Do you think your retirement savings are safe? Don’t be so sure. Megan McArdle thinks that Congress will likely go after your Roth IRA piggybank, among other hoards.
When I look at the budget problems we face, I’m skeptical that Congress is going to live up to its promise to keep its hands off that money. At the very least, I’d bet that high earners are going to see some sort of surtax on their Roth withdrawals.
Of course, I think this is true of non-Roth retirement savings as well. Ultimately, Congress is going to be faced with penalizing people who didn’t save adequately for retirement by cutting their benefits, or penalizing people who did save, by raising taxes on their savings. For a lot of reasons, I expect them to err on the side of penalizing savings.
She’s adjusting her savings accordingly.
I’ve started thinking about saving in ways that Uncle Sam won’t be tempted to touch–like paying off your house early, maybe buying a vacation home (for cash) if you know where you’re likely to want to spend a lot of time, and doing the kind of renovations that save you money in the long run–better insulation, higher-end energy-efficient appliances, etc. Paying now to lower your monthly costs later may have a better after-tax return than that “tax free” account.
But, of course, Rep. Paul Ryan finally opened the serious debate about our long-term budget, and President Obama is going to follow with a (hopefully) serious response later this. With this debate underway, maybe future Congress won’t feel the need to touch our piggybanks.
For all the Tea Party’s earnest hopes about reducing the deficit and achieving a low-tax balanced budget, the Republican Party can’t survive without seniors’ votes. But any responsible plan for correcting the government’s budget future must change seniors’ entitlements. Which makes it hard to see how Republicans can please seniors, their most loyal supporters, and Tea Partiers, the the newest members of the GOP coalition and the ones that put the party over the top in this month’s election.
David Frum points out that the deficit commission proposal is already facing bitter opposition from the likes of Sean Hannity, who summed up the proposal:
First, they want to increase the Federal Gas Tax rate starting in 2013 by 15 cents per gallon. Next they propose increasing the Social Security retirement age. Now third, the commission is calling for cuts in both Social Security and Medicare benefits. . . . And we’re going to means test [Social Security benefits] so you’ve got to pay your whole life, and if you paid your whole life, you’re going to—we’re going to confiscate it basically.
As Frum explains,
What we see in today’s GOP is a party whose ideology (limited government) and whose constituency (the biggest recipients of domestic government spending) are sharply at variance. That variance is not a sustainable situation. In fact, it’s not sustained.
Cracking the nut of seniors’ opposition to key changes is difficult, but absolutely necessary. Part of the solution is already in the commission chairmen’s proposal: make the changes gradual, so that people at or near retirement don’t get the rug pulled out from beneath them. For example, the chairmen propose to raise the retirement age, but only by one month every two years, and only after the retirement age is scheduled to increase to 67 (in about 2025). If seniors can be convinced that the budget will not be balanced on their backs, then they can help fix the fiscal crisis that looms over the country.