Piggybanks

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.

Seniors or sensibility

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.