Everyone looks forward to retirement. It’s a time when you finally kick back, relax, and enjoy the fruit of your labor. Most people ensure this blissful future with a 401(K) account. But what happens if this savings account gets abolished?
Recently, some economists argued over the relevance of a 401(K) account. They claimed that it costs the United States billions of dollars and only rich people use it. Read on to uncover their insightful assessment.
The Government Should Stop Pre-tax Retirement Savings
The news came from a research brief by two economists. These experts assessed common retirement savings and came to a controversial conclusion. They suggest that the government ban 401(K) savings.
Most people on social media find this idea ridiculous. After all, 401(K) retirement savings are typical for older adults. They depend on this account to ensure their final years are enjoyable. So why the controversial opinion?
Your 401(K) Costs The US $200 Billions
One point the economists made is how much the US misses out on these taxes. Essentially, a 401(K) account contains earnings before they’re taxed. This makes savings more accessible and more rewarding over time.
However, these experts mention that not collecting the tax means the US is missing out on a lot of money. How much? Nearly $200 billion every year. This money can go into other projects and even sponsor underfunded Social Security programs.
Only A Few People Benefit From A 401(K) Account
401(K) accounts were designed to encourage people to save. Since the money in your account isn’t taxed, it should have more value once withdrawn. Sadly, this isn’t the reality. Data shows that only some Americans and wealthy Americans benefit from this program.
Even Alicia Munnell, assistant treasury secretary, commented on the issues. She said: “We do not think that this subsidy, which you can only rationalize if it increases saving … we don’t think it does increase saving very much.”
Most Employers Don’t Offer A 401(K)
One reason most Americans don’t have a 401K) is their workplace. Most smaller employers don’t offer employees a 401(K) plan. Why? These businesses don’t have enough revenue or stability to support such a program.
The small establishments also fear triggering tax penalties once their employees withdraw their savings. Monique Morrissey, a senior economist, commented on the issue. She said that the “Income for a lot of workers is very unpredictable,” which makes it tricky to fund a savings account.
How Much Do Each Class Have For Retirement
The wealthy, middle class, and poor are many distinguished societies. The economic research compared savings between the rich and middle class. Undeniably, the results were shocking and unbalanced.
Families in the top 10% of society have a median retirement of $559,000. Interestingly, 63% of people in this category had retirement plans. On the other hand, the middle class has only $39,000 in savings. What’s worse is that almost half the group had no retirement savings.
America’s Retirement Crisis
These details are enough to conclude that America has a retirement crisis. Less than half of the population has a retirement account. As for the older adults with retirement accounts, the share of these savings lagged below 60% in 2020.
So, how do older people survive without retirement funds? Most retirees depend on social security benefits. Sadly, monthly checks from this program average around $1,600 in 2023. This is problematic since the average American family runs on $4,345 monthly.
Retirement Savings Cost The Government Money
As previously mentioned, retirement savings cost the government money. Nearly $200 billion was lost, according to the Treasury Department in 2020. This money lost comes from the uncollected income tax that goes straight to the account.
Sadly, very few Americans capitalize on this savings method. One is ignorance, but the other is inability. Employers give 401(K) accounts. Sadly, most businesses aren’t strong enough to handle such a program. Therefore, workers cannot save In a 401(K).
Retirement Savings Help People That Don’t Need It
Reports show that wealthy people take advantage of the savings account. While this isn’t illegal, many find it unfortunate. The rich get richer while the less affluent cannot use a program designed for them.
Steve Rosenthal commented on the situation. He said: “The fundamental problem with our retirement system is it rewards people who need no help. All the schemes are oriented toward rewarding those with the savings or the income to reap the benefits.”
Call It Quite On Our Retirement Tax System” Steve Rosenthal
Many find America’s retirement system broken and unfair. Since it only feeds the rich and abandons the poor, it makes sense to end it. Steve Rosenthal supported the idea, asking to call it quits.
Ending the program lets America channel the $200 billion to social security programs. Most people depend on social security benefits, so it makes sense. However, others disagree. They argue that removing reticent plans will doom many others.
Is Removing Retirement Plans A Good Idea?
Other experts gave their opinion. One was Craig Copeland, director of wealth benefits research at the Employee Benefit Research Institute. He argued that not only the rich use 401(K) accounts. Many middle-class people keep the bulk of their savings there.
At the same time, businesses will suffer. These establishments use retirement plans to attract dedicated workers. Nevertheless, others argue that the few middle class using the savings will adapt to these companies. What do you think about this situation? Should tax savings go or stay?
