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Readers defend 401(k)s

By Jennie L. Phipps ·
Thursday, June 9, 2011
Posted: 3 pm ET

There have been 101 reader comments so far on the retirement planning blog that I wrote last week about Congress considering ways to reduce the tax deductions associated with 40(k)s and other tax-advantaged retirement savings plans in order to reduce the deficit.

Most of the people who posted have similar opinions: They want Congress to keep its mitts off these plans and continue to give people who work hard and save their money a break on their taxes.

Here are a few of the most thoughtful of these responses:

EON59 -- "Why not try a novel concept of allowing the economy to grow and the tax base to grow. At this time tax revenue is down over 500 billion a year because of lost jobs and businesses. Imagine the additional revenue if even 5 million of the 14 plus million people would be back to work. The key is the return of the private construction industry."

Tina Thompson -- "(4)01k's were meant to be a supplement for pensions, not a substitute. Unfortunately, they were implemented as such and if you think a bubble in stocks burst a while back, wait until the Baby Boomers are retiring in earnest with underfunded 401k's that they will sell the stocks and bonds out of to fund their last few years."

Steve -- "At the end of  World War II, 2 or 3 percent of the population owned 90 percent of stocks held. Today 75 percent to 80 percent of the population owns stock, I think that matters."

fillzee -- "This is a great idea. It should be implemented as soon as all Federal and State Employees and politicians give up their defined retirement plans. Then, they could enjoy the benefits of the 401k system and be subjected to the same market risk and political whims as the rest of us."

mikes -- "$600B over five years is nothing in terms of the budget, especially when you consider they'll negotiate it to a fraction of that by limiting the impact. It's clearly not worth the fight, and the very real risk of being voted out. I wonder what the real agenda is here?"

Anne Douglass -- "Dear Uncle Sam, get your money-grubbing hands out of my pockets."

These are just a few of the opinions offered up. The comments are still open. If you see it differently, don't hesitate to share your thoughts.

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Brent Railey
June 11, 2011 at 4:27 am

Deficit reduction is a political impossibility. The real killers to the deficit are Social Security, Medicare, and the military. All of these are political sacred cows that cost votes to cut. No politician who wants to keep his office will do it.

The truth is: default on these programs is inevitable. The "Trust Funds" for FICA are full of non-marketable IOUs that require future taxation to repay. The public, already squeezed by governmental mismanagement of the economy (there is not such thing as successful governmental management) will not take tax hikes. Taxing the rich will limit capital formation and economic expansion and thus real job growth.

So, all of you who are counting on Social Security and Medicare, "you've been had." You've been lied to by our beloved politicians. You chose to believe their empty promises whose only aim was to buy your vote with other people's confiscated money.

There will be pain as all of this unravels. Private, employer-provided pensions and 401ks are going to be a target. The government will wait for (if not manufacture) a crisis and a crash in the markets and then "rescue" your accounts to restore them to pre-crash levels by replacing the assets in the accounts with Treasuries--which is a confiscation of the funds in the 401k by forcing you to loan the government money. The government will take the money to meet its obligations to the Social Security and Medicare welfare recipients.

They just did this with Federal pensions with the whole debt ceiling dog and pony show. Ireland just did this.

Just wait, our turn at austerity is coming.

Weiwen Ng
June 10, 2011 at 9:02 am

Why is it rational for the government to assist the rich more with their retirement savings? If I'm in the 35% Federal bracket, it's as if the government is chipping in 35 cents for every 65 cents I contribute. I'm in about the 25% bracket right now, and the government is chipping in 25 cents to my 75. For someone who's career is just starting off, the government is chipping in just 10 or 15 cents.

The 401(k) system is good, but it wasn't designed to be our main retirement vehicle. Social Security also was not designed to be the primary retirement vehicle for most people - it replaces a far lower percentage of most people's earnings than equivalent systems in other countries, and than the private pensions we used to have. Some might cling to their 401(k) balances and rabidly oppose any changes to the system, but the fact is that the majority of us aren't saving enough. We're going to have to make changes - and while I like my 401(k) myself, nobody's going to die if they reduce the tax preferences for 401(k)s.