Obama is proposing that Uncle Sam fund retirement. The plan is that for families earning less than $75k, 3% of their salaries would be deposited into retirement accounts. These accounts would have matching funds from the federal government up to $1000. It’s supposed to be like a tax credit.
I hate to say this, but why? It sounds like Social Security, except we’re guaranteed it? Right now we “save” 6.2% of our income and it’s matched by our employer 6.2%. If we are self-employed we have to save the whole 12.4%. This is supposed to be safely invested and when we retire we get it back.
So what is the difference between what Obama is proposing and SS? Also this plan mimics a plan proposed by Clinton in 1999 but shot down. Will this work? Even financial analysts aren’t sure. Yes it will help but will it solve the problem?
One thing is for sure as we turn more towards 401ks for funding our retirement, shifting responsibility from a company pension to ourselves, we need to save more. And automatic enrollment is a great way to do it.
2 responses so far ↓
1 tom // Jun 26, 2008 at 7:32 pm
Sounds like SS to me too!
I completely agree with your last paragraph. I work for a HUGE company (150,000 people). They just announced that they are discontinuing their company pension for employees hired after Jan. 1st 2009. Instead they are going to do an automatic company investment of 3%, 4% or 5% of your salary, depending on age, into your 401(k). New employees will get this along with a company match of 75% up to 8% of your salary. That’s pretty huge. Unfortunately for me and other current young employees, we cannot opt into the new program. We will be “stuck” with a pension. I bring this up because it sounds like everyone is going away from a “guaranteed annuity” like a pension or SS. I, personally, am not counting SS or a pension in my retirement calculations.
2 SP // Jul 3, 2008 at 12:57 am
It is like SS, only not broken and hey, what I put in, I get to take back out, which seems more fair.
With SS people pay while they work, but the money isn’t tucked away, it is used to fund current SS payees. (I think). Not only do you lose compound interest, but if you have more payees than workers, that spells problems.
But is this a solution? Who knows, at least it is and idea.
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