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September 17, 2014

Saving Our Savings


Yesterday the Senate Finance Committee held a hearing, "Retirement Savings 2.0—Updating Savings Policy for the Modern Economy."  The hearing comes on the heels of a recent Federal Reserve report, “2013 Survey of Consumer Finances,” which detailed the current state of retirement-account balances.
The average balance in an American retirement account has risen 10 percent in the last three years. The median balance actually rose even more, up 25 percent, to $59,000.
However, those with retirement accounts have dropped below 50 percent. Only about 40 percent of Americans in the bottom half income bracket have retirement accounts. Their average account balances have decreased, those with “upper middle” incomes decreased their participation, and those at the highest end saw their contributions decrease by 8 percent.
The Center for Retirement Research National Retirement Risk Index shows that more than half of Americans are not saving enough for retirement. Indeed, thirty one percent have no savings, including 20 percent of those who are getting close to retirement age (55 or older).
So what is going on?  Senator Ron Wyden, chair of the Senate Finance Committee, said in his opening statement, “It is a fact of today’s economy that millions of Americans are unable to save. Report after report has shown that America’s middle class is—at best—struggling to stay afloat. Five years after the Great Recession, it remains tough for many people to find and hold a steady job. The cost of a college education is rising. Millions of Americans had their wealth tied up in their homes before the housing collapse, and they haven’t come close to a full recovery. And a lot of working families are seeing their take-home pay drop.” 
But rather than becoming another political playground in the class-warfare game, government should take a hard look at itself and understand the damage it is inflicting on financially fragile families.
The problems Senator Wyden mentions are created by government. As the federal government took over student loans, guaranteeing more and more money, higher education took advantage and tuition increased. With the federal government capturing Fannie Mae and Freddie Mac, placing them under questionable receivership conditions, the federal government has caused even more confusion in the housing finance marketplace.
The Obama administration recently introduced one more savings device, the MyRA, which is designed so that “…the working poor financ[e] the government's deficit spending. By creating accounts that invest in a government pool, it's yet another way for the Treasury to raise funds without having to sell bonds in the public markets.
Congress could have introduced some simplicity and consistency amongst the many tax advantaged ways to save, helping citizens understand the best means for them and increasing their savings; it didn’t.
Government also needs to get out of the way of the economy—whether it’s the FCC threatening massive new rules on the top corporate investors or Obama playing gimmicky populist games on inversions instead of reforming the corporate tax code. Ultimately, we need a growing economy that creates more opportunities for sound investment, more jobs and more money to invest.


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