How to Get Americans to Boost Retirement Savings

Category: Basic Money Management Published: Friday, 09 January 2015 Written by Admin

GEORGE PAPADOPOULOS: I would like the government to stay out of my way and lower my taxes so I can take better care of my family. But, after being in the financial-services industry for over 20 years, I know that, sadly, is probably not the correct answer if the end goal is to help people save (more) for retirement.

You can add all the tax incentives you want but we will likely still have people living paycheck to paycheck and not saving a dime. It is difficult to change human behavior! What can the government do instead of dictating a mandatory contribution into a retirement type account? 

Actually, the government has already made a move toward this goal by establishing the (oddly named) myRA accounts, which will be available starting this year to workers without access to a 401(k) plan. I shared my feelings about the myRA accounts here where I said: "I am all for anything that encourages people to invest more for retirement as the current savings rate is pathetically low. But I am skeptical about the eventual success of this new plan. MyRA's will be voluntary, meaning workers will still have to opt in to them. People tend to procrastinate and they likely won't sign up if it is up to them to take action on their own." Let's just say time will tell if these accounts prove successful, but call me skeptical.
The latest tax bill signed into law adds yet another account that will allow tax-free distributions for expenses by individuals with disabilities. Disabled individuals must be aware of these accounts authorized by HR 647 ABLE Act of 2014. You can learn more about them here.

The latest interesting idea I heard about was SavIncent, which will use a "prize-linked savings" (PLS) mechanism to get participants to contribute more. This method appears to be similar to the incentives used in health-insurance plans to take advantage of lower premiums (online risk assessment, physical, etc.). It may work; time will tell. You can learn more about the PLS mechanism here.

Requiring basic money-management education courses to be taught starting in elementary or middle school will go a long way toward getting more people to save for retirement. Of course, like the plans listed earlier, this is not a quick fix.

Perhaps the most effective plan for the most people would be to require every person who dispenses financial advice to be a fiduciary. Maybe then we would see fewer people being taken advantage of and losing nest eggs to scams or clearly inappropriate financial "products" that are of value only to scam salespersons and only because of their high sales commissions.  The result: More money available for retirement!

George Papadopoulos is a fee-only wealth manager in Novi, Mich., serving affluent individuals and families. You can follow him at twitter (@feeonlyplanner), connect with him at Google+ or visit his firm's website.

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