Out of Touch

| March 04, 2024

I do not know if it is I who does not understand politicians or if it is politicians who do not share my concerns. I am a financial planner. I want people to be able to save money for retirement. I believe that it is an injustice that every working person does not have a retirement-savings plan available on day one. I want politicians to make it as easy as possible for people to save and as difficult as practical for them to spend retirement funds early.

I believe that there is an important social value in making sure that every person has at least some money put away when they stop working. Under our current system, when one spouse dies the surviving spouse sees their Social-Security benefits cut sharply. For workers who have no retirement savings, the result is impoverished widows and widowers. This is not a social good.  Few people would inherit nothing if everyone had a savings plan. In a small way, inequality could be reduced and the economy stimulated.

Politicians don’t see it this way. In a recent article in Financial Advisor Magazine, the economist Allison Schrager writes that she expects politicians to do away with the 401(k) and similar plans within ten years. According to Schrager, “neither conservatives nor liberals are particular fans of tax-advantaged retirement accounts.” *

This comports with my own experience. At the 2008 Retirement Income Summit in Manhattan, a lobbyist for one of the financial-planning groups explained to us that getting their hands on the money in retirement plans was what politicians obsessed about. He claimed that they talked about it at dinners and cocktail parties and that Republicans and Democrats were fixated on the money in our clients' retirement plans.

The claim is, according to Schrager, that the tax advantages “cost the government an estimated $185 billion in 2019.” I have my doubts about that for many reasons. The funds in retirement plans will be worth more later, and as the baby boomers retire and die the government will receive a windfall. Government outlays should be reduced since people with savings cost the government less and pay more into the system. Those who inherit can use the money to save for their own retirements, buy a home, or squander it on riotous living. In all cases, they will stimulate the economy. Whether or not there is a cost to the government, the question of human dignity remains since most of us take pride in our work and our ability to take care of ourselves.

The real problem, as I see it, is that politicians are more concerned with funds received while they are in office than with what will benefit the country later, when they cannot advance their own careers. Maybe I do understand politicians after all.

*  Schrager, A. "Your Client's 401(k) Will Be Gone Within A Decade". Financial Advisor, February 20, 2024. https://www.fa-mag.com/news/your-client-s-401-k--will-be-gone-within-a-decade-77009.html?section=. Accessed 03.04.2024.