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the future of retirement
Smart Republicans Would Address This Now
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  • Kevin

    State gov’t run retirement plans are an absurd gamble on the honesty and competence of state governments decades into the future.

    Company run defined benefit plans suffer from the same drawback.

    401(k), etc. programs are quite problematic for smaller labor intensive employers, as the calculations and paperwork required for regulatory compliance are burdensome.

    Expanding the absurdly low maximums for IRA/Roth contributions and making the tax benefits available to employees whose employers offer, often substandard, “retirement” plans might be a much better way to go.

    • Fat_Man

      Amen. You have said it better than I did. Creating an IRA or 401(k) should be as easy as opening a checking account.

      • Andrew Allison

        As you pointed out, it IS as easy as opening a checking account!

        • Fat_Man

          Kevin is correct there are too many rules and too much compliance work. it could be a lot easier.

          • Fat_Man

            There are lots of rules that could be scrapped as they make no difference other than hassle to the investor. I have 3 IRAs, they cannot be combined because the source of the money was different. One was an inheritance, one was personal contributions, one is a 401(k) rollover. There were many times in my life when I could not contribute to an IRA because I was “a member of a pension plan”, except that I left before I vested, and wound up with neither.

  • Andrew Allison

    Some evidence in support of “Many Americans face the prospect of inadequate savings once they retire, primarily because they have not had access to an employer-sponsored retirement savings program.” would be nice. Given the abysmal failure of the majority of Americans to save, I rather suspect that it’s using, rather than having access to employer-sponsored retirement savings programs that’s the problem. Let’s fact it, IRA are available to all, and widely underutilized (https://books.google.com/books?id=RYBPJYaF4OAC&pg=PA129&lpg=PA129&dq=utilization+of+IRAs&source=bl&ots=_wfZiKb-Fv&sig=jEuwKOk7AOxrr8BNnNCMHM5G0jA&hl=en&sa=X&ved=0ahUKEwjXjOrXu-DRAhVnz1QKHS-7A1MQ6AEIRzAJ#v=onepage&q=utilization%20of%20IRAs&f=false). Ditto for HSAs, which not only provide pre-tax payment for medical expenses and reduce MAGI for ACA purposes, but become IRAs at 65. In short, the problem is not access to savings plans, it’s willingness to save.

    • Kevin

      HSA have some attractions, but…

      1. Your employer has to offer and you have to opt into a high deductible health insurance plan.
      2. The fees on these savings accounts can be very steep.
      3. Almost all offer pitiful investment options (i.e. 0.2% annual interest rates and a monthly fee if your balance is below $3-5K (when you can only contribute this much in a single year), or the option to choose from a limited number of investment options with exhorbitant fees.) Note that the fees generally amount to 5x or so the annual “earnings” on an account.

      Their own not real attraction is the ability t shield income from taxation, but as an investment option they are pretty horrible in most cases.

      • Andrew Allison

        Wrong. Anybody with a high-deductible plan, and thanks to ACA there is no other kind, can enroll. You are correct that there are a lot of rip-offs, especially among the HSAs offered by health insurers, but a little due diligence (http://www.hsasearch.com/hsa-providers/hsa-provider-lists/) will get you a no-fee, no minimum, HSA with an interest rate better than you can get from a bank. My wife’s HSA cost her absolutely nothing to set up and has no minimum and no fees. It’s certainly not an “investment vehicle” but given that, like an IRA, the contributions are tax deductible it’s a damned good savings account, even without the increased premium assistance resulting from it being a MAGI deduction.

        • ljgude

          I am beginning to see how health care might play out in the US. (We have previously discussed at length the Australia system and comparative costs as a percentage of GDP) I can see many Americans opting for a high deducible plan hoping to get through to 65 and Medicare. That is what I might have done in present circumstances. However, being 74 I know that I had serious, but treatable health problems by my early sixties. It was controllable with drugs and, as it happened, surgical intervention came after I was 65 – so I would have squeaked by. Some of course run right into a life threatening situation well before 65 and then a prudent health saving plan might deal with the deductible. Or they might have to sell the house or just try to work their way out from under the debt. It will be interesting to see if the Republicans come up with a better structure by breaking down state monopolies but so far I haven’t seen enough detail to understand what they might do overall. One thing I have heard little about is the problem that medical spending has risen since the ACA passed from 16% of GDP to 17.1% in 2014 according to a recent article here at AI.

          • Andrew Allison

            No surprise that medical spending has increased — ACA has given a lot of people access to healthcare, and the requirement to cover pre-existing conditions simply adds to the costs. In fact, ACA coverage is so UN-affordable that almost as many people abandoned it last year as there were new enrollees. We both know what the answer is, but the rabid resistance to single-payer insurance means it isn’t going to happen. What is little understood is that there is already a single payer of the “premium support” received by 85% of ACA plan holders and Medicaid, namely the US taxpayer.

  • QET

    Given that wages are too low for people to afford current consumption–housing, education, e.g.–and that payroll taxes will not abate because social security recipients are increasing rapidly, and also that interest rates are unlikely to return to high-enough levels, how is someone going to actually save enough for retirement? I suppose any savings is that much less that the government has to pay to him, but I just don’t see where enough surplus wages is going to come from to pay for more than a few years of retirement. Such plans are ultimately founded on the same set of underlying assumptions about returns that, say, civil service pension plans are, and we see what has happened there.

    • ——————————

      ‘how is someone going to actually save enough for retirement?”

      By living well below their means, like people used to do.
      People are living like there’s no tomorrow, and depending on others to take care of them….

      • Fat_Man

        I think you meant living within their means. If you aren’t saving 10% of your gross, you are spending too much and need to cut back.

        • ——————————

          Yes FM, I meant “well below”, meaning that you would have at least that extra 10% after your living expenses to invest for the future.
          I have been self-employed all my life, so there is only the pension I create for myself.
          I think 10% is a good number, but I go well beyond the 10% for savings…especially after 2008….

      • Andrew Allison

        Right, I was tempted to reply to QET that most of them have late model cars, cell phones and cable TV, all of which of course are much more important that saving for your future.

        • ——————————

          3 cars in the drive, a smart phone for all family members, a big screen w/cable in every room, no hand-me-downs for the children, a jet ski, a boat, an ATV, much more square footage than they really need, 6 year payments on furniture, a….

  • Fat_Man

    What the devil are you talking about. You can create an IRA in a few keystrokes at Vanguard. The State programs I have heard of are simple attempts to steal from the ignorant and credulous. The only thing I would want the Federal Government to do is to remove a lot of the fiddly rules from IRAs (income limits etc.) and SEPs.

  • Anthony

    “Americans accumulate the vast majority of their retirement funds through employer sponsored defined contribution plans, such as 401(K) accounts. However, more than 40 percent of full-time employees do not have access to one.” (Issue Brief – Pew Charitable Trusts)

    WRM, what you implicitly ask is that our government and market economy make a neglected social investment (Pensions for our working citizens). In reality you’re expressing faith in the “mixed economy” – a faith not currently shared by many representatives in the GOP. Nevertheless, this challenge ought to be picked up as a valuable social investment (with all that entails).

    A related note vis-a-vis the positive-sum society: “The mixed economy remains a spectacular achievement. Over the past century, we leapt across the Great Divide. We broke from the entirety of prior human existence, in which life was nasty, brutish, and short for almost everyone, and entered an era in which most Americans could look forward to long lives, a real education, and previously unimaginable material comfort.. By combining the power of markets with a strong dose of public authority, we achieved unprecedented prosperity….” (How the War on Government Led us to Forget what Made America Prosper)

  • Jacksonian_Libertarian

    The Republicans have tried to create private Social Security Accounts (like the Chilean SS system, which has made Chile’s economy the strongest in South America), the Leftists screamed blue bloody murder and spread “fake news” to stop them.

  • buermann

    “the proliferation of expensive and badly-run state programs…a way that low-income workers could qualify for some kind of match from federal and/or state governments”

    So the solution is yet another expensive and badly-run means tested state program. Problem solved!

  • FriendlyGoat

    Republicans will be dreaming up all kinds of helps via the tax code for households north of $100k and next to nothing for people living hand to mouth now—-an ever-increasing group of people. In fact, what the lower segment can look forward to is a long assault on what their present health insurance covers (if they have any) and long assaults on both Medicare and Social Security. “Smart Republicans” would have addressed both health care and retirement a long time ago except for the inconvenient problem that anything really smart (aka effective) at the citizen level violates GOP principles. That’s why they never led to solve these problems in the past and never will in the future.

  • This all sounds lovely for the segment of the workforce that isn’t living completely hand-to-mouth. But for the growing segment that’s making ends meet by deciding whether to buy enough food or pay down the electric bill enough to keep the lights on, saving for retirement has about the same urgency as learning to speak Oroch in their copious spare time.

    We’re getting perilously close to the point where the whole “you’re entitled to an annuity because you paid into it” paradigm is going to stop working. The alternative–means-tested income support–may ultimately make more sense. It wouldn’t be my first choice, but deluding low-income workers into thinking that they’ll be taken care of because they paid into social security doesn’t seem like a viable model. And convincing them to pay into a defined contribution plan is just silly.

  • lhfry

    According to Forbes, “There are almost 28 million small businesses [businesses with less than 500 employees] in the US and over 22 million are self employed with no additional payroll or employees (these are called nonemployers)” It’s those 22 million “nonemployers” that are a problem for retirement savings programs.
    Defined benefit plans are no longer workable even for large employers because employees rarely stay on the job for the 30 years required to qualify for a decent payout. That’s why 401ks appeared to be the answer, however, they require personal responsibility. The left has spent decades undermining such qualities as self-reliance (I should take care of myself and my family), self-restraint (I want what I want now and if I have the money now to get it, I will), industry (hard work is no longer valued by large numbers of people), thrift (it takes work to save for the long term and of course monetary policy has made it more difficult for small savers), etc. So no surprise that people are not saving for retirement.

  • Charles Gonzalez

    An important conversation that has existing solutions. The biggest problem for retirement savings is lack of discipline and convenience. That’s why employment centers solutions have proven to be the most effective way to spur saving. IRAs and SEPs are fine for the self employed and disciplined saver, but payroll deduction is the on,y way to address the very real human need to hold on to their money to spend. President Bush’s EGTRRA in 2001 did more to encourage small business saving plans than any other rule on the books. And by the way, the compliance fees for 401ks are NOT the cost of a FTE unless that FTE earns about $1/hour. A well designed small business solution could bring annual compliance costs to $.25/hour and make even the smallest firm of 5 employees able to sock away 100% of comp to the 401k limit of $18,500 or $24,000.
    Alas, who is going to educate and bring employees to the table to start saving? To bring fees down will mean the elimination of any compensated advisors and would necessitate central order takers or mandatory enrollment as has been done in other nations.
    The conversation about retirement has been too focused on the upper middle and upper income part of society, and has not addressed the critical social and economic imperative to get wage earning Americans to start saving. Can it be done? Sure, I’ve done it with low wage workers for 20+ years, but it isn’t easy.

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