February 2005

The PACT America Report

Retirement Bonus Check Simulation:

A typical ending account balance of $110,870.11 will yield $4,989.15 in annual interest payments. Therefore, a $5,000 draw could potentially allow a person to retire one year earlier than normal if he did not require traditional Social Security benefits for his living expenses (during that one year period). This person would quit working at age 64, and use the unemployment draw to supplement his income until he reached age 65. If he had earned income at age 64, he could even take a $5,000 draw and then make a $1,000 tax-deductible contribution to his account. This would create a net draw of $5,108, which represents a 2.16% bonus.

The account balance would be $4,182.73 less than normal at age 65. Therefore, this man would have received $5,108 for a cost of $4,182.73, which represents a bonus of $925.27. However, his annual retirement benefits would be only $4,800.93, or $188.22 less than normal. Therefore, such an action would have negative consequences after only 5.7 years. While such an option is not recommended, it is a potential option for an account holder. Nevertheless, this man would still have allowable catch-up contributions of $5,000. Therefore, at age 65 he could make a $4,182.73 catch-up contribution into his account. He would then be able to receive the standard monthly benefit, and have made a $925.27 profit in the process. This $925.27 is enough to buy a nice gold watch, and it will continue an American tradition that never should have ended. To save the hassle of all these unnecessary account transfers, all fully vested account holders with no outstanding draws against their accounts will be issued a bonus check for 1% of their total account value. The bonus check will have an upper limit of $1,000, and it will be issued to an account holder upon retirement at age 65. This will be known as the gold watch clause.

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