Bloomberg is out with one of the sillier opinion pieces about the supposed problems plaguing retirement plans, and specifically 401ks.
We’ll give the news service the benefit of the doubt that it’s an attempt at a contrarian view to bait clicks, but it still doesn’t excuse the intellectual dishonesty writer Justin Fox displays.
After the cursory rehash of the events that brought us here (no limit cuts, limit cuts, no limit cuts, maybe limit cuts…) Fox awkwardly claims that the tax-cuts-as-saving-incentives approach “doesn’t seem to be doing a good job of getting Americans to save for retirement.”
Why not? He offers six easily-rebutted arguments we’ve all heard a million times before.
The first is that tax incentives supposedly don’t have much effect. He quotes a 2013 study by Harvard’s Raj Chetty and “a bunch of other economists,” most of them Danish. It found that a 1999 reduction in the tax subsidy for retirement savings in Denmark had almost no impact on overall retirement savings.
Apples to oranges doesn’t do this straw man justice; it’s more apples to jabuticaba in its comparison. Cherry picking stats from a cradle-to-grave nanny state without context or controlling for other variables is completely worthless.
In the vein of “lies, damned lies, and statistics,” we’ll respond with a study of our own. Marketing research firm GfK recently surveyed 23,000 individuals in 19 developed countries and found that Americans are the most confident in their retirement expectations, a reason of which is the prevalence of 401ks.
Good ol’ USA topped high-tax nations like France (and Demark). Claiming tax incentives don’t work goes against every behavioral outcome of the past 30 years. Heck, it’s a reason Milton Friedman won the Nobel Prize, but what did he know?
Fox argues they cost too much, but of course it’s not the cost you think. Argue high fees and outrageous expense ratios all you want; we’ll even jump on board.
But defining “cost” as government revenue forgone by letting workers keep more of their wages doesn’t, and will never, fly. That’s a political argument masquerading as economics, a frequent rhetorical trick employed by 401k critics.
“Most American workers don’t have them,” he laments. Sure, they’re still relatively new, and a lack of education and awareness doesn’t equate to failure of the savings vehicle itself.
His remaining points are more of the same, but the real tell comes in his praise and promotion of Teresa Ghilarducci’s Guaranteed Retirement Accounts (GRAs), a plan he brags on as “bold.”
The New School economics professor and Blackstone President Tony James want “to replace the 401(k) with mandatory, professionally managed retirement savings accounts that are automatically converted to annuities at retirement.”
The words government and mandatory always send shivers to our spine, but it would explain Fox’s use of the Danes to make his argument, one devoid of substance, and rotten in its consistency.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
Rothification will kill the us stock market.
Roth withdraws are not counted for social security taxation.
Outside bankruptcy, ROths are not protected from creditors.
Rothification will require new accounts. One for traditional 401k, one for employer match and one for ROth 401k.
Talk about simplification.