Tuesday, April 2, 2019

Congress ready to vote on new 401K bill that would help prop up stock markets and bail out student loans but do nothing to address dollar devaluation

On April 2 the House Ways and Means committee voted unanimously to push forward a bill that would modify the 401K retirement program for the first time since 2006.  But rather than simply helping to provide more tax deferred options for people to save for their retirements are the underlying effects that the bill has in both propping up stock markets, but not addressing the fact that the devaluing currency by which these 401K plans are denominated in will do nothing to aid Americans in retiring better.

The most comprehensive changes to private retirement plans in more than a decade are gaining momentum in Congress. 
A key House committee on Tuesday passed a bill intended to increase the flexibility of 401k plans and improve access to the accounts, particularly for small businesses and their employees. 
The proposal, known as the Secure Act, was backed by the top Democrat and Republican on the tax-writing Ways and Means committee.
It was approved unanimously. 
“Americans currently face a retirement income crisis, with too many people in danger of not having enough in retirement to maintain their standard of living and avoid sliding into poverty,” committee Chairman Richard Neal (D-Mass.) said Tuesday.
The bill is one of the few proposals with a significant chance of becoming law amid a bitterly divided Congress. Elements of the bill have been debated among members for years and enjoy wide support among both industry groups and advocacy organizations. 
On Tuesday, Neal called the legislation “a major bipartisan accomplishment.” 
“The Ways and Means committee is where we find solutions and get things done for the American people,” he said. 
The bill includes a host of provisions aimed at encouraging small businesses to provide private retirement benefits to their workers. It allows them to band together to offer 401ks and creates a new tax credit of up to $500 for companies that set up plans with automatic enrollment. Businesses with long-term, part-time workers must also allow them to become eligible for retirement benefits. 
In addition, the bill includes several measures that would affect other types of savings. It repeals the maximum age for IRA contributions and raises the age for required mandatory distributions from 70 ½ to 72. It also expands the use of 529s, from only college-related expenses to include private schools, home schools and student loans. - CNBC
Thanks to real inflation and the fact that the dollar has lost over 97% of its purchasing power over the last 100 years, here is how much one would need to retire comfortably in the decades from 1950 to today.

1950 - $27,991.60

1960 - $40,071.20

1970 - $61,862.40

1980 - $125,134.60  (a 100% increase from a decade earlier)

1990 - $210,279.80

2000 - $321,548.20

2010 - $416,738.30

2018 - $500,000+

And since wages have not kept up with inflation or currency devaluation, for someone to begin saving at say age 25 until they retire (around age 70), it is not only unlikely they would have enough spare money out of their current paychecks to put towards a 401K plan to make their nest egg meaningful, but the value of their returns in most markets would end up being a loss since having more wealth means little if the cost of what you purchase increases at a greater rate.

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