Generally speaking I do not favor it when the federal government uses tax incentives to try to “induce” changes in the behavior of American citizens. However, I do consider 401k, 403b, and IRA accounts to be beneficial. And, I must admit, they “induced” me to squirrel away some retirement funds.
The reason that I consider this a “good idea” – so few from Washington – is that Social Security is going “broke.” During the third and final presidential debate, Chris Wallace observed that, “Social Security is going to run out of money in the 2030s, and at that time, recipients are going to take huge cuts in their benefits.” (After 2019, Treasury will need to start spending down the Social Security Trust Fund – those imaginary dollars already spent for other federal outlays. Its reserves are estimated to be depleted by 2035. At that point, there will only be enough income coming into the program through payroll taxes to pay 79% of the benefits owed. That doesn’t sound too good.)
How did Trump and Clinton respond?
Trump claimed that in order to avoid disaster, he would cut taxes and repeal Obamacare. By contrast, Clinton reasserted that under her plan, she would put more money in the Social Security Trust Fund by increasing taxes on the wealthy. Wow! Quelle surprise from both!
One would have thought that the advent of these tax-advantaged accounts and the rather tenuous future of Social Security would cause Americans to save for retirement. Oops!
[Source: Angst in America, Part 3: Retiring Broke, by John Mauldin]
The following table puts the stark reality of Boomer retirement in perspective. There is a massive gap between what people expect to have during retirement and what they will actually have and be able to spend.
The table above, as dismal as it already appears, assumes that Baby Boomers actually have saved either $100K or $250K in a retirement account (also further assumes these funds will grow at 6.6% per annum). Many have not. Indeed, only 26% have put that amount into their retirement accounts. More Americans HAVE NOTHING IN THEIR ACCOUNTS.
Yet the “lack of retirement savings” is a couple big steps from the top of their list of worries. (And can someone tell me why “health care expenses” leads the list after our “Great Savior” and “Progressive Par Excellence,” Barack Hussein Obama, “solved” all of our health cost problems with Obamacare?
The future of “retirement joy” for American seniors does not appears rosy. Hopefully, Mr Trump can help – and, hopefully, Mr. Trump will not be replaced by a Democrat who campaigns on the “right of every American to have a happy and fulfilling retirement” on someones else’s dime!