CAMPAIGN 2008: Encore financing options in candidates’ recovery plans?

What could the next president do to help your encore career?

With as much as $2 trillion in losses in retirement accounts in the last 15 months (according to the Congressional Budget Office), both Sen. Barack Obama and Sen. John McCain are trying to get creative about how people can use the assets they have left.

Some of the proposed changes might help people use their savings to invest in themselves to prepare for their encore careers. Others would allow them to postpone the withdrawal of their retirement assets while they continue to collect a paycheck.

Both Obama and McCain, for example, are calling for a temporary suspension of mandatory annual withdrawals from Individual Retirement Accounts and 401(k)s. Currently, investors are required to withdraw approximately 4% of their assets each year, starting at age 70-1/2, in part to allow the government to begin to recoup the tax revenue from those tax-deferred accounts.

The argument for suspending or postponing such required withdrawals is that leaving the assets to accumulate longer means that they may be worth more later in life, when individuals really are not able to continue to work. Thus, the suspension of the withdrawals could be viewed as an incentive for continued work.

Other proposals from the candidates would reduce penalties for withdrawals of retirement savings by those younger than age 59-1/2. This has potential dangers, if it drains retirement assets and makes old-age finances even shakier. But if the early withdrawals are used not for immediate consumption but to pay for training or education that leads to an encore career, that expenditure could well be considered a prudent investment.

Obama would allow investors younger than 59-1/2 to withdraw up to $10,000 a year without incurring the early-withdrawal penalties in current law. The withdrawals would still be subject to normal taxes. McCain would go even further, allowing younger savers to withdraw up to to $50,000, to be taxed at only 10%, rather than up to 35%, the current rates for the most affluent. That proposal alone carries a whopping price tag of $36 billion, according to McCain’s campaign.

Still, a more focused investment in the creation of encore career opportunities might pay bigger dividends, by easing individual retirement worries while at the same time spurring experienced Americans to take on the challenges of tackling major social problems.

What could the next president do to help your encore career?