Nearly Four in 10 Report No Retirement Savings

Thirty-six percent of Americans polled have not saved any money for retirement, according to a new Bankrate.com report.

A Bankrate.com survey found, in the age 18 to 29 demographic, nearly seven in 10 (69%) workers have not started saving for retirement. Those in the 30 to 49 age bracket are doing somewhat better but still struggle—with 33% having no amount saved for retirement. Bankrate researchers suggest these younger non-savers are missing out on the critical “time value” of money, as dollars invested today have the potential to grow far more substantially than dollars invested close to retirement.

The older generations in the workforce display a better track record, the research shows, with 74% of those ages 50 to 64 and 86% of people 65 years and older having established some retirement savings. Americans who are already saving for retirement say they started to do so at an early age. For example, twice as many active retirement investors in the 30 to 49 year-old age range started saving in their 20s than started saving in their 30s.

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“Regardless of age, there is no better time than the present to start saving for retirement,” says Greg McBride, Bankrate.com’s chief financial analyst. “The key to a successful retirement is to save early and aggressively, but even those on the cusp of their golden years should have some money allocated toward equities as opposed to all cash and bonds.”

The survey suggests Americans’ feelings of financial security have not changed from one month ago. However, there has been a slight improvement in their perception of financial security compared with one year ago, Bankrate says.

Some other findings from the report suggest that millennials feel more financially secure than any other age group, despite their lack of retirement savings and generally lower wages. Bankrate says this positivity comes from Millennials feeling more secure in their jobs and more optimistic about their ability to make money down the road.

While job security, net worth and overall financial situation are areas in which Americans see good improvement from a year ago, twice as many Americans now say they are less comfortable with their savings compared with a year ago than say they are more comfortable.

Americans’ comfort level with debt also remains mixed. Although 24% of people are less comfortable with their current situation debt situation compared with a year ago, 23% are more comfortable than one year ago.

The survey was conducted by Princeton Survey Research Associates International (PSRAI) among 1,003 U.S. adults August 7 – 10. Survey results can be viewed here.

The Tax Deferral vs. Benefit Debate Goes On

A new report from the U.S. Congress’ Joint Committee on Taxation offers a glimpse into the federal government’s perception of the tax benefits associated with retirement planning.

In a word, the committee sees the income tax deferrals associated with qualified defined contribution (DC) retirement plans as expenditures—despite the fact that income tax will eventually be paid on qualified DC account assets when participants use them for annual income in retirement. Under current law, payments from Social Security retirement benefits are also partially excluded or fully excluded from an individual’s gross income, further adding to the government’s “expenditures” on retirement tax benefits.

It’s not that the joint tax committee is unaware of the fact that taxes will eventually be paid on qualified retirement plan assets (at least when it comes to DC accounts), says Rep. Reid Ribble (R-Wisconsin). The problem is rather how the Congressional Budget Office (CBO) and other key players in the tax assessment, collection and expenditure process are forced to account for tax-deferred savings under current law.

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Put simply, the CBO and others are “not allowed to score anything dynamically,” Ribble explains, “so the shortfall of income from taxes on plan contributions necessarily becomes part of debt now.”

Ribble says he has introduced legislation that would have the CBO establish a long-term scoring option to better track and assess tax deferrals related to retirement plans (see “There Is Hope for Retirement Security Policies from Congress”). “Right now we’re trapped in these rules,” he adds.

The new analysis from the Joint Committee on Taxation looks at the federal government’s entire tax collection and expenditure expectations for both individuals and corporations—of which retirement plan-related deferrals are only a small part. The report makes its estimates based on the provisions in federal tax law enacted through June 30. Expired or repealed provisions are not listed unless they have continuing revenue effects associated with ongoing taxpayer activity. Proposed extensions or modifications of expiring provisions are also not included until they have been enacted into law.

The tax expenditure calculations are based on the January 2014 CBO revenue baseline assessment and subsequent joint committee staff projections of the gross income, deductions, and expenditures of individuals and corporations for calendar years 2013 to 2018. Based on these criteria, the federal government expects to “spend” about $399 billion on tax deferrals for DC plans between 2014 and 2018. The annual figure grows from $45 billion this year to $81 billion in 2016 and nearly $112 billion in 2018.

For defined benefit (DB) plans, federal government spending on tax deferrals for individuals accruing a future benefit with a present cash value is projected to be $248 billion between 2014 and 2018. The figure starts at $26 billion this year and reaches an estimated $50 billion in 2016 and nearly $70 billion in 2018.

For tax-advantaged individual retirement accounts (IRAs), the federal government expects to spend about $70 billion over the five-year time period. For 2014 the figure is about $12 billion, growing slowly year-over-year to reach $16 billion in 2018. Spending on Roth IRA tax deferrals will amount to just over $30 billion between now and 2018, according to the tax committee. An additional $6 billion in spending is projected for “credits for certain individuals for elective deferrals and IRA contributions.”

Language in the tax committee report suggests that, under “normal income tax law,” employer contributions to pension plans and income earned on pension assets generally would be taxable for employees as the contributions are made and as the income is earned, and employees would not receive any deduction or exclusion for their retirement plan contributions. Under present law, however, employer contributions to qualified pension plans and, generally, employee contributions made at the election of the employee through salary reduction are not taxed until distributed to the employee, and income earned on pension assets is not taxed until distributed.

Ribble says it will be critical for the retirement readiness of the U.S. workforce to maintain the present tax deferral rules for retirement plan participants. He warned attendees at the 2014 PLANSPONSOR National Conference, held in Chicago in early June, that several tax reform proposals being circulated in Washington could start to cut away at these tax benefits.

With the federal budget deficit being what it is, he said there are various proposals in the pipeline that look to update the architecture of retirement vehicles and thus provide more revenue that could be used to alleviate the deficit. These include:

Various industry groups have raised the alarm about these proposals and others, especially the wide-reaching tax reform package introduced this year by the House Ways and Means Committee Chairman. While the 979-page document does not include taxation of retirement contribution amounts and benefits caps President Obama suggested in earlier budget proposals, there are similar or new provisions industry groups say will result in double taxation and discourage retirement plan benefit offerings.

The full Joint Committee on Taxation report, “Estimates of Federal Tax Expenditures for Fiscal Years 2014 – 2018,” is available for download here.

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