CAMPAIGN 2008: Encore financing options in candidates’ recovery plans?
Posted 10/16/2008 - 3:29pm
by David Bank
in
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?
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The next president could....
tax each stock trade at whatever the market will bear, and use that revenue to invest in the many things our society needs ( affordable health care, renewable energy, free education etc). It would also let the Wall Street gamblers “give back” to society, instead of the working class always having to foot the bill.
Bi-Partisanship and Avoid the Tax Policy Lure
Senators McCain and Obama are right to call for a temporary suspension of mandatory tax withdrawals from IRA and 401 (K) accounts for people over 70-1/2. Even halting penalties for those investors younger than 59-1/2 who withdraw funds from their investments makes sense. These proposals represent fairness and useful bi-partisanship. They reinforce the ideas behind National Service and Encore represented by the Kennedy-Hatch and Dodd-Cochran bills that both Senators McCain and Obama co-sponsor.
However, McCain’s proposals of allowing younger investors to withdraw up to $50,000 and then not have them pay ordinary tax rates represents a reckless lure. They add up to a $36 billion dollar tax expenditure. That’s huge spending without any public investment.
Focused investments, along the lines of Kennedy-Hatch and Dodd-Cochran, point to a return that puts us in the direction of meeting societal needs while creating rewarding and productive jobs for older people. Focused investments moves us away from the emphasis on me. It moves us towards strengthening us as We the People and it creates satisfaction for the individual.