An interested blog post from US News was published called “Should saving for retirement be required?” It asks the question whether to institute an automatic Individual Retirement Account (IRA). Currenly only about 50% of the population has a retirement account. This is referred as a universal IRA, but individuals are allowed to opt out. Some say that it will cause too much government bureaucracy. Others say it’s needed.
I believe it should be mandatory. Much like Social Security is automatically taken out, we should have an automatic retirement plan. Look social security is a wealth redistribution plan and safety net. It’s not meant to be a retirement vehicle for people who earn over $100k.
We’ve seen the results of people being forced to save, they LOVE it when they retire with a pension. But the reality is a pension is not sustainable because people are drawing out more than they saved. But what would happen if we automatically saved for people and when they retire they have a nice pot of money?
Truth is that people only contribute to SS because it’s automatically deducted. Same with auto-enrolling people in 401ks. People participate because they are too lazy to prevent it. So if we did this for IRAs, then what?
I believe this would help people counting on SS, instead they could perhaps count on their required retirement savings. Yes it would increase government bureaucracy. But with the loss of pensions, how long until we see people really crying over having saved nothing for retirement? I believe it will begin to hit in 20 years as 40-somethings lacking pensions begin to retire.
Would you be for or against mandatory retirement savings?
18 responses so far ↓
1 tom // Jun 22, 2009 at 12:02 pm
No it should not be mandatory… but it should be incentivized. We are taxed on 401(k) and IRA. Why not make it tax free? Tax free contributions and tax free withdrawals, that will get people to start saving more. Also, education is key, so offer free classes on retirement, savings, asset allocation, investment options, etc. Social security should be kept for the poor, not the baby boomers who set it up.
You can’t legislate away stupidity and lack of personal responsibility. It’s up to the individual to plan for themselves. As long as education is free and widely available, there should be no reason to make it manditory.
2 Meg from FruWiki // Jun 22, 2009 at 1:23 pm
Social Security isn’t perfect, but it’s something for those who couldn’t otherwise afford to retire (and btw, we wouldn’t have such SS problems if govt. didn’t keep using those funds for other things!). But if people can’t afford to retire as it is, how will it help them to force them to put aside even more money now? I don’t think we can force this upon people who already are struggling.
I also am against making people put money into the stock market or other risky investments. Even for those who are educated and have trustworthy advisers, it still can be a gamble. I’m not against investing, but I’m not going to tell others where to put their money.
I’m not sure I agree with Tom about keeping SS just for the poor. Maybe in an ideal world, but I think the reason why SS has lasted this long is that everyone expects at least a piece some day.
I do agree with Tom that we should incentivize retirement and educate people. But we also need to make it simpler. How many people don’t use the incentives already out there because things are too confusing and take too long to learn about for someone who is already overworked! I read somewhere about perhaps using opt-out programs instead of opt-in. Not sure I’m entirely for that, but it may be something to consider along with a easy to understand, low-risk, government promoted retirement plan.
3 R. May // Jun 22, 2009 at 1:37 pm
The term mandatory is misleading because people can opt-out.
Absolutely! I think a lot of the problem is people just don’t know where to start. By automatically enrolling them, most will just stay with it. I also think the whole out of sight out of mind helps too. Having to think – ugh I’m losing this much out of my pay vs it’s already gone – you’ve never seen it, will help too.
I have to participate in my pension plan. Of course I’m perfectly fine with that, but there’s no opt-out.
4 Lynn // Jun 22, 2009 at 1:55 pm
Social Security is a joke and I do not expect any money to be there when I retire. I laughed at my most recent SS statement. No way am I going to get that money. Wouldn’t it be nice to be able to opt out of it and invest it anywhere I wanted. Then the gov’t wouldn’t spend and waste MY hard-earned money.
People need to take responsibility for themselves and save for their own retirement. Where is personal responsibility these days? Maybe the gov’t should start telling me when I can and can’t go on vacation, go to the dr (wait that may happen), and go to the bathroom. You get the idea.
5 JoeP // Jun 22, 2009 at 3:28 pm
I agree with Tom: put incentives around it.
6 Abigail // Jun 22, 2009 at 9:16 pm
Okay, incentivized retirements are a good idea. But making them tax-free? Never going to happen. And shouldn’t. That would mean that people would be getting (at least) thousands of dollars tax free.
Also, I consider Roth IRAs to be a bit incentivized as it is — since your profits aren’t taxable, assuming you take them out on time. So I’m not sure how much incentive it will take to get people to start saving.
Finally, I think Lynn and Tom are forgetting one major thing: If we rely on people’s “personal responsibility” only, it won’t just be their problem. They’ll end up poor in retirement and on welfare programs. In the end, your tax dollars will go toward supporting them because no one wanted to force personal responsibility on people.
That said, I feel a little weird about it. I think that people won’t miss the money if they never see it. But it seems weird to me to force people to think ahead. At the same time, I’m in favor of things like seat belt laws, which are for people’s own good. So I guess I don’t know where I come down on this issue.
7 Kristy @ Master Your Card // Jun 23, 2009 at 12:06 am
Hmmm…my knee-jerk reaction to this is to say yes; however, upon reflection, I don’t think that’s the right way to go.
As another commenter pointed out, you can’t legislate a lack of personal responsibility. SS was supposed to be a program that helped those in retirement and became mandatory, yet look at the consequences. There’s fault on both sides, I’m not saying it was one or the other. But, the government hasn’t exactly managed that well and the people came to rely on it rather then save for retirement themselves. So, requiring IRA contributions leaves room for things to be mismanaged in that department as well.
The other factor is that I think it would be a complicated mess. First off, many people probably don’t want their money going into the stock market. With an IRA, that’s fine. They can choose a CD or money market – neither of which net a great return right now, but at least it’s safe. Well, if the government required this universal IRA, the likelihood is that they would require it to be an investment IRA as opposed to giving the consumer the choice. It would be very difficult for the department responsible for this if the country were given a choice as to how to apply the funds. So, I think that is wrong. We should not be forced into the stock market to make a social program easier for the institution requiring it.
I see many other potential pitfalls with this program, but my biggest concern is that this takes personal responsibility away from the people. Folks have to start planning for retirement on their own because it’s important. It is not the responsibility of the government and taxpayers to fund their retirement because they were too lazy or unable to master basic personal finance concepts. No. I think this is a bad idea and should not be implemented.
8 R. May // Jun 23, 2009 at 9:11 am
Just want to say again that people seem to be confused by this program.
All it is is when you go to work for somebody, they will automatically enroll you in somekind of retirement plan – probaably IRA. You do not have to stay enrolled, you can opt-out, you can still decide where your money goes. It’s not mandatory so much as automatic enrollment.
Unfortunately a large amount of people don’t have any retirement savings. Maybe by automatically enrolling people – more people will save something.
9 tom // Jun 24, 2009 at 1:33 pm
A corporation should decide what you do with your paycheck (even if it is opt-out), nor should the government, they already do that with Social Security and Medicare. SS and Medicare for me, a 25 y/o, is just money down the drain. I highly doubt I’ll be getting any sort of SS in the future, not quite sure about Medicare.
While I agree that many people will not opt-out, is it so hard to go into the system or fill out a piece of paper to start investing? If they don’t have retirement savings they are either too lazy (not something the gov’t should be worried about) or they really need the cash (in which case they will opt-out anyway).
As I said before, it comes down to education. If the gov’t wants to help… offer free classes, give tax breaks to companies that give retirement orientations to new employees, anything to educate people.
10 LAL // Jun 24, 2009 at 10:53 pm
I have to highlight Abagail’s point. Yeah it’s ALL about personal responsibility, but COME ON! We’ve seen personal responsibility with weight and credit cards.
People do not care. If they do not care, what happens Tom and JoeP, if people say F&*& savings and I’m going live off the government.
What’s going to happen when they chose to not save? We’re going to end up paying for them one way or another. Much like healthcare.
When someone whose obese uses more medicine, more resources, we all have to pay for it.
11 tom // Jun 25, 2009 at 7:43 am
@LAL,
Good point.
I definitely don’t want to have pay for people’s irresponsibility. I’m against the government micromanaging people, but in this case it might be the correct decision. I would hope that more education would help the situation, but I guess there is pleanty of education on obesity, eating healthy and exercising and we all know where we are on that…
12 JoeP // Jun 25, 2009 at 9:18 am
Maybe the solution is providing government subsidized retirement communes (aka “projects”) for those who shun personal responsibility want to live off the government. Make it an unattractive option so that people will strive to take retirement planning seriously. Also make it low cost so that the financial impact to those of us who have gone through the effort of planning and living responsibly is minimized.
I believe the government subsidized safety net should be a last-ditch option that is shameful and undesirable. Unfortunately, there is a trend toward making it become a more common option so people can live large now and not worry about the consequences later.
13 R. May // Jun 25, 2009 at 9:28 am
But the taxpayers end up paying for the irresponsible people in the end! More and more people aren’t doing enough for their retirement. Psychologists will tell you humans for the most part like status quo. Well right now status quo isn’t saving for retirement. As evidenced by all the people with little to no retirement savings – sometimes they need a push. Changing the status quo to saving for retirement is at least something. It doesn’t take away anyones choice to save somewhere different or not save at all.
There are lots of people who don’t understand the system at all – education won’t help them, they will still be overwhelmed and confused.
As for the whole ‘deciding what to do with your money’ really is not big deal. Every where I have worked (in my adult life) – the pension plan has been mandatory. I can’t opt-out. But that’s what I agreed to when I agreed to work for them.
And Tom – there are lots of education classes on retiring that are free. But it would costs the government money to sponsor education. Passing a law that says hey – you have to opt-out of retirement does not.
14 LAL // Jun 25, 2009 at 9:35 am
JoeP, that will never happen. Because who actually decides what the minimum level of living is? How will you bus and transport people? How will you treat medically people who retire who are BROKE?
Will you tell them you didn’t save so you die? That won’t ever fly. Even in such a liberterian society as we have in the US, that won’t ever fly.
Or else we would tell people, if you smoke and develop lung cancer we aren’t going to help. Nope, instead we try to cure the lung cancer through extraordinary lengths and measures.
Or we would not be trying to prolong the life of obese people. But we do. Because though we say we want independence from each other, the truth is we only say that when we are healthy, rich, and employed.
The moment we’re not employed, no health insurance, broke, we want our handout. We just don’t want to pay for it.
That’s the difference between US, Europe, and Asia.
Asia and Europe say “people are dumb. Too bad they need to save X% and X% for medical care and retirement.” In the US we’ve tried pretending we can afford to pay for ourselves.
Truth is we aren’t responsible and in another 20 years we’ll show why we aren’t responsible.
The majority of retirees still have pensions. In 20 more years they won’t. Then the reality of saving without a pension will become apparent. It’s not right now because people still have them. But soon enough they won’t.
15 JoeP // Jun 25, 2009 at 11:06 am
The problem I see on the horizon is that our government will make those decisions, and that voters will elect politicians who support their set of choices. It might not be too long where our government taxes us at 80% to become the provider of housing, health care, transportation, retirement funding, and related expenses. Then after that occurs, who in their right mind would dare run for office to restore the “old way” where individuals have to do the actual work of saving and defining their own destiny?
16 LAL // Jun 25, 2009 at 1:17 pm
JoeP, I don’t know. I think it really will depend on how this Obama administration honestly. If people like socialism, they’ll vote him and dems in again. If they chose to go the other direction they’ll vote in someone else. That will be the deciding vote.
In the 1990s we weren’t ready for Clinton’s radical health plan. Now we might decide it’s for the best. OR we could decide screw it, let’s go completely free market instead of the BS system we have in place that is NOT free market by a long shot.
I can’t tell if the US is really becoming more liberal, or we’re about to step back to a little right of the middle.
I believe Obama got into because people HATED the current administration. NOT because they fully supported what he stood for.
Me? I’m more liberal than Obama and would love for him to push through all these programs. But I am also aware it may not be the will of society in general.
Thus I believe we’re in the midst of floundering. We are starting to feel the effects of leaving behind big government and rescue nets. The question is, will we run back and want help or will we push forward and attempt a true free market healthcare and 401k retirement system?
401ks after all are a free market retirement, it’s not a pension with guaranteed monthly money for life.
17 JoeP // Jun 25, 2009 at 2:14 pm
I don’t believe for a minute that the bulk of voters actually weigh the pros and cons of socialism or the free market, and then make an informed decision based upon how the candidate will impact the future.
No, I believe that most voters are partisan robots who care only about plastering their car with bumper stickers, pulling the same lever in the same party, and then bragging when their guy wins or crying foul when their guy loses. People were CRYING when Hillary threw in the towel; were they crying because her policies were now off the table?
I’d like to believe what you said, but I don’t give the average American voter that much credit.
18 LAL // Jun 27, 2009 at 4:51 pm
Maybe. I preferred hillary’s policies because I’m a more liberal than obama. he’s a more free market democrat. Unfortunately the situation we’re in it’s not really a free market when we’re bailing out banks.
I believe that if we’re going to move forward with free market retirement and healthcare we gotta go 100%. This partial crap we’re doing isn’t working.
We should stop all pensions, even military and government pensions, stop all employer based health insurance and see if we can hack it.
If we don’t want big government we should try to do it ourselves.
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