Saturday, January 02, 2016

It Is a Good Idea, But It Is a Bit Late for Yours Truly

This article proposes a solution to the completely screwed-up mess of retirement these days.

I foresaw this decades ago when the Reagan administration and corporate America started targeting pensions. That 401(k) shit took hold, something that was never designed to replace a pension but supplement it.

Anyway, such an idea as in this article is better than nothing, but it is a laugh to think people need to save 20 to 30 times the 14k that is the average savings of working people. Besides, a lot of those people own houses free and clear, and that is where a lot of their retirement savings ends up being. For never-married women like me, few of us were ever able to get into real estate ownership.

The current system — a mix of 401(k)s and individual retirement accounts (I.R.A.s) — is broken. These plans are individually directed, voluntary and leaky. Just over half of workers don’t have access to a workplace retirement plan. According to the National Institute on Retirement Security, Americans between the ages of 40 and 55 have retirement savings of $14,500, when they will need between 20 and 30 times that amount. Many people take money out before they retire. And the wealthy tend to pay lower fees and get higher subsidies for their savings.

A bigger flaw is the way these plans hinder wise investing. Individualized retirement accounts are effectively restricted to short-term liquid stocks and bonds because they are designed to allow people to withdraw their money before retirement. So employees are paying for liquidity they don’t need and achieving subpar results. Traditional pension plans consistently perform better because they are diversified in long- and short-term investments.

In our plan, the more than 95 million workers without a pension plan would each have his or her own G.R.A. managed by an independent federal agency. Workers and employers would each contribute a mandatory minimum of 1.5 percent of the salary or contract. The current tax deduction for retirement savings would be converted to a $600 refundable tax credit to pay for the contributions of households below median income.

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