Most experts would agree that a majority of people are not taking their retirement funds as seriously as they should. Data collected by the National Institute of Retirement Security (NIRS) shows that people today are not saving nearly enough to fund a long and healthy retirement. According to the NIRS, “92 percent of working households will not meet conservative retirement savings targets for their age and income.”
As a result of this grim outlook, there has been a huge push to make sure that the importance of retirement savings is well-known. Young people today are being taught to begin saving for the future as soon as they enter the workforce. As the cost of living and the average life expectancy are both increasing, saving is crucial to maintaining the current standard of living upon retirement. Pension plans are disappearing, and recent studies show that the Social Security trust fund will be depleted by 2033. Most people have dreams of spending their retirement on a beach or traveling the world. No one wants to be limited in their retirement due to insufficient funds. The best way to prepare for an exciting retirement is to save as much as possible as early as possible.
Unfortunately, Obama’s recent proposal regarding retirement savings may be sending a different message. In his 2016 budget proposal, the president suggested a cap on retirement savings. Before you panic, you should note that this cap is only expected to affect about 10 percent of 401k participants as it will cap retirement savings at $3.4 million.
Although this cap would not affect the majority, it would hurt a lot of people whose savings are approaching the cap or have already reached the cap. Many people have been saving for their entire lives and are expecting to maintain their current standard of living without working forever. Those who planned to spend their retirement exploring the world may now have to adjust those dreams.
If you don’t currently fit into this group of people who have reached the cap, your retirement savings may seem safe for now. Most people, however, hope to exceed their saving expectations. Nearly everyone works hard every day with the hope of moving up financially. Although this cap may not impact the majority of people’s savings immediately, it is sending the wrong message to our young people. We should be teaching them to save as much as they can and aspire to achieve great things, but this proposal is doing quite the opposite. It is telling them that they are limited and that adequately preparing for the future is wrong and will be punished, not rewarded.
Retirement Jar by American Advisors Group is licensed under Creative Commons