Opinion: Might Be Best Not to Save Too Much for Retirement

[Guest BenefitsLink]

The following item appeared originally at http://www.benefitslink.com/links/20010627...27-011648.shtml:

Opinion: Might Be Best Not to Save Too Much for Retirement (Fort Worth Star-Telegram)

Excerpt: "Take care that your retirement savings plans aren't too successful. A recent study suggests that aggressive retirement saving raises lifetime taxes and lowers lifetime spending for low- and moderate-income workers.... By contrast, retirement saving delivers as advertised for couples earning high incomes."

[Dave Baker]

The Federal Reserve Bank of Cleveland study is here:

http://www.benefitslink.com/links/20010620...20-011497.shtml

[Dave Baker]

Here is a note that Benefits Boards user Ken Wilke wrote and asked me to pass along:

I read your recently linked article regarding taxation issues of 401(k) participation titled "Does Participating in a 401(k) Raise Your Lifetime Taxes?" and thought that it painted a rather dismal picture of the benefits of participating in a 401(k). Many readers may read the article and think "well, gosh... I can't participate if it will raise my taxes!" Of course deferring taxation of an amount today will cause higher taxation after the amount grows and is then distributed as a greater amount, however, the article did not adequately illustrate that the benefits of tax deferred growth, whether principal is taxed today or tomorrow, far outweigh the increased taxation. Just to sum it up, I would rather have 90% of 100 than 100% of 50 any day of the week. Look at it another way... Would you rather get a 6% return on a Municipal Bond that is triple tax exempt or a 12% return on a taxable mutual fund portfolio??? I would take the taxable account even at 25% taxation, which probably won't happen to today's low earners in 15 years during retirement. Even at the 25% tax rate I would realize a 50% greater return than the 100% non taxable Munies. Another problem I have with the article... the authors assumed returns lower than several bond indexes. I don't think any Financial Advisor with a clue would advise clients in accumulation phases of life to sink all their retirement assets into bond funds or bonds! That would be ludicrous in most situations.

The authors actually make a recommendation against 401(k) participation! Are they financial advisors? Are they aware that a hearty handful of software programs exist that will calculate growth, present taxation, and future taxation of retirement plan assets to illustrate the results of many types of investing?

I believe it's irresponsible to advise the poor to stay poor to avoid paying a higher percentage of tax.

Anyway, just thought I would reply...

[stephen]

Sadly, there are people who will read this article and cut back their deferral percentages on this basis.

[Guest asdell]

Sadly, there are people who will read this article and cut back their deferral percentages on this basis.

Have to say I agree with you, Stephen. The sheep tend to move with the flock.