15/Jan/2009
Do We Want Uncle Sam to Take Over Our Retirement Planning?
By Marcel Dupre, Wealth Planners
We Americans can be somewhat short-sighted at times. At a time when the stock and bond markets are in a slump, many would love for the government to come riding in on a white horse and take over their retirement accounts with guarantees of no loss of principal and a pitifully low rate of return. There is even a proposal gaining attention in Washington to do just that.
Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, testified before a Washington House Education and Labor Committee about a plan she proposed that would give all U.S. workers a $600 annual inflation-adjusted subsidy from the government.
She also calls for these same workers to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money would be invested in government bonds that would pay 3 percent a year adjusted for inflation. Her plan also calls for the elimination of tax breaks for 401(k) plans for contributions and earnings.
But just imagine if someone proposed this system of guarantees with low yields two years ago. There would have been about as much traction as a car with bald tires on an icy Minnesota highway. But now, there is actually some interest in this plan by our so-called representatives.
It is understandable that there is concern about losing value in your retirement plan, but are you willing to turn your hard-earned money over to the bureaucrats? We may be leaning more towards a socialist society as it is, but this proposal sounds about as anti-American as it gets.
Imagine if your retirement plan contributions don’t appear to be accurate on your statement today. You would probably call your HR department or a representative at the firm that runs your company retirement plan. You would eventually find an answer or at least have the right to a legal claim if there was a big problem.
Now imagine finding the same problem with contributions on your new government-run retirement plan. You would be calling the Social Security office to figure out the problem. What a nightmare! You probably will be told to go down to the nearest Social Security office and pull a number to wait in line for hours to discuss the issue with a representative.
Other things to consider are:
1. What if you want to put in more than 5 percent of your pay? You could do it, but you would get no tax deductions for the contribution. This is essentially another tax on the “rich” but since you have enough disposable money to invest beyond 5 percent you must be rich and therefore deserve to pay more taxes (yes, I’m being sarcastic).
2. How could you invest your retirement money in something that may earn more than 3 percent in the hopes of retiring sooner? Investing in options like stocks and bonds would be impossible. Sorry Charlie, the government knows best about how to invest your money.
3. What would happen to our stock and bond markets if all the current retirement dollar inflows were to stop? Good question. We probably should think long and hard about cutting off funding for our free market businesses and instead send our money straight to the government. If you knee-cap the 401(k) plans by eliminating tax breaks, there will be no incentive for employers to maintain the plan. Employees will have no reason to fund the plan either. Therefore, all the retirement dollars would belong to Social Security.
But there is a way to try and bridge the gap that may make the majority happy. Why not offer this government plan as an option to existing 401(k) plans. Go ahead and require that everyone invest 5 percent of their pay, but allow us to invest more than 5 percent and allow us to continue with the tax benefits. Also, allow for us to choose the government plan or give us the option of investing in stocks and bonds. After all, choice is the American way.
By Marcel Dupre, Wealth Planners
We Americans can be somewhat short-sighted at times. At a time when the stock and bond markets are in a slump, many would love for the government to come riding in on a white horse and take over their retirement accounts with guarantees of no loss of principal and a pitifully low rate of return. There is even a proposal gaining attention in Washington to do just that.
Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, testified before a Washington House Education and Labor Committee about a plan she proposed that would give all U.S. workers a $600 annual inflation-adjusted subsidy from the government.
She also calls for these same workers to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money would be invested in government bonds that would pay 3 percent a year adjusted for inflation. Her plan also calls for the elimination of tax breaks for 401(k) plans for contributions and earnings.
But just imagine if someone proposed this system of guarantees with low yields two years ago. There would have been about as much traction as a car with bald tires on an icy Minnesota highway. But now, there is actually some interest in this plan by our so-called representatives.
It is understandable that there is concern about losing value in your retirement plan, but are you willing to turn your hard-earned money over to the bureaucrats? We may be leaning more towards a socialist society as it is, but this proposal sounds about as anti-American as it gets.
Imagine if your retirement plan contributions don’t appear to be accurate on your statement today. You would probably call your HR department or a representative at the firm that runs your company retirement plan. You would eventually find an answer or at least have the right to a legal claim if there was a big problem.
Now imagine finding the same problem with contributions on your new government-run retirement plan. You would be calling the Social Security office to figure out the problem. What a nightmare! You probably will be told to go down to the nearest Social Security office and pull a number to wait in line for hours to discuss the issue with a representative.
Other things to consider are:
1. What if you want to put in more than 5 percent of your pay? You could do it, but you would get no tax deductions for the contribution. This is essentially another tax on the “rich” but since you have enough disposable money to invest beyond 5 percent you must be rich and therefore deserve to pay more taxes (yes, I’m being sarcastic).
2. How could you invest your retirement money in something that may earn more than 3 percent in the hopes of retiring sooner? Investing in options like stocks and bonds would be impossible. Sorry Charlie, the government knows best about how to invest your money.
3. What would happen to our stock and bond markets if all the current retirement dollar inflows were to stop? Good question. We probably should think long and hard about cutting off funding for our free market businesses and instead send our money straight to the government. If you knee-cap the 401(k) plans by eliminating tax breaks, there will be no incentive for employers to maintain the plan. Employees will have no reason to fund the plan either. Therefore, all the retirement dollars would belong to Social Security.
But there is a way to try and bridge the gap that may make the majority happy. Why not offer this government plan as an option to existing 401(k) plans. Go ahead and require that everyone invest 5 percent of their pay, but allow us to invest more than 5 percent and allow us to continue with the tax benefits. Also, allow for us to choose the government plan or give us the option of investing in stocks and bonds. After all, choice is the American way.
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