Thursday, September 10, 2015

The American Nanny State .... For Individuals Saving and Investing for Retirement, Government 'Help' Isn't the Answer .... Instead Self Help Is the Solution .... We the People Need to Save and Invest More for Retirement

The term 'Nanny state' is of British origin and describes a government whose policies are overprotective or interfering unduly with personal choice. It's a government playing the role similar to a nanny in raising a child. That sounds a lot like present day America to me. And that's a very bad thing as the rapidly growing American Nanny state is doing great harm to both the children and adult citizens of this free, great and most prosperous nation on earth.

As evidence that the American Nanny state is at it again, we'll describe the severe shortage that exists with respect to adequate savings and investment by individuals for their retirement years. And then we'll lay out a plan urging what We the People should do to correct that admitted widespread national retirement savings shortfall.

Is it true that We the People simply can't be trusted to do the necessary work by ourselves?  Or is the government Nanny state simply overreaching again? You be the judge.

Several individual states are now offering a 'helping nudge' intended to assist citizens with avoiding taking individual responsibility to plan and prepare for their future retirement income needs. And since the federal government's Social Security benefits don't provide a secure retirement income, individual states are now riding to the rescue --- albeit very modestly initially and only by using the money earned and invested by individual earners, of course.

In other words, they're planning to help us with our own money. And since the Nanny state 'knows' that we can't be trusted, our ever vigilant government officials are going to do for us that which we won't do for ourselves. At least that's the idea. It seems that growing socialism is very much a big part of American life these days. And the Nanny state is getting bigger by the day.

We have had a pay-as-you-go underfunded (and now soon-to-be unfunded) national Social Security program) since 1935. And now we continuously are being bombarded with news of severely underfunded pension plans at both the state and municipal levels. That's doesn't add up to a good track record for government 'help,' I would argue.

So is it a good idea to trust government officials to take care of the retirement planning, savings and investing for us instead of trusting ourselves? No, it's not.

Many of us still don't enroll in the many currently available 401(k) and IRA individualized savings and investment plans. That needs to change.

How to Help Your 401(k) Balance Grow Faster offers this sound 'self-help' advice for making our 401(k) accounts grow:

"- Increase your contributions every year. Many 401(k) participants cannot start with the maximum level of savings. Every year, you should work hard to increase your contribution level by at least 1% until you reach the maximum contribution. (For 2015, that’s $18,000 for those under age 50 and $24,000 for those who turn 50 this year and above.) . . .

-  Use the catch-up provision. Once you turn 50, you are eligible to start making catch-up contributions–an extra $6,000 a year for 2015. Every few years, this catch-up tends to increase....

-  Understand your match. Many 401(k) participants don’t take the time to understand how the company matching program works. (Typically) . . . the match will be $1 for $1 on the first 3% you save, and then 50 cents for $1 on the next 2% you save. That means if you put away 5%, your company will match 4% of what you save. Can you think of a better deal?...

- Choose low-cost investments. Most participants don’t take the time to analyze the funds within their 401(k) plan. Although you don’t always see a fee taken out of your account, there is no free lunch to investing. Make sure you take the time to review all of the funds and look for the ones that have lower fees with better overall returns.

- Don’t borrow. . . from a 401(k) because the money you take out has now stopped working for your retirement. In addition, you are paying interest on your own money. You should get the mindset that your 401(k) balance is sacred money, unless you are in a dire situation."


The above recommendations for individual 401(k) investors apply to IRA investing as well. They are based on common sense, are simple and easy to understand, and should be internalized by all income earners and savers at an early age.

Along with some much needed self directed education about financial literacy and taking advantage of some low cost, high value offerings, we need to start a 'self help club' of individual savers and investors.

We definitely don't need or want the Nanny state government to do for us that which we can do, and do better, both for ourselves and each other.

States to Help Workers Save for Retirement is subtitled 'Automatic IRAs for people without workplace plans gain traction in Democratic legislatures:'

"In July, Oregon became the third state to enact legislation creating automatic individual retirement accounts for workers who don’t have retirement plans at work. State officials say the plans are an attempt to cushion the blow for millions of workers who could someday find themselves too old to work but short of savings. They are also an attempt to protect taxpayers in the future, said Oregon Treasurer Ted Wheeler.

“If people have not saved, they’re completely dependent upon government safety-net programs,” Mr. Wheeler said.

The gradual but broad shift away from of old-fashioned pensions—which provided lifetime retirement payments to retirees—has left millions of Americans unprepared for retirement, experts say.

In the private sector, almost 44% of prime-aged workers don’t have access to a retirement plan at work . . . . Currently, about 46.4% of private-sector workers take part in a workplace retirement plan, meaning that almost 10% of workers have access to a plan but don’t take part.

“It’s shocking…that less than half of employed adults are covered by any kind of employer plan,” said Alicia Munnell, director of the Center for Retirement Research at Boston College, which is working with Connecticut to set up a program. “There’s just a huge coverage gap out there.”

California was the first state to pass legislation in 2012 setting the stage for automatic retirement accounts for workers without coverage. Illinois enacted a similar law in January. Connecticut’s plan could be in place by next year, and legislation is pending in New Jersey and Massachusetts. In some states, such as Maryland and Maine, efforts have foundered in the legislature. For now, only Democratic-controlled legislatures have enacted the plans.

The initiatives differ in the details but all would feature automatic paycheck deductions—California, Oregon and Illinois are all contemplating 3%—to be placed in individual retirement accounts. In all three states, workers would be automatically enrolled, a feature designed to overcome people’s inertia about saving, but they would be allowed to opt out. State boards would manage the programs. In Oregon, the plans would apply to all employers regardless of size, but California and Illinois exempt smaller employers. . . .

For now, the state plans—even those passed by legislatures—are in the development stages and none has yet begun withdrawing money from paychecks. But the idea has caught on. At least 18 bills have been introduced in 15 states this year dealing with state-sponsored retirement plans, up from 10 bills in seven states in 2013, according to the National Conference of State Legislatures. . . .

The Obama administration supports the state initiatives and has promised to unveil rules this year to help states navigate the regulatory pitfalls . . . .

Whatever their design, the state plans will not guarantee a comfortable retirement for future generations. A study by the Employee Benefit Research Institute, a think tank funded by insurers, companies, unions and others interested in retirement issues, found that a mandatory 3% deduction would reduce the overall retirement-savings shortfall for working-age households by only 6.5%, in part due to the rising cost of long-term care for the elderly.

Still, supporters see the plans as a first step, one that can be expanded upon later."

Summing Up

Social Security requires too much in individual contributions for the retirement funds we eventually receive. As individuals we could do much better by investing that same money on our own.

And MOM (my own money) contributions that we save and invest properly would remain ours by staying in our individual account and grow nicely over time.

So let's get busy with the 401(k) and IRA opportunity and resolve to take care of our own future financial needs rather than 'hiring' more Nanny state government to do it for us.

Savings is a great personal financial health habit, and investing successfully for the long haul really isn't difficult.

A genuine commitment to self help, a habit of consistently saving, and a lengthy time horizon are all we need to make that happen.

Finally, since we provide the funds, why would we want the Nanny state to 'help' us do that which we can do better by ourselves?

That's my take.

Thanks. Bob.

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