Contributing Author: James H. Boyd
It’s no secret that it’s harder to retire now than in the past. The “rules” changed over the years: the economic forces and the literal “rules” that guided our parents’ and grandparents’ paths toward retirement don’t hold true for us or our students.
A recent study by the Government Accounting Office (GAO) highlighted the following “stresses” undermining the “three main pillars” of the nation’s retirement system:
The GAO report mentions several economic factors that hinder an individual’s ability to save, either through a defined contribution plan or through personal savings: stagnant wages in real dollars in most fields since the mid-1970s, high personal debt levels, and escalating medical costs. As a side note, the report fails to consider that now there are simply more things to buy: bigger houses, fancier cars, electronics of all kinds, data plans, cheap clothes and accessories from overseas, a myriad of new restaurants to try – and Starbucks.
Similarly, these factors and others raise the amount a person needs to have available during retirement years: more money to pay for rising health costs and income to cover longer post-retirement life expectancies. In addition, an increasing percentage of people are remaining single, and, so, cannot obtain the benefits, for example, of a spouse’s cost-sharing, retirement savings, and social security survivor benefits.
At this writing, Congress is in the throes of deciding how to approach the “largest scale tax reform since 1986.” From a tax standpoint, deductible contributions to IRAs and §401(k) plans cost the U.S. Treasury millions – not trillions – per year. Still, with a budget that must be balanced up to an agreed-upon threshold, retirement savings are one tax deduction potentially on the chopping block.
So, the question for the day is: How might Congress encourage retirement savings without substantially increasing the Federal deficit? Should tax incentives play a role in this?
Possible Classroom Activities and Assignments
How do current tax rules impact these allocations? What are some actions that can ease the transitions from one stage of life to the next?
This post is helpful when covering the following chapters in the SWFT Series:
SWFT Individuals Chapter 19
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