Obama's Budget Proposal Seeks to Cap Retirement Savings
April 23, 2013
President Obama's 2014 federal budget proposal contains a shocking recommendation for every American saving for their retirement. A section of the budget proposes limiting retirement savings in tax-preferred retirement accounts. The proposal invokes the nebulous principle of fairness but instead penalizes Americans who have worked hard and saved diligently for their retirements, says Blake Hurst, a contributor to the American.
- The budget seeks to place a limit on the total balance across tax-preferred accounts to an amount sufficient to finance an annuity of not more than $205,000 per year in retirement, or about $3 million for someone retiring in 2013.
- The proposal arrives at a time when recent articles have revealed that baby boomers have less than $100,000 on average saved for their retirement.
Limiting the balance to $3 million would only save the federal government an estimated $9 billion over 10 years, which is barely enough to cover the current deficit for a few days.
- The rule builds upon Obama's belief that "at a certain point you've made enough money."
- As life expectancies rise along with the cost of living, what is adequate for retirement today might not be adequate in a few years, given that, statistically, many people will live well into their 80s, 90s or beyond.
- The president's figure of $200,000 does not seem reasonable if one expects a 30-year retirement window during which inflation rises at 6 percent per year.
- If inflation rises by that much, which could be possible given the government's current fiscal path, the $200,000 retirement income today would be worth only $40,000 in 30 years.
While annual contribution limits have always existed, the proposed rule imposes a limit on the dollars in the account for the first time. Such a penalty would discourage self-discipline, prudence and the financial wisdom of savings.
Source: Blake Hurst, "When Saving Is a Problem Not a Virtue," The American, April 18, 2013.
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