Wednesday, October 10, 2007

The Matching Game

Hillary Clinton unveiled her new retirement savings plan yesterday (link). There are some things to like about and other I do not. Starting with the good, the plan would offer up to $1,000 match to anyone making under $60,000 a year for the first $1,000 put away in retirement accounts. My rough calculations suggest that if you can encourage a person to save just $2,000 a year from 22-65, that person could have a steady stream of income of about $15,000 a year for ever. That seems like a good way to make sure people are set up for retirement.

Now here is the catch it is not matching in the typical sense. Normally when your employer matches your contribution they put that contribution into your 401k. The above linked article suggest the match will come as the form of a tax credit. That is someone who invests $1,000 will get $1,000 back after they file their taxes.

The other suggestion I have is if we are serious about getting people to save for retirement, why not do two things. First, anyone who has a job making less than $60,000 a year will be signed up for the program which they put in $1,000 a year (deducted from their paycheck), second the matching will go directly into their retirement savings account. Anyone can opt out of the program, but they start as enrolled once they fill out their W-4. As this report suggests automatically enrolling someone in 401k will increase participation rates to upwards of 90%

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