive for young citizens to open IRAs early and put the maximum in each year. These IRAs started by young citizens are required to have a custodian, which means: jobs and business for investment brokers and banks, demand for good stocks, bonds, CDs and Mutual funds and the amount in IRAs is growing exponentially!!!

Note: This dissertation was written long before our retirement accounts and homes started decreasing in value. Although my retirement accounts have lost value my home has always maintained a high value to me because it is where I want to live.

The mechanics of the “idea” have two primary requirements: One, they have to be simple and two, they have to be inexpensive. The reasons are to allow anyone to use this choice without great expense and to eliminate fraud.

This is an overview of the simple mechanics of the “idea”.

The senior calls his / her “IRA custodian” and says that he / she would like to invest his / her IRA in his / her home (principle residence).

The custodian has the title searched and obtains the latest appraisal from the municipality.

The custodian notifies the senior of any mortgages or liens on the property.

The senior then decides how much of his or her IRA that he or she wants to invest.
NOTE: The minimum investment would be to pay off any mortgages and liens or if there is not enough in the IRA to do that, the financing would have to be restructured so the IRA is always first in line. The maximum investment would be the amount of the current appraisal. If the property were jointly owned by both spouses then both would have to agree on this investment.

The custodian then pays off all mortgages and liens and when recording those payoffs also records the “IRA LIEN”. The payoff is done with the senior’s money from his or her IRA.
NOTE: The “IRA LIEN” has no value or amount on the recording. The IRA lien only names the custodian and requires that the custodian be involved in any transactions with this property.

The custodian then figures the “percent of investment” maintains the records and adds the IRA lien to the IRA portfolio.

NOTE: The “percent of investment” is the amount of investment interest that the IRA has in the property. For instance, if the property appraisal was $180,000 and the IRA invested $60,000 then the IRA would have $60,000 / $180,000 = a 33.3% interest in the property. This percentage stays with the property unless it is changed in one of several ways; selling the home, investing more, paying off the IRA lien, taking a distribution, and or property improvement. Take “selling the home” for instance, suppose in several years the property needs to be sold and the higher of the current appraisal or selling price is $225,000.Therefore $225,000 X 33.3% = $75,000, which stays in the IRA for reinvestment.

The custodian continues to report the necessary information to the IRS.

The custodian collects a fee for this service to cover the recordings and title search and possibly a small annual fee. However any fees over the recording fees and title search should be small, after all, the custodian has been making money investing the senior’s IRA for many years.

Remember this idea would be a CHOICE and it would not require Congressional appropriation, more administration, new or increased taxes or taking money from anyone and giving it to someone else. The funds for this “suggestion” belong to Senior Citizens and are already in place. The funds have been multiplying since the IRA became a reality in 1974, and are waiting to be put to work much more effectively and efficiently than they are now.

This is a new twist on this “idea”

The present economic situation has caused great concern about protecting our retirement accounts especially as we begin approaching retirement age and beyond. Yes, the economy will recover, it always has, however when approaching retirement and experiencing retirement, the funds are often needed and expected. This is not the time to be waiting for economic recovery. The need to protect retirement accounts as retirement nears is crucial! The idea of investing one’s IRA in one’s home only becomes more obvious as a remedy or partial remedy to several problems.
Given: Many people own homes, their home is the most valuable asset most people have (for several reasons), many people have mortgages, the mortgage payment is their largest monthly payment, many people have retirement plans where they work or traditional IRA’s or both all of which are actively promoted and recommended by the government. The idea of being able to invest one’s IRA in one’s home at age 60 and the economic ramifications from the concept coupled with the recent economic downturn caused me to think more about how to protect retirement accounts.
The concept of phasing into retirement is the key. At age 50 and totally at the individual’s discretion he or she should be able to use what ever part of any already accrued retirement account to pay of their mortgage. Obviously they would have to be fully vested in a retirement account and have the necessary funds to meet the mortgage pay off. One of the requirements would be that they have had the mortgage for at least 5 years. The funds would be transferred from the retirement account, unless the account is already a traditional or Roth IRA, to a traditional IRA. Only the amount necessary to pay off the mortgage would be transferred and that amount would be invested in the home exactly the same way investing in one’s home after age 60 would work. All of this would be handled and supervised by the custodian. This concept ; requires no more government administration than we have now, gives individuals a greater control in the protection of their retirement accounts, increases the incentive to open and maintain retirement accounts and to buy homes, but most importantly it would increase the constant flow of money into the economy through individual buying!

The second and closely related idea is for Congress to allow citizens to decline part of their Social Security in lieu of having the declined amount count as the tax on their IRA distributions.

To rephrase this idea, “ALLOW Senior Citizens to use their own money and decline part of their Social Security”.

If we get back to business basics, a business that is not doing well generally has more money going out than it has coming in. The Social Security system has the same problem. The Social Security system, like most businesses can be fixed by increasing the income or decreasing the expenses or both by the required amount. People who have been in business or dealt with a budget will concur that it is much easier to reduce the costs than it is to increase the income. The Social Security problem is no different!

On the AARP website there is an article titled “Social Security: A Background Briefing”. The briefing lists ten options that are said to cover the spectrum of ideas that might be adopted for fixing Social Security. These options range from raising the tax and increasing the age to cutting benefits and reinvesting the Trust Fund.

There are many ideas on how to fix Social Security and new ones seem to pop up everyday. While these ideas and options may or may not work, they are all based on one or more of three concepts: (1) Adding money from somewhere (that the government does not have). (2) Cutting benefits to recipients, (going back on a promise). (3) Forming new strategies for young citizens to save for retirement. (Most of these are forms of the IRA which has been in place for 34 years already)

None of these options even mentions helping the present Senior Citizens or those soon to be seniors. There is no mention of allowing seniors to help themselves!

None of these options even mentions using money that is already available or giving Social Security recipients another choice!

Consider the advantages if Congress were to allow citizens to decline part of their Social Security in lieu of having the declined amount count as the tax on their IRA distributions.

This idea would reduce the Social Security benefit costs by allowing seniors to voluntarily decline some part of their Social Security benefits!

This idea requires no new money or adding any money, Senior Citizens already have the money and more is coming in everyday!

This idea does not require years of developing and building, it could start tomorrow helping Seniors and soon to be Seniors with their retirement and helping Social Security provide more funds for more Seniors in need.

This idea would effectively privatize Social Security only on the back end not the front end, thereby maintaining the income to the Government while allowing a choice for each citizen in retirement.

THIS IDEA IN NO WAY CHANGES ANY PART OF THE SOCIAL SECURITY PROGRAM!

To determine the declined amount of Social Security relative to the IRA distribution amount, simply use the income tax table for the current year. Here again simplicity is paramount!

For instance if a Senior wanted to exercise this option and take a $25,000 distribution from his or her IRA, simply use the tax table for the current year and under the appropriate situation find the tax on $25,000 (under “married filing jointly” the tax is $3024, 2006 tax table) and therefore the next $3024 of Social Security due to the Senior would be retained by the Social Security Administration or more accurately the U.S. Treasury.

A senior could avail himself or herself of this option any time during the year and as many times and for as much money as the senior desired. The annual distributions would be cumulative. Therefore the total amount of annual distributions would be used in the tax table to determine the total amount of declined Social Security.

QUESTIONS
There are two questions that are always asked about this “idea”.

1. Aren’t you trying to avoid paying tax on IRA distributions?

ABSOLUTELY NOT! First, “investing an IRA in a principle residence” is not taking a distribution and no tax is required. Second, under the present rules any distributions taken are strictly a choice by the Senior Citizen and are not required until age 70 ½, therefore Seniors only take the minimum amount that they need as distributions and because of their tax status they pay less tax on their entire income than the amount of Social Security that they would decline as tax on IRA distributions. There is the possibility that the Government would not receive any tax on an IRA until the senior is 70 ½. Obviously under the present rules there are no benefits for Social Security either, even from seniors who don’t need Social Security!

2. If the Government were to allow seniors to decline Social Security in lieu of the tax on IRA distributions, why allow seniors to invest in their principle residence? Wouldn’t that investment option deter seniors from taking distributions and declining Social Security?

Yes, in some cases that would happen, however the investment option would be available at age 59 ½ and would allow the senior to stabilize his or her financial situation prior to being eligible for Social Security at age 62. Even then the senior may not choose to decline Social Security. However his or her IRA will continue to grow and mandatory distributions are required at age 70 ½. Remember, too, that the seniors who invest their IRAs in their principle residence and payoff mortgages will be voluntarily giving up the mortgage interest deduction. All other things being equal, that means more tax!

ACTUAL NUMBERS AND SCENARIOS

The actual numbers are difficult for me to predict for two reasons; one, there are so many variables that actual scenarios are endless and two, some actual data has been difficult to acquire. However, these are numbers that came from the websites of the Employee Benefit Research Institute and the AARP; (1) there are about 50 million citizens receiving Social Security benefits, (2) approximately ¼ of those don’t actually depend on Social Security (this number would certainly increase if we were able to invest in our homes, (3) the average monthly Social Security benefit is approximately $1000 therefore 50 million times 1000 equals 50 billion dollars per month or 600 billion annually.

Examine Two Conceivable Scenarios:
Scenario #1: If we assume that only half of the ¼ of the citizens that don’t really need Social Security, (50 million X .25 = 12.5 X .5 = 6.25 million) were to take a $100,000 distribution from their IRAs and decline the appropriate amount of Social Security ($18,324 each) then Social Security would save approximately (6.25 million X $18,324 = 114.5 billion dollars per year..

Scenario #2: Assume that only about 330,000 seniors took a distribution from their IRAs of $25,000 and declined the appropriate amount of Social Security ($3,024 each), then Social Security would save approximately 1 billion dollars and that would pay the full annual benefit for approximately 80,000 new Social Security recipients!

Remember Senior Citizens would be voluntarily making these choices!

Most seniors like most other American Citizens want to help themselves. Therefore since seniors have the desire, any seniors who have the ability will help themselves! Congress has given many citizens the ability with the IRA. Each year more and more citizens enter retirement with larger and larger IRAs. This country is literally on the leading edge of this “new technology”. IRAs have unbelievable capabilities and are waiting to be put to work for the benefit of the entire nation.

Once again this “suggestion” would reduce the Social Security benefit costs by allowing seniors to voluntarily decline some part of their Social Security benefits!

This “idea” requires no new money or adding any money, Senior Citizens already have the money and more is coming in everyday!

This “idea” does not require years of developing and building, it could start tomorrow helping Seniors and soon to be Seniors with their retirement and helping Social Security provide more funds for more Seniors in need.

The only thing needed is for Congress to allow it to happen!

C. E. Lee, RSC

• Flag as spam
• Log in to Reply