This Economic Boom Is Worth Saving

These are the greatest times I have seen in 40 years of working in the investment business. The current economic boom has created a new generation of multimillionaires in their 20s, produced the lowest unemployment figures in three decades and led millions of Americans to invest in the stock market for the first time.

Yet one troubling trend hasn’t changed: Americans still aren’t saving enough. Early last year, the savings rate fell below zero: The average American wasn’t saving a penny. We haven’t seen so low a savings rate since the Great Depression.

I call it the dark side of our economic boom. In the midst of good economic times, too few Americans are adequately preparing for retirement.

Yet the need for retirement savings is only growing stronger. Americans are living longer, medical costs are continuing to rise and the long-term solvency of Social Security remains uncertain. With 76 million baby boomers expected to hit retirement age in the next 15 years, the time to address the retirement-savings crisis is now.

The House of Representatives this month approved legislation that would help Americans save more for their retirement. It is the most important piece of retirement-savings legislation Congress will vote on this year, and the Senate should move quickly to pass the bill.

The bill does several things that would give Americans greater financial security for their retirement. First, it raises the contribution limit for individual retirement accounts from $2,000 to $5,000 and lifts contribution limits on all types of pension plans.

Second, it increases the portability of retirement plans and speeds up the vesting process, making it easier for workers to take their plan with them when they change jobs.

Third, it allows individuals over 50 to make “catch-up” contributions to employer plans. This proposal, which should be extended to IRAs, is particularly beneficial to those who leave the work force for extended periods, such as women raising children.

Fourth, it provides incentives for business owners to expand the retirement benefits they offer to employees.

Making the IRA more attractive and flexible is sound public policy. I have always believed that investing in an IRA is one of the simplest ways to save for retirement. It is long-term investing at its best. By making it possible to save more through IRAs, Congress will encourage Americans to look more seriously at the advantages of the IRA and start taking greater responsibility for their retirement years.

Increasing the amount someone can contribute to an IRA is a sensible and overdue step. When IRAs were created in 1974, the contribution limit was $1,500. It has been increased only once, to $2,000, in 1981. Had the limit been adjusted annually for inflation--as it is in every other retirement savings program--it would today be $5,000.

Of course, the steps in this bill won’t solve all of America’s saving and retirement-planning woes. A serious, national effort is needed to restore the concept of saving as part of the American ethic. Education is critical, from financial planning curricula in high schools to frank discussions about the future of Social Security, without the fear-mongering rhetoric that typically surrounds the issue.

On these fronts we are making progress. The idea of personalizing a portion of the Social Security program and giving individuals more control over their retirement benefits has made its way into the presidential campaign. Yet it could be years before an overhauled Social Security system debuts. Meanwhile, the nation’s steamrolling economy masks a serious savings crisis.

Instead of waiting for the next president to take the lead, Congress should provide an immediate boost to millions of retirement savings plans and reduce the dependence on government assistance. The House has done its job. Now the Senate must do the same.