Do Americans need a new retirement plan backed by the US government? It has been well documented that Social Security funds will not last long enough to support everyone who has paid into it. Retirement and security is on a lot of people’s minds - especially with next year’s presidential elections upcoming. (Note: This is not a political blog, and this is not a political article. This is an article about a retirement plan being proposed by one of the early candidates.)

Presidential hopeful Senator Hillary Clinton proposed the US government begin a new program designed to help Americans prepare for retirement. The American Retirement Account is her proposal to give middle class Americans a government subsidized, 401(k) style retirement account.

This plan would effectively give each American access to a portable 401(k) plan in which the government would offer matching tax cuts between $500-1,000, depending on income. This proposal is designed to help middle and lower class Americans save more money toward retirement. Let’s look at it.

American Retirement Account Plan Details:

• The plan would function similar to a 401(k) plan.
• Dollar-for-dollar matching refundable tax credit for the first $1,000 of savings done by every married couple making up to $60,000.
• 50% match on the first $1000 of savings for every couple making between $60,000 and $100,000, which will be phased out after that.
• Plan is portable - it can be used with existing 401(k) plans, or be run as its own plan. It can be moved with the employee, regardless of employer.
• The accounts would allow penalty-free withdrawals for major investments like buying a home and paying for higher education or to help manage periods of unemployment.
• Provide small businesses with tax incentives to provide direct-deposit into American Retirement Account Plans.

My Questions:

• Who will pay for it? Well, this is the million dollar question, isn’t it? When Sen. Clinton proposed the Baby Bonds, she didn’t have an answer for that question. To pay for the American Retirement Account, Sen. Clinton proposes the government put a freeze on the 2009 estate tax levels. I haven’t done the research on the taxes involved with this, but I hope her Presidential Campaign Committee has. This program will potentially cost billions of dollars.
• What are the tax breaks for single people? Only married couples were mentioned in her outline. By only defining contributions for married people, this plan leaves out an extremely large segment of the population.
• Is this designed to supplement, or replace Social Security? When asked this question, Sen. Clinton’s response hedged toward bolstering Social Security and bringing it back on-line. I guess that means this will supplement Social Security, but who knows.
• What is a refundable tax credit? Does the plan call for the government to put money into your account for you, or this is just another line item deduction on your taxes? Though some news reports initially referred to it as a dollar for dollar match when you make the investment, further reading leads me to believe this is actually another tax deduction.

Will the American Retirement Account work? If you run the numbers, $500-1000 per year compounded annually over 30 years is not a huge sum of money, at least not when you consider people will be using it to live off of. But, I’m not entirely sure that is the sole intent of the program.

I think part of the intent is to get people used to the idea of saving. I know for me personally, that I was more motivated to save as I watched my accounts increase in size. I think once many people realize that all they need to do is get into the habit of saving and they can make steady progress over time, more people will do it. Unfortunately, it may take a government program to get many people to realize this.

Note: I am neither for nor against Hillary Clinton, and I do not consider this a political blog. I am writing about this because I think it is an interesting idea and one that many Americans should put thought and consideration into. Your financial future is worth it.

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