Save Your 401(k)
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
The Thanksgiving holiday is now upon us, but who would have guessed it with Christmas decorations already filling the stores for the last two months. This holiday is about remembering what we are thankful for that may otherwise go unnoticed without focused reflection.
In this highly polarized political environment there remains one thing I think most of us can agree on… that we are NOT thankful for our elected officials. Ultimately that is our own fault as we are the ones who voted them in. It’s these same politicians whose frivolous spending and complete disregard for any kind of fiscal restraint has brought us to the edge of the fiscal cliff and has earned the ire of nearly all Americans, manifesting itself in record dissatisfaction ratings of both the House and Senate.
News outlets, however, have been reporting the unthinkable – that Republicans and Democrats are actually working together to address the fiscal cliff problem that is just weeks away. Words like ‘compromise’ and ‘optimistic’ are being bandied about. But we need to ask ourselves who really stands to gain and lose from the compromises our elected officials finally arrive at?
The fiscal cliff refers to the spending cuts that will automatically go into effect at year-end, possibly sending a still fragile recovery back into a deep recession. Not quite the end of the world the Mayans predicted but for those still reeling from the last recession it could spell prolonged economic hardship. Consider first that the fiscal cliff is a creation of our government – the same officials now working diligently to minimize the spending cuts they themselves agreed on (or raise taxes).
Ultimately neither side of the aisle wants to be blamed for thrusting the country back into recession therefore there will be compromise and concessions on both sides to some degree. Which compromises are ultimately put into effect can, and will, have an impact on millions of us. Some, if not all, of us will be asked to contribute in some fashion, likely through a combination of both paying more and getting less from the federal government.
One of the proposed efforts to raise tax revenue will potentially affect about 60-70 million Americans. These are not only the wealthy, or the self-employed or Democrats or Republicans or any other group that most of us can ignore. The 70 million is made up of people from all different backgrounds; people who save through employer sponsored retirement plans, like 401(k)’s.
Discussions are currently underway to cut back, possibly even eliminate, some of the tax benefits we get for setting money aside for retirement. I ask you if this is a sensible strategy? Most of us realize that social security will not suffice to cover all our needs once we retire, therefore we save in an attempt to make up the difference. As a nation we don’t save nearly enough. Cutting tax breaks for 401(k) deferrals will make it harder to even maintain our current savings levels.
Furthermore, what happens when we become a nation where retirees are even more dependent on government support because they were unable to save on their own? You guessed it – the same politicians that cut our tax incentives for saving will be trying to find ways to pay for our retirement needs in other ways. This seems to me like a poor, short-sighted and ultimately dangerous compromise.
You can learn more at savemy401k.com where you can also email your elected officials (it only takes 20 seconds) and tell them to keep their hands off your retirement savings.
About the author: Michael Prus is the President and Founder of Scale Investment Group, LLC, a registered investment advisory firm based in White Lake, Michigan. Scale Investment Group is a leader in providing low-cost institutional investment services, like 401(k) and 403(b) plans, to small and mid-sized organizations and also manages money for private clients. The firm is a champion for small investors promoting low-costs and transparency of the investment advisory industry. For more information visit scaleinv.com or contact Michael directly at email@example.com