Complaining that "some wealthy individuals are able to accumulate many millions of dollars in these accounts," the Obama administration announced a plan to cap the total sum of any individual's retirement accounts at $3 million. Stashing cash beyond that point, the administration insists, builds sums "substantially more than is needed to fund reasonable levels of retirement saving." The administration's argument seems to be based on the use of the word "million," implying that only nasty rich people would want to accumulate such a hoard. But is that true? How much is enough for "reasonable levels of retirement saving."
As it turns out, that's one of the toughest questions to answer for retirement planning. Many advisors suggest you base your retirement savings on something like 70 percent of your pre-retirement income, multiplied by how many years you expect to live. So ... Just when do you plan to kick off? As one article on retirement planning puts it, "basing your retirement needs on income is like basing your fuel needs on the size of your car’s gas tank. What really matters is how far you have to go and what kind of gas mileage you get." Part of that "gas mileage" for retirement planning includes inflation. By the time you retire, will $3 million buy luxury? Or a sandwich?
From Bloomberg Businessweek:
President Barack Obama’s budget proposal would cap multimillion-dollar tax-favored retirement accounts like the one held by Mitt Romney, his Republican rival in 2012.
Obama’s budget plan, to be unveiled April 10, would prohibit taxpayers from accumulating more than $3 million in an individual retirement account. That proposal would generate $9 billion in revenue for the Treasury over the next decade, according to a White House statement released today. ...
Brian Graff, executive director and chief executive officer of the American Society of Pension Professionals and Actuaries, said his group will “vigorously oppose” the idea.
“It is a ‘plan killer,’” he said in an e-mailed statement. “As business owners reach the cap, they will lose their incentive to maintain a plan, and either shut down the plan or greatly reduce benefits. This would leave workers with a greatly diminished plan or without any plan at all.”
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