According to the National Institute on Retirement Security the average American’s retirement savings are woefully too low. Two-thirds of working households within 10 years of retirement age have less than one year’s income saved for retirement while collective retirement savings deficits for households ages 25--64 range from $6.8 trillion to $14 trillion depending on calculation criteria.

These baleful statistics highlight the need for a new national retirement plan to enhance future retirees’ income and standard of living. Enter my proposed MORA, the Market Oriented Retirement Account, a voluntary retirement account to run parallel to Social Security and any other existing retirement plans. It’s based on long-term S&P 500 annualized growth rates, dollar cost averaging, the magic of compound interest and the programmed utilization of stock market index funds. If properly structured, MORA will be good for the individual, the stock market and the economy -- while adding nothing to the deficit.

Unlike the government’s, the average person’s working lifetime is approximately 45 years with meaningful discretionary income for retirement investment not really available until age 30 or above. Thus, the individual is effectively handicapped by a time-limited investment horizon of only some 35-40 years; if he invests mainly during market highs on average and liquidates assets for retirement during an extended market slump, he may well miss a respectable 25 year annualized rate of return of the S&P 500, such as the 9.28 percent in 2011. Note: this was the lowest in the time span of 1992 to 2011. The central question: How to best maximize retirement investment returns while minimizing the risk?

The 25-year annualized total rate of return of the S&P 500 has ranged from 10.56 percent in 1992 to 10.26 percent in 2013, with a high of 17.25 percent in 1999 and a low of 9.28 percent in 2011. Attention is brought to the fact that although this time span had four precipitous drops in the annual S&P 500: 2000, -11 percent; 2001, -11.89 percent; 2002, -22.1 percent; 2008 a whopping -37 percent, nevertheless the annualized 25 year periods in the chart never dropped below 9.71 percent. From 1970 through 1991, the lowest 25 year annualized rate of return of 7.94 percent occurred briefly in 1981, with the rest of the twenty-two year time span averaging well above 9 percent. The conclusion: staying invested in the S&P 500, over a very long term assures strong returns, which individuals have difficulty doing because of very limited investment time horizons.

 Gratifyingly, here then is a place for government after all. While the individual’s working years are limited, the government’s longevity is indefinite, providing an overriding and hitherto unrecognized investment advantage, an unlimited investment time horizon.  In other words, the government has the staying power to ride out market undulations and come out ahead in the long run. Thus, an independent government agency administering MORA could invest in the S&P 500 index funds (other indexes might also be considered) and, based on over 40 years of historical record, not only guarantee the individual’s return of principal but also a generous rate of return in the order of 8 percent - with very reasonable expectation that the S&P 500 index funds, if not already doing so, will eventually very likely yield 10 percent or more.

Let’s pause here to note what 8 percent compounded over 35 years can do for an individual’s retirement account. An initial investment of $2,500, with an additional $2,500 added every year for 35 years at 8 percent yields $502,219; for 40 years, $753,764. In just five additional years the magic of compound interest increases the retirement nest egg by over 50 percent. The importance of starting savings for retirement at the earliest practicable date cannot be overstressed. Indeed, time is of the essence.

 An individual’s MORA account would be private property with enacting legislation stopping Congress from raiding, milking, borrowing from MORA, or from using “surpluses” in budget-balancing chicanery. For MORA’s overall authority and an independent agency is necessary, but private financial institutions (Fidelity, Schwab, etc.) would bid to provide individuals continuing administrative and accounting support.

 Unlike individuals, the government has an indefinite investment time horizon giving it a major advantage over individuals or any financial institutions. This advantage can be structured into MORA, which will encourage individual retirement savings, thus supplying the economy with additional investment capital, while allowing individuals to earn a far greater and secure rate of return than any other savings/retirement plan at no net cost to the taxpayers....

Andy Logar lives in Santa Rosa.