Dazed and Confused, Part II
by Richard
There may be a solution to the dizzying array of retirement accounts we now face.
It will likely be forced on the political hierarchy by events that threaten to spiral out of control. We know that “reforms” will be applied to the entitlement programs…not because Congress has finally found the courage to do so…but because demography is destiny.
We are going to get crunched by the numbers…
…and will not be saved by the Ponzi-inspired accounting that inspires current government policy. There is simply no choice. We will tackle the reform measures in a series of posts next week.
For now, the measure being talked up is for a new, universal, one size fits all, fully portable retirement account that would end the confusion once and for all.
Its dimensions would be along these lines…
The aggregate sum that could be invested would be the total of the myriad of individual accounts now available. For example…
Everyone under 50 can contribute:
- $5,000 to an IRA
- $16,500 as a 401k Salary Deferral
- $3,000 towards a Health Savings Account
We’re up to nearly $25,000 already…but now consider throwing into the pot
- $13,000 per child, per year, per parent (the current gift tax free contribution towards a 529 college savings plan)
- $2,000 per child for the Coverdell education IRA
Depending on the size of your family, we are now talking big numbers, perhaps much too ambitious for families hard pressed in the recession to make ends meet.
Financial columnist Scott Burns has further advocated that the new universal account would have access to ultra-low fee index funds, just as the Federal thrift plan allows for its employees.
It’s a long shot now…
…because the retirement/investment complex thrives in an environment of opacity and complexity. They drum the message incessantly—that this stuff is way too difficult for the marketplace to absorb, and thus you need expensive advisers to help guide and direct your decisions.
So here’s one way that events could force such an accommodation, despite all the lobbyists in Gucci Gulch.
We introduced in an earlier series the concept of the VAT (Value Added Tax). The logical corollary to taxing consumption would be to exempt the tax on investment. Without this trade-off, the VAT is simply a ripoff.
Then every family would have a choice, to splurge on bling and trinkets—replenishing the tax coffers automatically as they do their retail therapy–or salt away savings into a retirement/education/heath care consolidated, supermax fund.
When you see the gargantuan shortfall the current entitlement programs face, it quickly becomes obvious that we must plan on our own for these essential, core life goals.
After all, if you are not a failed bank or automaker, who else is going to come to the rescue?
June 12th, 2009 at 1:50 pm
Creative accounting has inspired government policy for a long time now. Not many people realize that most of the trillion spent on the post-9/11 wars was not recognized as part of the normal budget — it was a “special” expenditure. And, indeed, the practice of Enron-like accounting continues, and will continue, regardless of the party in power.
I am in total agreement that one has to plan to take care of themselves, and not rely on government entitlements. I have yet to see a country where reform was meaningful and effective; the political cost is too high for politicians to take bold steps. Even California’s present predicament, which is truly astounding, has politicians responding with “surgical cuts” rather than major overhaul. Thus, in the absence of true reform, minor incremental changes are unlikely to alter the basic tenet of this blog: be in charge of your own future.
A minor clarification: the $3,000 2009 HSA limit applies to individuals; families can contribute up to $5,950.
April 14th, 2010 at 2:18 am
hi,good jeans in your post,I love thatnicejeans,I need to find one for me,bill