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Time now to move the discussion from the problem and possible reader presented solutions to what may be one of the best articles on the topic. Balanced and pointing the way forward for many who are not in as bad a shape as they could be and still have time. Please react and you folks have been great in staying on topic, sharp, focused and cordial. Awesome job. I am presenting the link and a few highlights but I strongly suggest reading the entire article:
Despite the challenges many Americans face in setting aside enough money to finance their golden years, experts say the retirement system is not a lost cause. But a few improvements—many already in the works—could make a big difference for savers.
But it's not all doom and gloom. A recent study from the Center for Retirement Research at Boston College estimated that only about 12 percent of households approaching retirement might be falling short, provided they spend less once their children leave home and their household spending declines in retirement.
Industry groups, such as the Investment Company Institute, have called the retirement system "an American success story," noting that more than 80 percent of workers with access to retirement plans participate in them and those approaching retirement have an average combined balance of nearly $360,000 in their employer-sponsored retirement plans and IRAs.
"The U.S. retirement system—made up of Social Security, 401(k) plans, pensions, IRAs and homeownership—is strong and working for the vast majority of Americans," an institute spokesperson said. "Any changes should build on the system's successes by expanding access to savings opportunities for employers and workers."
Lots of recommendations in the article many in the works that include expanding 401(k) accounts and protecting investors with them. You folks know the drill.
This thread is intended to focus on the solutions and possibilities in the article and how they can be built upon if appropriate or why they aren't appropriate. It isn't about how people got into their situation good or bad but how that individual situation can be improved. It is about how to protect and improve the ability to improve themselves. Of course there needs to be a will but lets assume the will is there. For some of us the path was fairly easy and for others lots of rocks and mountains. Remember the tax savings for two people contributing the same each year to their 401(k) is much greater for the person making 200k per year than the person making 20K per year. So it isn't just about equality/inequality but balance.
Time now to move the discussion from the problem and possible reader presented solutions to what may be one of the best articles on the topic. Balanced and pointing the way forward for many who are not in as bad a shape as they could be and still have time. Please react and you folks have been great in staying on topic, sharp, focused and cordial. Awesome job. I am presenting the link and a few highlights but I strongly suggest reading the entire article:
Lots of recommendations in the article many in the works that include expanding 401(k) accounts and protecting investors with them. You folks know the drill.
This thread is intended to focus on the solutions and possibilities in the article and how they can be built upon if appropriate or why they aren't appropriate. It isn't about how people got into their situation good or bad but how that individual situation can be improved. It is about how to protect and improve the ability to improve themselves. Of course there needs to be a will but lets assume the will is there. For some of us the path was fairly easy and for others lots of rocks and mountains. Remember the tax savings for two people contributing the same each year to their 401(k) is much greater for the person making 200k per year than the person making 20K per year. So it isn't just about equality/inequality but balance.
I don't see a lot that government can do that's going to help low-wage workers, who arguably are the least likely to have retirement savings. I would consider forcing employers to provide all workers access to a 401(k) an insult to low-wage workers.
There is only one solution. Growth in mid income jobs.
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.
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 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.
There is only one solution. Growth in mid income jobs.
But that does not help those who have no real skill. Its evident for decades of warning they ignore till a crisis in their lives. Those so called middle income jobs require more than turning a screwdriver ;this isn't the 50's.
But that does not help those who have no real skill. Its evident for decades of warning they ignore till a crisis in their lives. Those so called middle income jobs require more than turning a screwdriver ;this isn't the 50's.
In reading the article, I think the two proposed policy changes below are most likely to help reducing income inequality in retirement
"Tax benefits for retirement savings could also be reassessed. "Our tax subsidies for retirement savings right now are upside down," said Morrissey. Savings from pretax contributions are more valuable for workers in higher tax brackets, said Ghilarducci. "If you make $20,000 and save $1,000, that's not as big of a break," she said.
Groups including the National Institute on Retirement Security have recommended making the existing Retirement Savers Credit refundable and expanding its eligibility. Currently, it offers low-income workers a credit of 50 percent of retirement contributions, worth up to $1,000."
Something is seriously wrong with the current retirement saving system where very wealthy people like Mitt Romney has over $100M in IRA. A Bloomberg article in Sept 2014 reported that there are 9000 taxpayer each has accumulated AT LEAST $5M in IRA. The article cited by TurborgP stated the median 401K account (at the end of 2013) is only ~18K.
Automatic enrollment and more employer's match may help to increase the 401K participant rate which is curently at ~75%. Tax incentive and tax credit are more likely to have greater effect on increasing the rate.
[flame suit on] I'd like to see a complete reversal of the tax subsidies for retirement saving with the low income get the most and the high income get the least. I also don't see why the very wealthy should get tax deferrals on their retirement saving. They certainly don't need the tax break and already have many avenues/places to shelter their income like the numerous offshore tax havens! [waiting for the armchair supply-side/trickle-down economist to show up ;-)]
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
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