There was an article on Yahoo Finance about a soon to be published article by UC Santa Clara professor Meir Statman in which he calls for a mandatory savings plan for American workers along the lines of what already exists in the UK.
Factors that go into the plus column for the idea are that collectively we lack the discipline to put away what we need for retirement and the plan offers a proactive solution to the probability of social security not being able to fulfill all of its promises.
The first negative that comes to mind is what strikes me as an un-American heavy government hand in saying what people must do with some portion of their income. Some of the comments alluded to other more practical drawbacks like the unfortunate reality that there are people who won't need to plan on living to 90 (anything is possible of course but in some families people die very young).
Another drawback is perhaps not being able to save up an emergency fund which some people would say needs to be done before starting a retirement fund. A related example, I was laid off from a job in September 2001. I knew about a year and half ahead of time that there would be layoffs and that I was a candidate for a layoff. In the face of this I stopped contributing to my 401k to build up something of warchest. I would consider my action to be responsible but would have been hindered if there was some minimum amount of income that I had no say over.
Who knows whether the country would ever adopt a mandatory savings plan (no opt out) but the optimist in me believes that at some point the country will get serious about fixing things and in the past I have thought this to mean that everyone will have to sacrifice something (I still think this) but this article makes me wonder if the people who have been responsible will lose some say over their finances which obviously would not be anything to be optimistic about.
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10 comments:
Mandatory savings will not be necessary in the United States. Obama's wealth redistribution mandate is underway.
Next big grab will be a wealth tax on those who have managed to save. I wish I were joking.
"From each according to his ability, to each according to his need."
Karl Marx
Continuing the thoughts of the above 2 comments, the traditional IRA and 401k type retirement plans, whether intentionally or not, conveniently disallow foreign tax credits on investments and the traditionally lower long-term gains tax rates, as all distributions are treated as ordinary income. The government will be harvesting a bonanza as we baby-boomers withdraw from these plans over the next several decades. Being a bit more cynical, does anyone believe the Obama-ites are not salivating about Roth-IRA type accounts for a windfall?
The plan called for in the article sounds a lot like a privitized-social security plan. Very George Bush-ian; I like it.
Yeah, very Bushian, and we all know GWB was a real genius, though unrecognized in his time.
Very unfortunately, I think typical 401k results make a strong argument that privatized social security would be a disaster that would then need to be bailed out.
I thought we already have a plan called social security. what am I missing? thanks Anon 6:35 for the quote.
I think Statman is saying the SS alone won't cut it.
I like it. Your personal story of stopping 401k contributions leading up to a layoff resonates with me - i reduced my own 401k contributions (only enough to get the full company match) for 18 months while paying to go back to school 3 years ago - an emergency fund is important to my peace of mind, but being at a disadvantage at creating one due to this plan is not reason enough not to do it. I also like the idea of allowing folks to choose their own investments, although I suppose there would have to be some limit on the number of choices - I would recommend offering all etf choices to keep expenses low. I think a lot of our problems in the US are caused by our search for perfect solutions, solutions that satisfy everyone. There is no such thing, we need to be more pragmatic and pass legislation that simply begins to improve the situation - and then work to make that legislation even better over the years. I'm reminded of former house minority leader bob michel's (R-IL) lecture he would give to incoming freshmen legislators - "you're not here to give sound-bites to the media, your job is to pass good legislation and make bad legislation better.".
This is what I would like to see from the government:
A retirement bond only available for qualified retirement accounts and only for individuals earning less than $100,000. The bonds would pay 5%, pegged for inflation and would not be redeamable until age 67, Any money drawn earlier, interest is forfeited.
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