After reading several of my favorite sites out there, I'm beginning to wonder whether there is a shadow government running America. The “Cash for Clunkers” program will cost the US tax payer $3 billion to graciously put 700,000 people who drive beaters into cars costing 5-6X more. Yay, there's a one time boost to August US auto sales due to hundreds of thousands of people who can't afford new cars (according to the 1/10th rule)!
Over at DINKS Finance, I'm reminded that the income limit for Roth IRA contribution for single people is $105,000. So they're telling us after saving a party-throwing $6,000 bucks, the moment you make over $105,000 you can no longer contribute? Too bad for you 29 year old grad students out of business school with a median income of $105,000. Oh yeah, and all you doctors who spent 8+ years of your life AFTER college and those bagillion hours studying, so sorry! The government isn't willing to help you save for retirement. No soup for you!
Meanwhile, over at WSJ's The Wallet, there's mention that the government may lower the maximum contribution limit on 401(k) retirement accounts from $16,500 to $16,000 due to low inflation! After 30 years of saving $16,000 a year, you'll either have more or less than $480,000, depending how adept you are at blowing yourself up in the stock market. August 31's entry, “Get Rich in September & Buy Nothing” may very well be spot on after Tuesday's romp. Are we supposed to be able to retire on $500,000-$1,000,000 from our 401k given Social Security is going to zero? Not if the potential wave of inflation has something to do with it given all the monetary expansion.
PROPOSAL
Come on US Government. Promote savings and stop ruining people's personal finances by making us buy things we can't afford. The “Cash for Furniture”, and “Cash for Vacations” programs being debated around Congress aren't a good idea!
Raise the IRA income limit to $250,000, consistent with the borderline of what Obama deems “rich.” Why should doctors, lawyers, graduate students in finance be punished for furthering their education in fields where they make more money? Many of them have massive debt to repay and aren't exactly “rich” for the first several years.
Please also raise the 401K pre-tax contribution limit to at least $30,000 if not $50,000/yr. It's not like everybody will be able to save that much, but if a 45 year old faces the same $16,000 limit as a 22 year old right out of school, how does that make sense? $16,000/yr in pre-tax savings is just not going to cut it for many people when they are retired.
At the end of the day, please STOP spending more than you earn. It's embarrassing. Remember the old adage, “Do as I say, not as I do!“ No that's wrong. I meant to write, “Do as I do!” You can do it USA government! Set a greater example for us and our children. Go America!
Best,
Sam
Slicing Through Money's Mysteries
People are still spitting feathers over the RBS/HBOS fiascoes. I suspect that’ll rumble on for quite a while yet…! Us taxpayers own (iirc) 72% of RBS now.
Barclays are the only major UK financial institution that didn’t need or take a handout. It also by random chance is the bank I am with, so I’m quietly pleased. I wouldn’t say people perceive it to be “deserving” because of that, but definitely trustworthy and reliable. I suspect when the fallout has finished, they’ll do extremely well out of new custom.
Hi Lee – Thanks for sharing your thoughts. I love your “spitting feathers” vernacular! This is what’s so great about international friends. I’ve never heard that term before, and it provides for great imagery. I have a feeling Barclays will do quite well, as well!
The UK government is continuing to recommend people “spend their way out of recession”, yet the banks are turning round and encouraging people to save, but not particularly enticing anyone to do so with their interest rates.
We’re in interesting financial times indeed.
Lee – is there still an uproar against the huge pay and bailout out money towards RBS and UBS? Looks like Barclays didn’t receive any bailout money, so are they perceived as a “better” or “more trustworthy” and “deserving” bank? The story with RBS is unbelievable… I can’t believe the government owns 70% of the bank (!?).
One small correction: That $105k income limit for IRA contributions applies only to the Roth IRA, not to the IRA per se. Even with an income above that you can still contribute to an IRA; and if self and spouse do not have an IRS-approved company-sponsored retirement plan those contributions are even deductible.
Thanks for the highlight Mike! Have noted.
Very interesting post. Sometimes I think politicians know what the “best” thing to do is, but they forgo doing it in favor of something that will get them more vote come election season. Do you agree?
Hi Michael – It seems like politicians are pulled in every single direction. If you’ve ever watched them try to grill some finance guy in CNBC, I think you’ll find that a lot of them don’t know what they are talking about. It was most apparent when they grilled Hank Paulson, during the crisis.
Politicians always try to do what’s best for their constituents, and have every incentive to spend all the money ear marked to them. If politicians had lifetime terms, maybe it’ll be different. But with only 4-8 years their time to make a difference is short!
Shogun
@David@DINKS Finance David, I think part of the reason why China is doing better than most other countries is 1) they run a balance of payment surplus, and 2) they run a command economy i.e. the central government commands local governments to spend, banks to lend, and things happen.
Democratic governments take longer to pull their countries’ out of their slumps, due to debating.
Shogun
Great posting!
This is something I can get behind! It’s amazing how our government goes out of its way to promote spending rather than saving. Think about it – when consumer spending goes down, everyone talks about how the economy is bad. As soon as it is back up, the pundits can’t get enough and talk of economic recovery!
Savings is such an important aspect of a healthy economy. You wonder why China is so prosperous – go over there and talk to people and you will realize they are extremely frugal! Very little mal-investment.