With the unveiling of the President’s signature retirement savings account for individuals who do not have the access to an employer retirement savings plan, the myRA account, whispers of nationalizing Employer Retirement Plans are starting to appear.
Zero Hedge, a blog written by financial professionals who just happen to always be 3 steps ahead of everyone, they are credited with breaking open the “Flash Trading” scandal happening on Wall Street, created a wonderful article titled “The Countdown To The Nationalization Of Retirement Savings Has Begun” back in February 2014.
The article quickly goes over the details and the highlights of the myRA while comparing it to a sucker’s deal as it doesn’t really provide any “significant new benefits over existing options” while the article goes further to say that, for the author, the myRA “To me it just looks like a way for the US government to pass the hot potato on to unsuspecting Americans in exchange for their retirement savings”.
The miss by Zero Hedge and possibly most in the financial industry might just be the fact that federal government, for the most part, has already nationalized your Traditional 401(k) and IRA already.
Within the last decade the rules of retirement have been changed and though the federal government has been very vocal about it would appear that not too many people are aware of it.
Currently, in order for you to even receive your Social Security benefit in retirement you must also accept Medicare or you will forfeit all current, future and past benefits. This may not seem like a big deal, but the issue is the fact that the majority of your Medicare costs are determined by the amount of income you earn in retirement and the more you earn the more you pay.
The caveat to this rule is the fact that your income is defined as pretty much everything that is in your retirement savings with the specifics being your Traditional 401(k) and IRA.
It may be fairly simple to see how the federal government nationalized your Retirement Account now: the distribution from your Retirement Savings account, which you will have to take at age 70.5, will be counted as income for both the IRS and for Medicare. With each withdrawal you make you place yourself closer and closer to increasing your Medicare premiums while also increasing your tax obligation.
The other saving grace for the federal government is the fact that certain Medicare premiums and any surcharges a person may have due to this income surcharge are automatically deducted from any Social Security benefit that will be received – thus your Social Security benefit will be lowered as well and thisis all due to your very own savings.
In a nut shell, your Retirement Account will be used against you when your health is the on line and this will drive up your health costs while driving down your actual received Social Security benefit.
Your retirement account has become, pretty much, the tool to nationalize your very own income. The more you have the less the government has to give you while also being able to increase your health costs which you have to have and the cherry on top, for those that have way too much income, you just might be looking at a retirement where you will be taxed on income you will never even receive.
Since Medicare premiums and any penalties/surcharges are deducted from any Social Security benefit and with the Social Security cola’s being less than 2.8% for the foreseeable future while Medicare premiums are inflating by more than 7.5% it is only matter a time before “affluent” retirees pay even more and receive even less.
Why the myRA becomes a great option for those planning on retirement and who want to keep their savings plus their Social Security benefit, while maintaining their tax rate, might just be due to the fact that the myRA:
- 1) Allows investors access to a savings account at zero cost.
- 2) That the underlying securities are guaranteed to never go down.
- 3) Thanks to the myRA being in a Roth account any withdrawal made will not count as income towards their taxes or their Medicare premiums.
Yes, the financial industry and employers have the ability to also offer a Roth provision in the Employer Retirement Savings Plans, but apparently they have not been that successful in doing so and where they have met some success the solution has only gone so far.
According to Fidelity Investments less than 50% of employers offer a Roth provision on their savings plan and for those employers who do offer it the employee participation rate has been less than grand at close to 11% enrollment rate by employees, also according to Fidelity.
One of the reasons on why participation might be so low within Roth accounts, especially on the Employer Retirement level, may be due to the lack of information or education at every level when it comes to these federal regulations.
One could argue that if the general public understood about the mandatory expense that they had to have and how it was predicated by their very own income, which could, quite possibly, drive down their Social Security benefits while increasing their taxes that they would actually take advantage of a tool that could help them.
But again, it would appear that this information is not being disseminated properly and the problem that this may cause in the very near future just might be the very same general public screaming for regulations that hinder the financial industry and employers too.
As the public becomes increasingly aware of how the rules of retirement of have changed and how their employers as well as the financial professionals missed the opportunity to explain these changes the possibility of asking the federal government to take over and regulate retirement savings may be more reality than not.
From here all the federal government will have to do is just offer the myRA or a plan similar too it to the employers in exchange for taking the burden of the fiduciary rule off their table and possibly waiving any liabilities that come with not providing all of the information about retirement to its employees in the past.
As stated, the federal government has already nationalized our Retirement Accounts the only questions going forward may just be when will this all happen (we have written already that it should happen by 2018) and how aggressive will the government be when addressing this issue?