Should retirement savings be mandatory?

Should retirement savings be mandatory?

A recent study out from the National Institute on Reitrement Security has some unnerving statistics for the future of this country. Statistics show too many people won't have nearly enough saved when they retire, and it's something the slow economic recovery isn't fixing on its own. 

Only 42 percent of private sector workers between the ages 25 and 64 have any retirement coverage in their current job. That means roughly 38 million workers in the U.S. do not have any retirement account savings at all.

"To me, that spells worry," says Marketplace's economics guy Chris Farrell. "We've created tax incentives to get people to participate in their 401(k), we've reduced the number of options in a 401(k), realizing that too much choice was overwhelming... Despite all of this, we still don't have enough people saving enough money for their retirement."

So what should we do? Farrell advocates using a "toxic word in Washington, DC: mandatory savings."

Farrell says countries like the U.K., Australia, and Israel already have mandatory savings plans for moderate income workers. In Australia, an employer has to set aside 9 percent of an employee's earnings currently, and will soon have to set aside 12 percent. Employees can choose to put more money in the mandatory savings plan, and often do at around 3 percent.

In this country, "the policy elite is starting to talk about mandatory savings," says Farrell. "You don't like the word 'mandatory,' you've got to come up with something better. The existing system is not working."

About the author

Chris Farrell is the economics editor of Marketplace Money.
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I would love to save for retirement. Unfortunately, my company doesn't have a 401K program, which means I am only allowed to put $5,500 - $6,500 (depending on age) into an IRA. I don't understand why I can put $17,500-$23,000 (depending on age) into a 401K but only $5,500-$6,500 into an IRA. Why is there such a vast discrepancy? Why can't I save the same amount? Granted I am able to put my money into an investment/savings account, but w/o the retirement savings shield, I will be paying taxes on any sales I make in order to change my investment goals or products. If you want to discuss retirement savings, you should add this to the discussion.

The problem with retirement planning and saving/investing is that many people just do not make it a priority or worse, they don't think about it until its too late. Others think Social Security will support them. They key is to start educating children when they are in elementary school and right through college about retirement planning. Retirement saving/investing should become like brushing your teeth. You just do it. I also don't understand why most people do not take advantage of the retirement information that is available to them on the web. Most of it is free. I recently started using the site Retirement And Good Living ( http://retirementandgoodliving.com ) that provides information on finances, health, retirement locations, part time jobs and more.

Social security will be gone following the Baby Boom; and I think we have a huge problem looming, but we can look to the Australian example of something which has proven very, very popular there. Some of us have done well with 401ks, but far too many others have not, which is a huge societal problem. Basically, too many have put far too much of their personal wealth into real estate (homes) and that's fine, but its been done at the expense of (not in addition to) savings for retirement. In the end, we really have a problem that no one wants to deal with (especially in Congress). This can be one way to address the issue in addition to the current structure (401k) which can address a huge problem in a way that ensures not only a select few can be well cared for in their senior years, but ALL. I hope we can learn from other English-speaking countries and follow their lead because it is generally seen as a very good system which has potential to augment or replace a crumbling social security foundation.

Mandatory savings for retirement? What about the 7.65% Social Security Tax already being withheld from people's pay and the other 7.65% being paid by employers? What about that money? Now an additional amount for mandatory retirement. What a joke. How about a return to Mandatory Pensions to be paid by employers to supplement the Social Security system that already exists? Or better yet since part of the 7.65% being withheld is for Medicare, how about also providing Long Term Care insurance as part of that deal.

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