Hard-Hit Americans Now Have More Options for Retirement Savings

Sept 10, 2009 - Taking on low savings rates and poor adoption of employer-provided retirement savings, President Barack Obama highlighted a series of new regulations and new government guidance in his weekly radio address last week.

The Treasury Department and the IRS will now provide incentives for Americans to save with a few new rules and options. In addition, they will provide a “plain English road map” to help Americans better understand existing laws, understand savings, and take advantage of opportunities. 

The administration is responding in part to dreary economic figures and statistics on savings. In the last year of the housing market and general economic collapse, Americans lost over $2 trillion from retirement accounts. In addition, while the average American savings rate has increased over the last few months to as much as 5%, according to the Bureau of Economic Analysis, a major gap still exists. The average retirement age for Americans is 62 and life expectancy 77, meaning a significant portion of a lifespan to cover between savings and Social Security. Finally, according to the White House, half of America’s workforce doesn’t have access to a retirement plan at work, and fewer than 10 percent of those without workplace retirement plans have one of their own.

To prevent a catastrophic drain on Social Security, and help Americans to increase their savings, the new plan calls for additional savings tools and at-work retirement options. The major changes outlined in the new plan include:

• Auto enrollment in retirement plans. Smaller and mid-sized employers will have less paperwork and easier procedures to set up automatic retirement plan enrollment for their workers. The Obama administration cited figures that show automatic retirement plans lead to more savings for employees.

• Saving tax refunds. In 2010, the IRS will offer a new option for tax refunds in the form of savings bonds. The idea is to avoid the impulse to immediately spend refunds and boost savings amounts. Taxpayers will not need to open a Treasury account or a bank account -- the bonds will be mailed to those who check the box.

• Sick and vacation days can become 401k contributions. Unused vacation and sick leave pay can now more easily be converted into retirement plans rather than cash.  

• Automatic percentage increases. Employers can increase contribution amounts automatically. 

Employees will still have the option to opt-out of automatic savings and percentage increases. The new rules do not require congressional action and are therefore in process.

For Further Reading:
http://www.irs.gov/retirement.
http://www.mint.com/blog/trends/what-the-government-retirement-stimulus-plan-means-for-you/
http://www.marketwatch.com/story/obama-unveils-new-retirement-savings-tools-2009-09-05
http://www.washingtonpost.com/wp-dyn/content/article/2009/09/05/AR2009090500927.html

Always consult with your tax or financial advisor regarding your own individual circumstances.

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