The Biggest Threat to Your Retirement

The single greatest threat standing between you and your financial goals, whether those goals consist of saving for retirement, paying down your debt, or starting a business, is, and always has been, the government and its policies. The laws enacted by elected officials, often only serve as impediments to you and millions of people like you. Even when they attempt to right wrongheaded policies, politicians often miss the mark, and the results are frequently unintended and unexpected. 

Additionally, even a casual observer should be able to notice that laws are all too often given catchy names or acronyms that make them difficult to vote against in the court of public opinion (assuming they’ve even been read in the first place). Who, among Congress, would stand against something like the USA PATRIOT Act (Full name: Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001)? Certainly no one, unless of course they don’t care about re-election or are simply not patriots.

Pleading that a law oversteps, doesn’t solve an intended problem, or that a bill is laden with pork is not enough in today’s world of headlines, tweets and little substance. The headline will not read “Congressman Upholds Citizen’s Rights,” it will instead claim that “Congressman is a Terrorist Sympathizer.” Good luck getting re-elected with that in your opponent’s television ad. Political expediency and convenience outdoes careful thought, research and consideration nearly ten times out of ten.

Next time you are being groped and assaulted by TSA agents you can thank your favorite congress person for putting appearances ahead of effectiveness.

I say this not to incite some uproar against our elected officials. If job approval polls are any indication, we are nearly all on the same page with our disgust and distrust of those in Washington D.C.

“Every normal man must be tempted, at times, to spit on his hands, hoist the black flag, and begin slitting throats.” – H. L. Mencken

Most recently the topic of debate has been tax reform. Senators Bernie Sanders and Ted Cruz had a spirited debate last week on this very subject with the result being, predictably, absolutely nothing.

Both Senators tried to make the case that taxes should be lower for their constituents, which they both defined as the all-important American middle class, of which nearly everyone considers themselves a member. Yet, while pandering for votes, they also believe in the concept of revenue neutrality. What it means to be “revenue neutral” is that the government is not willing to take a pay cut. They have certain spending habits and any tax reform can merely move around who pays the taxes, not actually lowering them overall.

This is important to understand because whether the middle class, the upper class, or corporations pay the taxes, the impact effects the economy and therefore all of us. The results of tax reform may manifest themselves unexpectedly as lower salaries for workers (or smaller pay increases), fewer jobs available, less innovation, higher prices for goods and services or result in corporations moving operations overseas.

We have a national debt of over $20 Trillion. To say that we have a spending problem would be a massive understatement. Revenue neutral tax reform without meaningful spending cuts are like an alcoholic deciding to stop drinking by visiting a different bar than the one he normally frequents. In other words, it completely misses the point.

One idea that has been floated in Washington D.C. that has many, including myself in an uproar is limiting 401(k) contributions to $2,400 per person, per year to remain revenue neutral. This idea is so nefarious, so dishonorable, so stupid, that it could only have been dreamed up and thought a good idea by the twisted mind of a politician.

“For every complex problem there is an answer that is clear, simple, and wrong.” – H. L. Mencken

About 55% of the American workforce have a 401(k) through their employers. It remains the single best, widely available tool for saving for retirement because 1) it often includes an employer match, 2) it has an immediate tax benefit, 3) it allows for deferrals to grow tax free until age 70 ½ and 4) has much higher contribution limits than those available to people without a 401(k).

The creation of the 401(k) is just one of the many provisions in our 10+ million-word tax law (not including the volumes upon volumes of tax related case law). I think we can all agree that the sheer amount of laws surrounding taxes can be confusing to the lay-person and the need for reform is there, though there is no political will to truly simplify the process as it would mean someone would miss out of their favorite write off.

Critics may argue that the 401(k) is not being fully utilized and therefore cuts to contribution limits are sensible. They would be partially correct - only 38% of the workforce contributes to a 401(k) plan. However, it underscores the fact that American’s are not saving enough for retirement, period. Putting lower limits on contributions will not improve American’s savings rates, it will only make American’s poorer in retirement and more reliant on social security (another program massively mismanaged by government).

“The whole aim of practical politics is to keep the populace alarmed (and hence clamours to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.” – H. L. Mencken

The point here is that tax reform is necessary. Absolutely necessary. True reform, not reform in name only. It, however, only addresses part of the problem, and not even the larger one. Spending must be reigned in. Congress continues spending taxes (and borrowed money) without regard to how it will eventually end. If we managed our households like politicians manage the budget we would all be destitute.

I imagine a criticism I’m likely to receive is that a $2,400 annual cap on 401(k) contributions is likely to hurt my business and that’s the true reason I, along with many others in this industry, are against it. This is true, such a cap would be likely to hurt the growth of my business, but it hurts me personally as well, as it does you and the millions of other Americans that suddenly can’t save enough for a comfortable retirement even if they wanted to. Finding yourself in the unenviable position where one of your best tax savings options is virtually eliminated, resulting in you paying more in taxes in the name of revenue neutrality while simultaneously having nothing to show for it is not a position I would want to find myself in, nor one I would wish upon my worst enemy.

The silver lining, if there is one, is that news of this proposal has reached the Oval Office. This morning President Trump tweeted: “There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!” While it is encouraging to hear the commander-in-chief stand up for Americans, I am not aware that tweets are an official part of the 10+ million-word tax code, though I must confess, I may have missed it.

Feel free to contact your Senators and Representatives and let them know where you stand on this issue by finding them here.

The most dangerous man to any government is the man who is able to think things out... without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable. – H. L. Mencken