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The Argument for Ditching The 401(k) And Starting Over
Touches on a lot of issues that many people will say don't apply to them. Such as Americans having to save more (e.g. than in other countries) because they're taking on more risk and getting lower returns than they'd get with defined benefit (pension) plans or equivalent (annuities). Such as investing not being most people's forté (thus they underperform DB plans and the market). No one here, of course.
Also acknowledges that annuities transfer wealth to the affluent (since the affluent tend to live longer). On the flip side, notes that the affluent don't need tax breaks to motivate them to save for retirement.
The article also makes brief allusion to the annuitization puzzle (why most people don't annutize when that is the rational choice).
I like the idea the the first $600 of contributions would be covered by a refundable tax credit, so everyone would be treated the same way - just as everyone pays the same 10% income tax on the first N dollars.
A compact column on a proposal that won't go anywhere, but offers a lot to think about.
All it would take to actually make it happen is the political will to DO something genuinely constructive for our entire society. Why? That's a useless question. But the answer is simple: because, very simply, we are here, and still alive.
I'm actually in agreement with davidmoran. How about taking the money already invested in SSN and invest it. The accounts would actually belong to the investors. When they die, the money should go to their descendants (SSN account). Upon Retirement, send a monthly check (no lump sum, no borrowing). I would also make financial literacy a required course. The portfolio could be 100% in equities until a certain age and then tapered off as the Investor ages. No Annuities.
I'd also keep the 401k. It is a good program. People choose not to use it because they don't know any better. Let's teach them. Imagine the wealth they're missing right now by not being aware.
Forcing people to take a class so that they understand better? How many out there right now don't even know the difference between a stock and a bond??? How many required courses did I pass by merely skating through, because it did not appeal to me? Surely I'm not the only one. Ya, go ahead and ask me how much I use ancient Greek, in my day-to-day life? And NO, I did NOT manage to pass that course. I had to get an exemption.
Comments
Touches on a lot of issues that many people will say don't apply to them. Such as Americans having to save more (e.g. than in other countries) because they're taking on more risk and getting lower returns than they'd get with defined benefit (pension) plans or equivalent (annuities). Such as investing not being most people's forté (thus they underperform DB plans and the market). No one here, of course.
Also acknowledges that annuities transfer wealth to the affluent (since the affluent tend to live longer). On the flip side, notes that the affluent don't need tax breaks to motivate them to save for retirement.
The article also makes brief allusion to the annuitization puzzle (why most people don't annutize when that is the rational choice).
I like the idea the the first $600 of contributions would be covered by a refundable tax credit, so everyone would be treated the same way - just as everyone pays the same 10% income tax on the first N dollars.
A compact column on a proposal that won't go anywhere, but offers a lot to think about.