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Stories like these terrify me, mostly because I am very concerned about what will happen to the retirement savings of people who did the responsible thing and d

Stories like these terrify me, mostly because I am very concerned about what will happen to the retirement savings of people who did the responsible thing and did save, and lived well within their means, and contributed to their 401k (or other retirement savings). The most active voters are the older groups, and as people like the author reach their elder years with nothing to retire on, they presumably vote in their own best interest. As it stands now, there are ~$4 trillion dollars[1] in 401k savings. It is currently not being taxed, with the assumption that it will grow during a person's working years, and be taxed when it is withdrawn, as income tax. However, as people like the author reach a certain age, I am fairly convinced that there will be a significant tax on retirement savings from the responsible folks to pay for those who didn't save appropriately. Politically it's fairly straightforward: we have millionaires who can "afford" to help pay for the less fortunate! This ends up hurting the people who saved so that they could properly afford to send their kids to schools, to be able to go on vacations in their retirement, etc. As much as the story has been "max out your 401k!", I'm fairly convinced that it's going to end up being a worse deal than people count on. I don't really have a solution other than to "diversify investments", but stories like this do terrify me. I plan for retirement and try to be responsible about how I live my life so that when I choose to retire, I'll be able to enjoy it and spend time with kids/grandkids or golfing/traveling/whatever. [1] https://www.ici.org/policy/retirement/plan/401k/faqs_401k https://www.ici.org/policy/retirement/plan/401k/faqs_401k

MatthewRayfield 10y ago
Two words: Roth IRA
- brewdad 10y ago
  I can almost guarantee Roth IRA holders will get screwed in the future. At least 401k holders got a tax break on the front end. Also, most middle class workers have at least something in a 401k, especially since companies are moving towards an opt-out model on 401ks. Relatively few Americans use Roth IRAs and most are "high" income types. Politically, it will be a slam-dunk to tax the crap out of money coming out of Roth IRAs in the future.
  - rskar 10y ago
    I'm trying to imagine under what political circumstance the Roth IRA would have its basic premise completely up-ended. Between a breach-of-contract and a gaggle of irate retirees, I see no slam-dunk here at all.
tamana 10y ago
Not just 401k. Saving is always a risk, because people spend themselves into poverty and claim the same benefits as people who never has income. This is why you pay a higher interest rate on loans than you get on investments -- to cover for deadbeats. Ultimately, you have to be happy that spenders overlay for stuff, and the interest gains on savings are better than the tax hit, and day-to-day financial security makes you feel good and finances better opportunities -- like you can afford to move for a job or whatever.
randomgyatwork 10y ago
There seems to be a dialogue change too, savers are being called 'hoarders'.
kom107 10y ago
Agree 100%. Great conversation tangent over on reddit's FI sub about this article, and specifically, the fear that those of us who were/are responsible will be taxed to support those who were/are not: https://www.reddit.com/r/financialindependence/comments/4fhsaf/the_secret_shame_of_middleclass_americans/ https://www.reddit.com/r/financialindependence/comments/4fhs... For those of you who prefer the whistling-past-the-graveyard approach, Christopher Buckley's book 'Boomsday' is hilarious. Anyone care to share how they are protecting their savings against this increasingly likely prospect?
PhantomGremlin 10y ago
"diversify investments" Yes, definitely. In addition to all the other diversification advice you can read everywhere, you need to have three pots of savings: 1) pre-tax retirement savings such as traditional 401(k) or traditional IRA 2) post-tax retirement savings such as Roth 401(k) or Roth IRA 3) normal cash and investments, outside of any sort of retirement scheme Being diversified in that fashion will give you more flexibility to react appropriately to any changes in the tax laws. And, if you can swing it, you also want some assets that aren't readily visible to the tax man. In decades past, that meant something like a Swiss bank account. Now, perhaps, it might mean something like gold coins. And there are even more exotic ways to "shelter" your assets. My father, who was displaced by WWII, stressed the value of a good education in a useful field. A malevolent government could confiscate your house and your money, but it couldn't take away what was inside your head.
SilasX 10y ago
Yeah I have very big (somewhat "Knightian") concerns about that, per my other comment [1], in that it's very easy for us to hit a tipping point. We have massive unfunded obligations coming due, and it's it's not that easy to raise taxes, despite sanguine dismissals that "oh, just some small tweaks and it'll be fine". But the tipping point comes when you have to take too much from present workers for past obligations, and some of them say, "wait, screw this, I'll just take my labor somewhere else", which means they have to tax a bigger incentives, which scares off more workers, and spirals out that way. Relatedly, I have grave reservations about prodding the entire economy to have a huge nest egg in 401k-eligible investments, which can distort the voting base into favoring government interventions that favor the largest companies over smaller ones that don't get publicly listed, changing the playing field. [1] https://news.ycombinator.com/item?id=11537585 https://news.ycombinator.com/item?id=11537585

MatthewRayfield 10y ago

Two words: Roth IRA

brewdad 10y ago
I can almost guarantee Roth IRA holders will get screwed in the future. At least 401k holders got a tax break on the front end. Also, most middle class workers have at least something in a 401k, especially since companies are moving towards an opt-out model on 401ks. Relatively few Americans use Roth IRAs and most are "high" income types. Politically, it will be a slam-dunk to tax the crap out of money coming out of Roth IRAs in the future.
- rskar 10y ago
  I'm trying to imagine under what political circumstance the Roth IRA would have its basic premise completely up-ended. Between a breach-of-contract and a gaggle of irate retirees, I see no slam-dunk here at all.

tamana 10y ago

Not just 401k. Saving is always a risk, because people spend themselves into poverty and claim the same benefits as people who never has income. This is why you pay a higher interest rate on loans than you get on investments -- to cover for deadbeats. Ultimately, you have to be happy that spenders overlay for stuff, and the interest gains on savings are better than the tax hit, and day-to-day financial security makes you feel good and finances better opportunities -- like you can afford to move for a job or whatever.

randomgyatwork 10y ago

There seems to be a dialogue change too, savers are being called 'hoarders'.

kom107 10y ago

Agree 100%. Great conversation tangent over on reddit's FI sub about this article, and specifically, the fear that those of us who were/are responsible will be taxed to support those who were/are not: https://www.reddit.com/r/financialindependence/comments/4fhsaf/the_secret_shame_of_middleclass_americans/ https://www.reddit.com/r/financialindependence/comments/4fhs... For those of you who prefer the whistling-past-the-graveyard approach, Christopher Buckley's book 'Boomsday' is hilarious. Anyone care to share how they are protecting their savings against this increasingly likely prospect?

PhantomGremlin 10y ago

"diversify investments" Yes, definitely. In addition to all the other diversification advice you can read everywhere, you need to have three pots of savings: 1) pre-tax retirement savings such as traditional 401(k) or traditional IRA 2) post-tax retirement savings such as Roth 401(k) or Roth IRA 3) normal cash and investments, outside of any sort of retirement scheme Being diversified in that fashion will give you more flexibility to react appropriately to any changes in the tax laws. And, if you can swing it, you also want some assets that aren't readily visible to the tax man. In decades past, that meant something like a Swiss bank account. Now, perhaps, it might mean something like gold coins. And there are even more exotic ways to "shelter" your assets. My father, who was displaced by WWII, stressed the value of a good education in a useful field. A malevolent government could confiscate your house and your money, but it couldn't take away what was inside your head.

SilasX 10y ago

Yeah I have very big (somewhat "Knightian") concerns about that, per my other comment [1], in that it's very easy for us to hit a tipping point. We have massive unfunded obligations coming due, and it's it's not that easy to raise taxes, despite sanguine dismissals that "oh, just some small tweaks and it'll be fine". But the tipping point comes when you have to take too much from present workers for past obligations, and some of them say, "wait, screw this, I'll just take my labor somewhere else", which means they have to tax a bigger incentives, which scares off more workers, and spirals out that way. Relatedly, I have grave reservations about prodding the entire economy to have a huge nest egg in 401k-eligible investments, which can distort the voting base into favoring government interventions that favor the largest companies over smaller ones that don't get publicly listed, changing the playing field. [1] https://news.ycombinator.com/item?id=11537585 https://news.ycombinator.com/item?id=11537585