"You still think Obama caused the stock market collapse in August?"
Yes, Bob I do. Go study the history of the Community Reinvestment Act. You will learn what is REALLY at the root of our market chaos, and who is responsible.
"Six months and that pirate Obama will "seize everyone's 401(k)"?
Wanna bet?"
Here you go...
http://money.cnn.com/2009...2009021608"1. We need a plan for everyone
Our current retirement system hasn't broken - it was never really a working system to begin with. No law-makers designed the 401(k) to displace the traditional pension, although that's what ultimately happened. It is named for a tax loophole that pension consultants gradually built a plan around. Under the rules, the earnings you put into a 401(k) aren't taxed, and the account grows tax deferred until you cash out at retirement. It's not a cheap program: The tax advantage for 401(k) contributions will cost the Treasury $51 billion in 2009. Add in the break for IRAs, which are largely funded by 401(k) rollovers, and it's $63 billion.
If you are a typical reader of this magazine, that tax break has been extremely valuable for you. Whether it actually encourages you to save more is another matter. Since 401(k)s became more popular, some studies have shown, higher-income people seem to have shifted their assets from taxable to nontaxable accounts rather than saving more.
Lower- and middle-income households, on the other hand, don't benefit as much from the program. They are less likely to be covered by any plan or by one that offers a generous company match. Since they pay lower tax rates, they get less out of the tax deferral. In all, about 70% of the tax benefits for 401(k) savings goes to the top 20% of earners. "Given the way 401(k)s are structured, they are virtually designed to provide inadequate retirement income for the average worker," says University of California Berkeley political scientist Jacob Hacker. So how can the system pull more people in?
Enlisting employers
One obvious approach is to ensure that more people have access to a savings plan through their jobs. This one could be an easy bipartisan compromise. Retirement experts at the conservative Heritage Foundation and the liberal Brookings Institution have together proposed an "automatic IRA." Businesses with no retirement plan would have to put a portion of workers' paychecks into an IRA unless the employee opted out.
Pension experts Pamela Perun and Eugene Steuerle have proposed a simplified retirement plan similar to one in the U.K. Employers would be required to offer a retirement plan with a match of up to 3% of salary. As part of the bargain, the plan would lift some of the burdensome administrative rules of today's 401(k).
Getting a boost from Uncle Sam
A more ambitious approach would be a government savings match similar to what you get from your employer. If this sounds like a subsidy, it is - but then, so is the current tax break. The difference is that this one would take the form of a refundable credit. Unlike tax deferrals, such a credit can benefit even people in low brackets. Gene Sperling, a former Clinton administration official, has proposed a "universal 401(k)" in which low-income workers can get as much as a two-to-one match. Higher-income families may get a 30% match.
Economist Teresa Ghilarducci of the New School for Social Research goes further. To ensure that everyone saves from the start of their career to the end, she proposes a mandatory national savings account on top of Social Security. You'd kick in 2.5% a year and your employer another 2.5%. In one version, the tax credit would be a flat $600 a year for everybody.
Of course, the government can't just throw cash around (recent events notwithstanding). Paying for tax credits would likely mean trimming or eliminating the existing deferrals. Tough sell. No one is talking about touching existing 401(k) balances. But if you are a high earner able to contribute the max to your 401(k), you'd pay more taxes under Ghilarducci's plan. Before you throw out the idea altogether, though, consider this: You weren't always in your current tax bracket. A plan for moderate-income earners could have gotten you saving consistently from the first day of your first job. It could do the same for your kids.
2. Spread some of the risk - but not all of it
In any retirement system, your standard of living will depend to some extent on the state of the economy. Traditional pensions rely on a financially healthy employer. Even Social Security, as a pay-as-you-go system, depends on the productivity of current workers. But 401(k)s stand out for the way that they concentrate nearly all the economic risk on you alone.
With that risk comes a shot at high rewards. If you have an above-average income, it makes sense to have at least some of your retirement money in the market over your career. But many retirement experts think we need a third tier of savings in between Social Security and the 401(k). It would offer a better return than Social Security but less market risk than mutual funds and other investments. Just a portion of the money you now put into 401(k)s would go here.
Working out the details of this third-tier plan won't be simple. One approach would be to offer a straight-up guarantee. In Ghilarducci's plan, the mandatory savings would go into a single government fund invested in stocks and bonds. You would be guaranteed a payment based on a 3% annual return after inflation, possibly more if the market did so well that the managers decided they could safely distribute extra gains. "Historically, that's a very achievable rate of return," says Ghilarducci. Unfortunately, it is also a modest one - over long periods, stocks have generally beaten inflation by six percentage points or more.
Boston College's Munnell thinks the Dutch retirement system might be a better model. In their national pension fund, retirees get a payment based on their salary and years of service, similar to a company pension. But the amount can change in the event of a severe market crash or funding shortfall. "If returns are low, everyone takes a hit," says Munnell. "Retirees might not get the full cost-of-living adjustment, employers may have to put in more, and workers building up benefits will accrue less."
An American solution would be different in the details. Even so, the basic principle could apply: Spread risk among employers, retirees and current workers and you can smooth out the highs and lows to make some retirement income more predictable.
3. Help us make the money last
At the end of your career, a 401(k) will leave you (you hope) with a big pile of money. But stretching those dollars over two or more decades is as big a challenge as accumulating them was.
You face two uncertainties: how markets will perform and how long you will live. Spend too much and you might find yourself a hale and hearty 85-year-old with an empty bank account. One solution is to use at least part of your savings to buy a fixed-rate immediate annuity, which creates a pensionlike income for life. But almost no one does this with their 401(k) balance.
Why? Annuities can be complex - insurance salesmen like them that way - and the expenses are higher for retail investors than for institutions like pension funds. There's also a big psychological barrier: You give up hundreds of thousands of dollars in exchange for a lot of smaller checks. Yet there's evidence that older retirees are happier if they have some annuity income.
A third-tier savings program could provide some guaranteed income. But even without a whole new retirement plan, there are ways to make it easier for retirees to annuitize.
Right now most 401(k)s pay out in a lump sum as a default. It's just less trouble for employers that way. But simply by switching that default to an annui
