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In all candor! The emerging reality may be to live at a lower standard of living than others. There are very few guarantees in this life and we are beginning to be unable to afford some of the ones we think we have. Read the budget proposals from the House and Senate. While the other side of the aisle may disagree, have they figured away of paying for their goals short of a future bankruptcy? Future solutions are going to depend more and more on individual behavior and their ability to ADAPT!
I'm not too impressed with the main solution of "tricking" employees into saving more for retirement by automatically enrolling them in "optional" retirement plans, and then periodically escalating the percentage of income sent to the fund. I'd be more impressed with stuff like:
- Many more employer matching contributions up to at least 5% of income
- A tax credit for employee contributions, instead of a tax deduction
- Capital gains in IRA/401K accounts taxed at the capital gain rate when withdrawn, instead of being treated as ordinary income
Those increased matches would probably come at the expense of other compensation and would be lowered in recessions or falling profits.
Tax credit fine, but less government taxes?
Capital gains taxes in retirement accounts I would love that but again a bigggggggg decrease in tax revenues with the inevitable resulting whine. It benefits the wealthy because they have more money saved and that tax revenue is need to help those without. Would it be a resulting transfer from those more dependent on government services to those least? That is part of the background in all three inequality threads. Who really benefits and at what expense to others.
The article offers multiple strategies especially catchup opportunities after the kids are gone. Key is availability of retirement savings vehicles. As expenses are reduced etc shift that money and any increases in wages to savings and not new consumption.
As a financial analyst, I just have to point out that catch up provisions are incapable of ever closing the gap in a truly meaningful way. By the time the kids are gone, most of the pieces are set on the board. If you aren't most of the way to having your retirement funded, you won't get there without a huge cut in lifestyle or dramatic increase in income.
Those increased matches would probably come at the expense of other compensation and would be lowered in recessions or falling profits.
Tax credit fine, but less government taxes?
Capital gains taxes in retirement accounts I would love that but again a bigggggggg decrease in tax revenues with the inevitable resulting whine. It benefits the wealthy because they have more money saved and that tax revenue is need to help those without. Would it be a resulting transfer from those more dependent on government services to those least? That is part of the background in all three inequality threads. Who really benefits and at what expense to others.
To your first issue, looking at the massively skewed wealth distribution today I'd say this is overdue. And I state this as a pretty financially comfortable investor with a rather steep tax bill who generally votes for Republican candidates.
The second issue of a tax credit instead of a deduction has to do with incentives to save and invest for the lower income folks, who have the greatest need for this help.
Capital gains are capital gains, regardless of where invested. If you want to increase incentives to save for retirement, you need to make it worthwhile.
Again, I favor a system that provides incentives to work and appropriately save for retirement. In my opinion, today's system and the proposal in that article, don't properly address this concern.
My honest view is that there is a lot of phony hand wringing taking place today, especially politically.
I agree with restricting hardship withdrawals. And eliminating the penalty on a true hardship. That's kinda like kicking someone when they're down.
It was interesting to note that the Gallup poll of 2014 put the average savings at $18,433 yet the industry groups stated it was $360K a cross 401K & Ira's. I tend to believe Gallup.
I think all employers over a certain size should be required to offer a 401K plus a match. The lack of a match again shifts all responsibility to the employee to save and yet the 401K's were sold as replacing defined pensions, which saved corporations billions over the last couple decades.
Again, I agree with limiting the size/type of fees that 401K managers can charge and adding a fiduciary responsibility so that they could be held accountable is a good idea. No wonder Wall St is screaming over it. They don't want us to know how much their sucking off our sweat equity.
One thing that wasn't mentioned was the policy of many companies not allowing enrollment until after one year of employment. If you changed jobs 4 or 5 times in a lifetime (and that's a low estimate) you would have lost 4 or 5 years of savings in a 401K. It should be require to offer on the first day of employment.
I agree with this. The employer I left 2 years ago, after working for 8 years, they never committed to matching but always said it depends on that year's profits....in the 8 years I worked there they didn't do any match, in any year. This is a rehab company with contracts in nursing homes all over the east coast from NY to Florida.
Where does this idea of income inequality is a bad thing come from? Somehow that it is inherently unfair and the way to fix it is to take the extra money from someone and give it to someone with less so we can all be equal?
No, I worked for mine and am still working for mine. I'm 67, still working full time and plan to continue working to age 70.
So I work to 70 and get nearly twice what someone gets working to 62 but somehow the fact they get only a little more than half of what I get is unfair?
I am philosophically against forcing anyone to do something with their money. If they don't want to save for retirement then fine but don't come crying to me when you're 67 and tired of the cat food diet.
One thing I would like to see is a change in tax rates for social security.
I am lucky, 67 and still working at a full time job but my job is rather sedentary so I can do it. Some jobs, roofer or other construction worker for example, can't work beyond 60 because for many it would unsafe. 20 years ago I could climb a 20 foot ladder but today it would be unsafe and I recognize that.
Right now it is 6.2% for the employer and employee and 6.2% for the employer. Why not give an option to the employee where if he gives 8% (the employers part would stay at 6.2%) he can reset his full retirement age to 62 from 66? Maybe if he gives 8% over 20 years he gets an additional $400/month when he retires?
But giving more would be up to the employee. If he doesn't want to fine but don't come crying to me when you can't make it.
When my company started its 401k plan around 1974, we had lots of people that refused to participate. The kids of those people are in the workforce today and I suspect they don't participate . The rule I lived by is pay your self first.
When my company started its 401k plan around 1974, we had lots of people that refused to participate. The kids of those people are in the workforce today and I suspect they don't participate . The rule I lived by is pay your self first.
Add a couple years.
The section of the Internal Revenue Code that made 401(k) plans possible was enacted into law in 1978.
I'm not too impressed with the main solution of "tricking" employees into saving more for retirement by automatically enrolling them in "optional" retirement plans, and then periodically escalating the percentage of income sent to the fund. I'd be more impressed with stuff like:
- Many more employer matching contributions up to at least 5% of income
- A tax credit for employee contributions, instead of a tax deduction
- Capital gains in IRA/401K accounts taxed at the capital gain rate when withdrawn, instead of being treated as ordinary income
A law to require employers to do 401-K matching is only going to accelerate the erosion of the middle class. It will simply be more incentive to either offshore jobs or automate them.
A tax credit is kind of nuts. Federal income taxes are already at historic lows. You want to heap on tax credits?
401-K and IRA distributions occur when you have little other income. Very few retirees pay much in the way of Federal income taxes. I don't see any reason to change the tax code for the very small number of retirees who show very large incomes at retirement. The mandatory distribution for a tax deferred retirement portfolio of $1 million at age 71 is $38K. The Federal income tax bill on that is chump change even if you also have the maximum $41K Social Security benefit.
I think the only real solution to this is to require people to save for retirement. More than half the country has a fancy cell phone with an expensive plan, a big cable TV bill, a fancy car with a car payment, but zero retirement savings. I'd intertwine it with health savings accounts. If you're young and healthy, your HSA flips to an IRA account at the end of the year.
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