New Threat to Your IRA or 401k?
Can a call for simplification be a "threat" to your IRA or 401k? We've seen some calls to "simplify" the U.S. "retirement system." If you look at this article, you'll find an example of the sort of thinking that threatens your efforts to save for retirement, if you rely on government plans like IRAs and 401ks:
Moving on, if the U.S. retirement "system" is all so complicated (and it is), how about just making it simpler? Doesn't that make sense? Any reasonable person, using their common sense, would naturally go for "simple" when trying to rectify a process that has grown complicated. But isn't that what the title of the article implies? Certainly. But right away the author here concedes that we're far beyond doing that. Hence the recommendation of making things "easy and automatic." Notice: not simpler; rather easy and automatic. And what would accomplish this? Given the growing role of the 401k in the retirement planning of Americans, the author targets this government program and urges the following (my emphasis):
...in the 401(k) arena, employees need to be auto-enrolled; they need auto-escalation in their default contribution rate; they need clear guidance that they and their employer should be putting aside a total amount of about 15%; they should be enrolled in low-fee target-date funds; and they need very simple mechanisms for withdrawal.
Let's look at these individual suggestions one by one to determine if they make any sense:
Auto-escalation: Isn't that someone else forcing you to increase your 401k contribution? How would that work? Will they ask you what's going on in your life at the time - whether you can afford to put more away for your retirement at a time when, for example, you're struggling to pay for your child's education, or you have a major health care expense in the family? If they don't ask you, would you want this forced on you? If they concede that they need to address an individual's personal and family circumstances, could they do that in a manner that's simple - remembering we're talking about a government program?
Clear guidance: Who will provide this? What will be the basis of their expertise? How did that expertise work out in 2008 when few financial advisers warned their clients of the coming storm and many lost over half of their retirement savings?
Should be enrolled in low-fee target date funds: I'm glad the author specifies low-fee, because when target-date funds were originally invented by Wall Street, the fees were exorbitant. But more than the fees, the results weren't so great either. These funds make assumptions that may or may not play out as planned. So you think they're infallible in providing the funds you need at a specific date? Really? Use your common sense here: If such funds were really that effective in providing a set amount of money at a specific date, is there any reason everyone wouldn't put all their money into them? Wouldn't such a miracle product be something like the discovery of an infinite source of cheap energy? The simple fact is that such funds may or may not successfully provide what you need at your planned retirement date. Besides, given the way things have gone, so many of us aren't even retiring at the dates we planned years ago. People now continue to work past their "dream" retirement date. What happens to the "target funds" then? Frankly, target funds continue to strike me as a typical Wall Street concoction where the proper response on the part of the consumer should be "Caveat emptor." (Let the buyer beware.)
Simple mechanisms for withdrawal: The mere fact that it's not easy to get your money out of anything should immediately raise a red flag, shouldn't it? If it's my money, why can't I get it any time I please? But, of course, IRAs and 401ks don't let you do this when they penalize you if you take money out before age 59 1/2 (why the "1/2"?). And hardly anyone remembers that it was only back in the 1980s when an "excise tax" of 15% (since rescinded) was slapped onto IRA withdrawals - at any age - that came from IRAs that had too much money in them. So, in essence, if you saved as you ought to have saved, the government penalized you. Is it possible that in an age when the government is desperate for money they might not revive this evil scheme? Would you bet that they won't?
(In case you're not familiar with the 15% excise tax to which I'm referring, here's a link to an article by a law firm touting the 3-year suspension of the tax in 1996. That's right suspension. It wasn't revoked right away, evil as it was.)
The fact is the complicated retirement "system" is a product of big government. And if you really want to address this whole issue, start by considering whether you should be participating in their schemes at all - especially in light of the fact that they desperately need money and will be looking to any source that might slake their thirst for funds - like your retirement account.
Don't they habitually dip into the retirement money of federal workers to tide them over when they need money? We're not only talking about the recent debt ceiling dispute, by the way. (Click here to see how they did this "way back" in January of 2012.)
So, after considering these suggestions, do you now want these people to forcibly take your money and tell you how to invest it? Do you?
Americans need a simple retirement system
...we should never have let our retirement system evolve into one where individuals are responsible for all of the complicated decisions of saving and investing for retirement. But given where we are, we need to make the system we have as easy and automatic as possible.First of all, who are "we" here? Wouldn't it be more accurate to say "the government" should never have let our retirement system evolve..."? Neither you nor I had anything to do with the introduction or development of traditional IRAs, Roth IRAs, 401ks and the other myriad company-sponsored plans that businesses from small to large offer to their employees. "We" doesn't really make sense here.
Moving on, if the U.S. retirement "system" is all so complicated (and it is), how about just making it simpler? Doesn't that make sense? Any reasonable person, using their common sense, would naturally go for "simple" when trying to rectify a process that has grown complicated. But isn't that what the title of the article implies? Certainly. But right away the author here concedes that we're far beyond doing that. Hence the recommendation of making things "easy and automatic." Notice: not simpler; rather easy and automatic. And what would accomplish this? Given the growing role of the 401k in the retirement planning of Americans, the author targets this government program and urges the following (my emphasis):
...in the 401(k) arena, employees need to be auto-enrolled; they need auto-escalation in their default contribution rate; they need clear guidance that they and their employer should be putting aside a total amount of about 15%; they should be enrolled in low-fee target-date funds; and they need very simple mechanisms for withdrawal.
Let's look at these individual suggestions one by one to determine if they make any sense:
Auto-escalation: Isn't that someone else forcing you to increase your 401k contribution? How would that work? Will they ask you what's going on in your life at the time - whether you can afford to put more away for your retirement at a time when, for example, you're struggling to pay for your child's education, or you have a major health care expense in the family? If they don't ask you, would you want this forced on you? If they concede that they need to address an individual's personal and family circumstances, could they do that in a manner that's simple - remembering we're talking about a government program?
Clear guidance: Who will provide this? What will be the basis of their expertise? How did that expertise work out in 2008 when few financial advisers warned their clients of the coming storm and many lost over half of their retirement savings?
Should be enrolled in low-fee target date funds: I'm glad the author specifies low-fee, because when target-date funds were originally invented by Wall Street, the fees were exorbitant. But more than the fees, the results weren't so great either. These funds make assumptions that may or may not play out as planned. So you think they're infallible in providing the funds you need at a specific date? Really? Use your common sense here: If such funds were really that effective in providing a set amount of money at a specific date, is there any reason everyone wouldn't put all their money into them? Wouldn't such a miracle product be something like the discovery of an infinite source of cheap energy? The simple fact is that such funds may or may not successfully provide what you need at your planned retirement date. Besides, given the way things have gone, so many of us aren't even retiring at the dates we planned years ago. People now continue to work past their "dream" retirement date. What happens to the "target funds" then? Frankly, target funds continue to strike me as a typical Wall Street concoction where the proper response on the part of the consumer should be "Caveat emptor." (Let the buyer beware.)
Simple mechanisms for withdrawal: The mere fact that it's not easy to get your money out of anything should immediately raise a red flag, shouldn't it? If it's my money, why can't I get it any time I please? But, of course, IRAs and 401ks don't let you do this when they penalize you if you take money out before age 59 1/2 (why the "1/2"?). And hardly anyone remembers that it was only back in the 1980s when an "excise tax" of 15% (since rescinded) was slapped onto IRA withdrawals - at any age - that came from IRAs that had too much money in them. So, in essence, if you saved as you ought to have saved, the government penalized you. Is it possible that in an age when the government is desperate for money they might not revive this evil scheme? Would you bet that they won't?
(In case you're not familiar with the 15% excise tax to which I'm referring, here's a link to an article by a law firm touting the 3-year suspension of the tax in 1996. That's right suspension. It wasn't revoked right away, evil as it was.)
The fact is the complicated retirement "system" is a product of big government. And if you really want to address this whole issue, start by considering whether you should be participating in their schemes at all - especially in light of the fact that they desperately need money and will be looking to any source that might slake their thirst for funds - like your retirement account.
Don't they habitually dip into the retirement money of federal workers to tide them over when they need money? We're not only talking about the recent debt ceiling dispute, by the way. (Click here to see how they did this "way back" in January of 2012.)
So, after considering these suggestions, do you now want these people to forcibly take your money and tell you how to invest it? Do you?
Comments