Subscribe to this BlogObama's automatic IRA
Just about all parents tell the same war stories from childhood: "When I was your age, I had to walk two miles – in 3 feet of snow — to get to school." Or, "When I was your age, we had only one TV in the house." But pretty soon, parents may add this one, too: "When I was your age, I didn't have an IRA."
The Obama administration wants to stop that story in its tracks.
IRAs, along with 401(k)s, didn't exist until the mid-1970s. But after 30-plus years, the plans still are not ubiquitous. As Time magazine columnist Justin Fox points out in his blog post, only 57.7% of U.S. workers have some kind of retirement plan. The rest are counting on other savings and/or Social Security.
And that's a problem, because according to the latest data from the Employee Benefit Research Institute, half of workers ages 55 and older have less than $50,000 saved. The bear market isn't helping. From the start of 2008 through the first four months of this year, 401(k) account balances for workers ages 55 to 64 fell an average of 10% to 20%.
Obama's plan for IRAs does not make the accounts universal. Instead, it targets employers that don't offer a retirement plan to workers. But like Social Security, the benefit would be automatic. If workers aren't given a 401(k) or similar option, then their employer must automatically open an IRA on their behalf and make contributions through direct deposit, pulling the cash from the workers' paycheck. Employees who don't want to participate could opt out.
Critics claim such a plan would A) be too expensive, B) help turn the U.S. into a "nanny state," and C) be too burdensome for small businesses.
But it's also hard to argue against a program (any program) that would help people build some retirement security. You can't rely on employer contributions for it: Just consider the number of companies that cut their 401(k) match this year. Individuals aren't dependable, either.
And even as dramatic as Obama's proposal seems, it doesn't cover everyone. A growing number of company 401(k) plans have an automatic enrollment feature, but not all do.
We already have too many choices to make: How to invest our account, when to rebalance and how much to draw down, for example. Automatic IRAs and 401(k)s could take one decision off the table — and save future generations from hearing yet another story that starts, "When I was your age…"
The idea of the government making this sort of a mandate is ridiculous. What ever happened to personal responsibility?
How about we try to teach actual fiscal responsibility as our children are growing up? I agree with a previous poster – in fact I would go a step further to state that there should be required learning for these topics on our educational curriculum:
Personal Credit 101 – How to Save Tens of Thousands of Dollars in your Lifetime by Simply Paying Your Bills on Time
Personal Finance 101 – How to Budget – That's Right – Spending Less Money Than You Make
Personal Finance 201 – Saving for a Rainy Day – How to Build a Fund For Those Tough Times
Personal Finance 301 – The Power of Compounding Interest
Now, I will personally make sure that all of my children understand all of these things – because they are all cornerstones of a successful financial adult life.
For those that never received the financial advice and talks I did growing up, it needs to be part of our formal education process so the same information is available to all. If people get the required information and still choose not to save, or budget, or take care of their credit – I have no sympathy for them.
And it is NOT the governments place to step in and do anything more than ensure there is equal opportunity (key word there – equal opportunity, not equal results).
TC
everyone should ween themselves from the tit of the govt–including those elected officials whose benefits and pension packages should be cut in half-no life time packages,you draw for only the number of years you served
I only saw two comments from Southern states and wonder what you are finding funny between other parts of the country and the South? Those comments are basically saying we do not need big brother government running our business, let us alone and to do for ourselves.
It's funny reading these comments and the different views from people in NY, MI, and IL. vs. people from the South.
On a separate note, the truth is the average American is an idiot. The will not save for retirement and they will blame someone else for their problems. Bottom Line..I say no more loan mod's, no bailout, nothing. Let the people who made the mistakes pay the price. I will continue to buy their real estate and stocks and bargain basement prices and I will have a very comfortable retirement.
Anything Obama proposes needs to be rejected.
This climate control bill that just passed the House is mandatory for us, but dubious benefits.
Leave us alone
Greg in Albany,
It's not forced, good, so how's that different than right now? Do you people THINK about what the government is doing?
They force us to pay Social Security then they tell us not to count on it, so they want to "encourage" us to save, well stop stealing my SS!!
The democrats said it was too risky for us to keep our SS and invest it, and now what do they want…us to invest our money.
Its not forced, you have the option to opt out. Now instead of having to opt in for a secure retirement, you have to make the conscious decision to opt out…
On another note, what about instead of making 401k / IRA 100% tax deductible, what if the tax savings is added directly to the account. Almost a "government match" if you will. It wouldn't cost tax payers more, because this tax break already exists, but this would force the tax break to be used for retirement purposes.
It's hard to save anything for retirement if you spend significant amounts of time duig your career unemployed in this global economy. I mayself have been very lucky in that respect, but I don't expect my kids will be.
I can tell my kids: "When I was your age, I was continouslsy employed for 30 years. AND on top of that I was earning credit for a pension (that in the end might have to be paid out by the Federal Pension Guarantee Fund, at the same rate regardless of how the stock market is doing).
I believe if the government would let us control our 15% social security tax instead of giving it to everyone and their mother, we would all have excellent retirement accounts. Instead, we put these thousands of dollars into an account and may never see them again and cannot earn the potential interest. A $30,000 pays $4,500 between employer and employee. Over 30 years, that alone is $135,000 in a retirement account. Throw a little interest on top, I think we all would be better off.
i think this is an excellent idea, since its the same as S/S but people will have a say where it goes. it was a great idea when Bush recommended it years ago. you remember when all the democrats and the media kept telling older people they would lose there S/S and wind up eating cat food. but i guess since our new president decended from above the clouds on inauguration day the dems and media will think its the greatest idea since white bread.
If people do not save for retirement, they are making an active choice (every day they don't save) to be poor.
If the average person is so short sighted that they won't save for retirement, then they have decided their financial fate.
I do my part by educating my young family members who are entering the workforce. I show them articles, and graphs and let them know they don't have to be poor like their parents are.
I can lead them to the path of wealth building, but I can't make them save.
I can show them how to become a millionaire by saving regularly beginning at an early age.
Financial literacy should be a required Math Credit in Middle and High School. If you don't pass the class, you take it again until you pass (just like Math and English).
When I was in high school, we were shown an example of a personal check and we practiced filling it out one time. That was the extent of our formal financial training to prepare us for life. Gee, thanks.
We must do better at teaching young people the importance of saving.
You are responsible for the consequences of your decisions.
Understand that, and you will take care of your own retirement.
The character of today's average American virtually nonexistent.
Reading some of your comments I honestly fear for this country.
Let's pretend this is a good idea. Every time there is a good idea many Americans think "yeah, the government should do that."
The government should not be telling us to wear seatbelts, save our money, buy new cars, tie our shoes.
WHETHER OR NOT IT IS A GOOD IDEA!!!
I think this is a good idea, especially fot young people who are getting their first job. It's easy to think "I'll get around to enrolling in my 401(k) next week" but then it doesn't get done and you lose out on 6 months of employer match.
The only reservations I have are (1) if you have any kind of investment where *you* are responsible for picking the funds, a lot of research should go into your decisions before you enroll. I feel that there are a lot of "passive" investors out there who may not really know where their money is. and (2) I am not sure that this will really help the 40% of people without a formal work retirement plan. I'm guessing most of these are probably small business employees or workers who are not eligible for full benefits. Would the government pay for the infastructure? (i.e. the website, managing the logon/logoff, the security, etc.) Large companies pay a partner to manage retirement information, with portal access from the company HR page.
Mark writes:
"It’ll be awful hard for the next guy to untangle all of this, that’s for sure."
I suspect that the next guy (or gal) won't even try. He or she will just tangle it up even more.
It is interesting, and kind of horrible, to watch how these messes eventually fail. It's kind of like watching a drunk or junkie increasing the dose. The abuser just keeps going, trying more and different drugs, until he or she can't do it any more and hits rock bottom.
We're not quite there yet, but its coming closer.
It amazes me how few people actually read (or comprehend) these kinds of articles. It's not paid for by either taxes or businesses. It is automatically deducted from the employee's paycheck. It is a form of forced savings – and studies have shown that this type of program actually works. The IRS already follows this principle to ensure people pay their taxes.
What planet do you live on? I didn't think anyone could be more fiscally irresponsible than Bush until Obama came to town. Good for who? A bankruptcy court?
When are Americans going to learn. This is not a Democrat/Republican issue.
Governments can barely build roads – do you expect them to build healthcare, your retirement?
Ever wonder why you have less money ever paycheck? Government doesn't sell a service – it taxes you.
Um, am I missing something here? I'm in no way an Obama/Democratic supporter, nor am I a fan of government run retirement systems, but it seems to me that's not what's going on here. Unless I'm reading this wrong, there's not going to be any wealth redistribution here – if you don't have an IRA, your employer will take your own money and open one for you, unless you opt out. Doesn't sound like there's going to be much cost here except for some account maintenance costs to the employers, but I would imagine since many already offer 401(k)s, it wouldn't be significant. It doesn't even sound like the government will be managing the money; I'm guessing there will be some default option, but you can change it if you don't like it.
Now on the other hand, if Obama is proposing an extra payroll tax on everybody so that IRAs can be opened for others, or if the government proposes to start managing what's in IRA accounts, I'd get my pitchfork out of the closet, but that doesn't sound like the deal here.
Has anyone noticed what is the "overhead" or maintenance charges for each mutual fund available in your 401k? Even TIAA-CREF which provides 401k for Universities and hospitals charges a whopping 0.88% for their Cref stock or Cref Equity Index. If employees were allowed to manage their own 401ks they could buy ETFs like SPY which is the S&P index and pay only 0.08% overhead in a brokerage account. So instead of bemoaning the Americans savings, the government should remove the forced rip offs by the finance companies of worker 401ks. That itself would add a tens of thousands extra in savings of average workers. Countries in Europe and Australia already allows this. Our "free market" is a euphemism for being ripped off by the corporates who have powerful lobbies on the hill. Neither Democrats nor Republicans look after the average Joe.
Correct me if I'm wrong, but don't we have a government force retirement program already, known as Social Security. Most know how well that is progressing. Now the GOV wants to save us from ourselves again by coming up with SS#2. I guess that would fuel Wall Street stock values more, just as it did beginning in 1982. Ingenious really on ways to reinflate the bubble. I'd be willing to opt out of future SS payments in exchange not receiving anything in the future. I'd be rich. Of course the financially incompetent in this country are growing by leaps and bounds, so that will never happen. Pretty soon the GOV will tax you at 150% of your income and then set up a credit account for you to payoff the other 50% at a 21% interest rate.
Jerome, Mike and all of you others who know nothing about economics and freedom why don't you take your savings put it in a pretty Teddy Bear surrounded by jelly beans and then magically collect your interest.
I hear magic bears are low risk with at least a 6% return.
I can't believe this moron. Sorry she has so many decisions to make. "But it’s also hard to argue against a program (any program)…" Sure how do you argue with Obama taking 40% of our income and then telling us what to do with the leftovers.
Maybe the Fed can help me budget for groceries…1 less decision to make.
Shouldn't a capitalist-American be writing in a business section?
This country is screwdrivered
Sounds to me like it's just another way the Us government is trying to get out of paying the Social Security all pay into.Everyone has heard the same story there going to be out of money in 2012 or some date like that.They can't be you can't take money for that and not have to pay it back at some point.what are they going to do file for bankruptcy start selling off stuff to pay the us people back.Talk about bad decision making a few years back you could draw disability if you were addicted to alcohol they have since stoped that but how much have they spent like that that lead up to this.
It's really a shame that most of the blogs are pety, infantile name calling.
I am a proud Republican, and I think this is a great idea. (No, I did't vote for the guy)
Fact: American's don't save enough
Fact: The government can't meet all the retirement needs of the whole country
Fact: This doesn't cost taxpayers, or employers one dime
Fact: Most people (sadly) are financially uneducated
Fact: Many will participate, some will not. But the end result is more people will be saving than are saving right now.
This is NOT a joke. That's what makes it so scary. It looks like the plan is to gain more control over our money by "incentivizing" (pushing, if necessary, forcing) us to put our money into IRAs and 401ks. Then the government will change the rules –perhaps eliminate the tax deduction (there is already talk of this in Congress), raise taxes on the gains, or make it impossible to withdraw the money. Democrats are even considering a radical plan presented by economist Teresa Ghilarducci last Oct. 7 at a Congressional hearing that would convert 401ks and IRAa to universal Guaranteed Retirement Accounts (GRA) managed by the Social Security Administration. Unions, like the SEIU, which heavily supported President Obama's campaign, are lobbying for the government to confiscate private retirement plans and set up European-style government pension system for all. Americans, it's time to wake up and open your eyes –your Big Government is cash-strapped and desperate for more revenue. Do not naively assume they are looking out for your interests.
Ok, let's try it this way: How many 20 year olds who have started working know or care about their retirement options? The investment rule of 72 states that you divide your rate of return on your investment into 72 and that's how many years it will take for your money to double. If Auto Investments were the norm, young people would have enough time to practically double their retirement savings even giving a modest rate of return. Assume 7.2% average return over time. If the person started at 30 years old, let's say they have 500,000 saved for retirement. If that same person would have started at 20 years old, they would have 1,000,000 saved assuming the same average rate of return. Which do you find more likely: A 20 year old deciding to contribute on their own OR having and auto retirement law starting one for them?
stop your complaining!! Obama has already done more good for this country than Bush and your republicans did in the last 8 years!!!
It sounds like the author is telling us she needs a financial advisor. Does she really think other Americans are so stupid to believe any program that the government runs works?
I like how she played it with "automatic iras and 401ks could take one decision off the table". Oh, it's so hard for us stupid people to make our own decisions.
Did either of you read the article? This is at no cost to the tax payer and it gives incentive for people to save for retirement. Check your history lesson. Social Security is an antiquated system and it was never meant to be a pension for the entire working US population. Check the fine print on this IRA idea, employees can opt out. That translates directly to "I would prefer that you pay me my entire paycheck rather than help me help myself to save for retirement by putting some of that money into an IRA account that I own and can withdraw funds from tax free for a new home, education costs, medical bills, or as income after 65 when I retire." I would much rather attempt to purchase and own items and property that are out of my budget so that I can cost American taxpayers more when I default on my mortgage and an idiotic president uses government money to bail me out. (I'm not talking about President Obama here) This is a typical knee jerk reaction from anti-Obama conservatives that are upset that their party got taken in the last election because their golden boy vanished for his last term in office and was notably apathetic when his country went into economic crisis. But hey, HIS retirement is well covered. What does he have to worry about besides himself? By the way, my paycheck hasn't changed at all since Obama took office. And chances are it won't.
Is this a news article or an editorial? the govt is great at mandating that somebody else (employers in this case) pay for something the politicians get credit for. Spare us govt freebies–they are too expensive.
When you take over the investment, insurance, and banking industries, what's really left that is ours? It's no wonder this administration is running like a hurricane, because if they don't ram all this stuff through now, they know they'll have no chance come 2010. It'll be awful hard for the next guy to untangle all of this, that's for sure.
I agree that there needs to be some attention placed on retirement but we need to fix health care first. Also a system that forces people to invest in the market is not necessarily the best way to handle this. As we have seen over the last year it is all dependent on the market which can take some pretty drastic changes. If we are going to do something with people's hard earned money we need a system that is a bit more secure because unlike the banks individuals will not get a penny in bail out money.
We DO need an IRA program that is available to everyone, but …
We DON'T need employers' hands in it.
There are SO many problems with employer involvement in 401k programs. Just talk to your family, friends, and neighbors.
We need a retirement plan that is independent of employers, in addition to Social Security, not instead of it. It should be based mostly on safe, high-yielding (5.5 to 6.5 %), bonds, such as GNMAs and TIPs, NOT stocks. You can include stocks for people who like risk and feel lucky, but they are much too risky to form the core of a retirement plan.
Come to think of it, we need an affordable health care plan that is independent of employers, too, in addition to Medicare, but not instead of it.
Oh no!!! Conservatives run for the hills!!!!! Some people without retirement accounts might get them? And those who dont want one dont have to? Those "liberals" always want to controle our money!!!!!
-Get a clue-
Actually, this is not much different from the ability of your employer to auto-enroll you into a 401k, with the employee needing to opt out, the idea being that many people just procrastinate doing it and small investments made early in life will grow into a strong retirement savings later.
Smoke and mirrors, marketing voodoo, doing something without doing anything real except placing annoying burdens on already seriously burdened individuals and small businesses.
If they want to help people save for retirement take less of their money away from them. I have an idea, if my taxes are cut $5K a year, I will put that in an IRA. That is not the same thing as a government contribution for those of you who think the money belongs to the US and not me.
President Obama is being very forward thinking. He is trying to equalize basic benefits for all American’s. Health insurance and retirement funds are only two of the benefits he is trying to ensure that are available for all American’s. These benefits are not going to hurt the rich people. They are not going to hurt the American Dream. It is only the greed of the health insurance companies and the greed of the rich that do not want to support these fundamental needs for all Americans. Our senior citizens should not have to worry about how to pay for basic needs just because they worked for a company that had no benefits. There are lots of small businesses in America that do not provide any health care or retirement, and the owners have way nicer lives than do the people that work for them. I certainly know that most small businesses cannot afford health insurance, however if there was a larger pool of participants in a bigger health insurance group (maybe we all could have health insurance). Wake up America! Let quit letting business owner’s take from employees of America.
It's easy to bash Obama for the decisions he has made. As a Democrat, I have even questioned some of the policy decisions that he has made. I am willing to give him some leeway on this though. He didn't make the bed that he is currently in. That was made for him by policymakers that did not have the average American's interest at heart. I do espouse deregulation in most fields of business, but the deregulation of the financial industry has created too many conflicts of interest. If balanced properly, helping people save for retirement is not a bad thing and will take some of the strain off of Social Security.
How about adding a bigger carrot so that the existing infrastructure (brokerages, etc.) for IRAs would continue to work?
Guarantee a rate of return that matches inflation (like TIPS) and combine the tax incentives of regular and Roth IRAs: pre-tax contributions and no taxes on withdrawals (after 59½).
Can Obama resist the urge to control more of our money?
So far he's used it to pay off his campaign contributors ('Stimulus' Package and Auto Industry Bankruptcies), print money to devalue the American Dollar, Manipulate the stock market, and work to have a government bureaucracy decide whether you deserve treatment for cancer.
Please get his government hands out of our pockets.
His decisions thus far have been based in incompetence and corruption. I'll leave it to the informed readers to determine the degree of each.
No M'Obama!
This seeming very intelligent person had just insulted all American workers intelligence by inferring that we are to ignorant…busy…rushed…disinterested to make our own financial decisions. If you really want to help the ameican worker prosper, spend the same amount of time and money creating education programs that employers can offer to workers and teach kids in school about real world subjects like basic finance which would build a base of savvy individuals capable of making their one financial decisions.
"Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery."…Winston Churchill