In a recovering economy, anxiety levels tend to increase among the workforce. Concerns about job security, mortgage payments and monthly bills are forefront in the minds of family breadwinners. During the roaring '90s, benefits, bonuses, wages, the stock market and consumer spending were basking in the glow of an exuberant economy.
In retrospect, it appears the chairman of the Federal Reserve Board correctly defined the overheated economy and bull market for what it was. Irrational exuberance. And now in these first years following the decade of decadence, workers can use the '90s as a lesson to make a commitment to save and invest their earnings wisely. What's here today may be gone tomorrow.
It seems there's always something competing for your savings dollars, from vacations, furniture, house maintenance, car repairs, or family illness. It's usually easier to skimp, skip or even dip into rainy day retirement funds, but more often than not, short-term gain isn't worth the long-term risk.
In these uncertain times, folks from Wall Street to Main Street are taking stock of their financial outlook. Rosy scenarios have fallen by the wayside as corporate wrongdoing and dishonest bookkeeping have decimated the savings and investments of thousands of Americans. And it seems growing numbers of employers can't or won't offer pension plans to their workers anymore. The administrative costs and red tape involved can deter employers, especially small businesses, from making pension programs available to their employees.
As a federal policymaker, I'd like to see legislative, regulatory and administrative changes implemented that encourage greater personal savings, promote employer-sponsored retirement plans (especially by small businesses) and safeguard the hundreds of billions of dollars invested in employer-sponsored retirement plans.
As chairman of the Senate Finance Committee, which has jurisdiction over tax and pension matters, I am working to make it easier for workers to put more of their hard-earned money away for retirement.
And for those who faithfully divert earnings into savings plans, in the last few years as high-profile corporate giants have filed for bankruptcy, those who had invested the lion's share of their retirement dollars in employer-provided stocks watched as their dreams for a comfortable or even early retirement went belly-up with their employer.
To help protect and educate employees about their choices, rights and responsibilities with their employer-sponsored retirement benefits, I am pushing for pension reform legislation that would create new diversification rights for company stock in retirement plans and require new disclosure requirements regarding transaction periods and periodic benefit statements for employees.
I'm also working to find a middle ground on the debate surrounding defined benefit pension plans. Fewer employers are offering these packages because of the expenses and regulations involved. I want to advance public policies that protect existing retirement savings plans and encourage the creation of new ones.
In the meantime, I encourage workers to take full advantage of new incentives to save for retirement that were included in the landmark 2001 tax law. I helped guide the measure through Congress and pushed for a section of the bill that's written to help workers get started or caught up in their retirement savings needs. On June 7, 2001, the President signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001.
Check out the following savings tax breaks included in the new law to determine how they can help you build a fatter, more secure retirement fund.
Individual Retirement Accounts: The maximum annual contribution will increase from $2,000 (unchanged since 1981) to $5,000 (by 2008) per individual. Catch-up contributions of up to an additional $1,500 allowed for those over age 50. These limits will also be phased in.
Catch-Up Contributions: Those age 50 and over may make additional contributions to 401(k), 403(b) or governmental 457 retirement plan of up to $5,000 (by 2006) and indexed to inflation in the years following.
Low-income savers: Those with adjusted gross income less than $25,000 and couples under $50,000 may qualify for a tax credit of up to $1,000 for contributions to qualified retirement plan or an IRA.
Small Employers: A new tax credit of up to 50 percent of the costs incurred for starting a retirement plan for workers.
Employer-sponsored retirement plans: The maximum annual contribution limit for 401(k) plans was raised from $10,500 (in 2001) by $1,000 each year until reaching $15,000 (in 2006). Thereafter, annual limits on salary deferrals will be indexed to inflation in $500 increments.
SIMPLE: Those employed by small businesses may benefit from an increase in the maximum annual deferral for a savings incentive match plan from $6,000 (in 2001) to $10,000 (in 2005). Although feathering the retirement nest egg doesn't always bring instant satisfaction, making room for retirement savings today can bring welcome peace of mind and financial security in the long run.