Many Americans have made a conscious effort to reduce debt and increase their personal savings over the past year as the economy has struggled. Economic numbers continue to pour in supporting the fact that people are paying down debt and saving more money. Now, the government announced upcoming changes that are going to encourage even more saving in the years leading up to retirement.
The goal of these new initiatives is to encourage saving and make it as easy as possible to save, possibly to the point of providing tax incentives to savers. President Obama announced the new ideas, saying, “Tens of millions of families have been, for a variety of reasons, unable to put away enough money for a secure retirement….We cannot continue on this course.”
Some of the proposals being considered include:
– Savings Bonds for Tax Refunds: Most people get their tax refund each year and have every intention of either saving it or using it to reduce their debt levels. However, the majority of those dollars end up getting spent instead of saved. The IRS, beginning in 2010, will allow people receiving a tax refund to receive a US savings bond instead of a check.
– Automatic Participation in Retirement Plans: Most employers have some type of retirement plan available, but many employees never opt in and start saving in that plan. Progress is being made on making it easier for employers to automatically enroll new employees in retirement plans. Many people intend to save money by contributing to a 401K or some other type of retirement plan, but they never get around to enrolling. This plan would allow employees to opt out of the retirement plan, but would likely lead to an increase in retirement savings for the millions of workers with 401K retirement plans.
– Sick Days and Vacation Days Converted To Retirement Savings: Many employees pile up sick days and vacation days every year to the point where they couldn’t realistically come close to using them all up. Other companies have a policy that employees will lose any sick days or vacation days not used during a calendar year. This proposal would attach a cash value to those unused hours and that value could be deposited to the employee’s retirement account. For some employees, this savings could add up to hundreds or even thousands of dollars in savings each year.
– Forced Retirement Plans: For employers who don’t currently offer a retirement plan to their employees, Congress is considering a bill that would force employers to at least set up an IRA with a direct deposit option for their employees. A worker would not have to contribute, but at least the option would be there.
Nearly half of workers older than age 55 currently have less than $50,000 saved for retirement. The goal of these initiatives is to make it easier and more convenient for people to save and give more people a chance at a retirement where they don’t have to depend solely on Social Security to meet their financial needs.