Tuesday, July 8, 2008

Do You Have a Retirement Parachute?

A continuing focus for me: retirement funds. This year has been tough already.

Neither your employer nor the mutual-fund company that manages your money is required to note that, if you're not covered by a defined-benefit plan, your 401(k) should equal at least 10 times your salary right before retirement. If you're earning $100,000 at age 65, a $1 million nest egg isn't a windfall; it's a necessity. Even more improbably, a 65-year-old making $40,000 a year ought to have accumulated $400,000.

Improbably? For many, I suppose.

Adding to the pain of near-empty nest eggs is the fact that the income taxes on the portion of salary contributed are postponed until retirement when folks can least afford to pay them.

A final reckoning: pay taxes when retired.

If pension-less taxpayers are obligated to foot the bill for generous public-sector pensions, the employers who escaped from their obligations to provide "voluntary" pension plans should bear responsibility for their employees. We need federal legislation to shift the burden of financing pensions back to the employer, where it belongs.

Excellent point. When I was with MetLife in the 1990s, it began to do away with defined benefits in retirement, and moved to defined contribution plans.

The pension paternalism favored by the Democrats has failed because pension regulations make the requirements so onerous that few companies want to start or continue a defined-benefit plan. On the other hand, the Republicans' tax-break approach to retirement savings has failed because people haven't responded to savings incentives.

Australia has managed to create a compact between employers and employees. We should be able to do at least as well.

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