Three years of bear markets have only served to highlight the desperate need for American consumers to save more for their futures
In the shadow of other events, President George Bush's plan to overhaul the US savings system has so far drawn less front-page attention than it deserves.
That's understandable. The Columbia space shuttle disaster and gathering war clouds around Iraq grab and hold our attention first.
Still, the plan to replace 401(k) accounts, individual retirement accounts and our crazy quilt of other savings and investment vehicles is an important story, dare we say a potential landmark.
The idea of creating LSAs (Lifetime Savings Accounts), RSAs (Retirement Savings Accounts), and ERSAs (Employer Retirement Savings Accounts) represents a long-overdue move to organise a basic element of the economy into something its users, ordinary savers and investors, can understand.
The particulars will depend on what Congress does with the plan. 'It's an aggressive proposal. Absent a war, it would probably get serious attention right away,'' said Joe Carson, economist at Alliance Capital Management in New York. 'As things stand, it is probably more likely for action by the end of the year.''
Arguments have already started over how these savings accounts would or wouldn't stimulate new savings. Ditto whether the setup would be fair to the poor, the rich and the rest of us in between.
'The best way to improve national savings is to lower the deficit,'' said Representative Charles Rangel of New York, the ranking Democrat on the tax- writing House Ways and Means Committee, recently.
'The White House wants to do the opposite, give tax cuts mostly to the wealthy and put the bill for them on the nation's credit card.'' Now that Bush has broached the subject, it won't be easily shunted aside. The present system of IRAs, 401(k)s, 403(b)s, 529 college savings plans, Roth IRAs, SEP-IRAs and SIMPLEs, Coverdell education savings accounts and Archer medical savings accounts, et alia ad absurdum, begs for reform. How much money are we talking about here? Something on the order of $11 trillion, to judge from figures published by the Investment Company Institute, a mutual fund trade group.
As of the end of 2001, the ICI says in its annual fact book, US retirement assets came to $10.9 trillion, counting both 'defined contribution'' plans such as 401(k)s, and 'defined benefit'' pension plans.
The just-aborning market for dedicated educational savings had passed $10bn and was climbing fast. For purposes of comparison, last time I looked the total market value of actively traded stocks in US markets, as measured by the Wilshire 5000 Total Market Index, it was $8.1 trillion.
Though the geopolitical setting may be inopportune, in other respects the idea of revamping the savings system is quite timely. After a three-year bear market in stocks, many people are casting about for a strategy in a 'what now?'' frame of mind.
It's not only stock-market returns that are dismal. Money-market yields are next to non-existent, and investors in recently robust bonds and bond funds are constantly being admonished that they may be buying at the wrong point in the interest-rate cycle.
Discount brokerage giant Charles Schwab announced a new financial planning product under the telling label 'Fresh Start''.
Though the late-1990s internet bubble in the stock market had more than its share of wretched excess, nobody in modern memory has accused US consumers of saving and investing too much.
'Anything you can do to increase savings is always a positive,'' so the saying goes.
That goes double given the problems of Social Security, which will be called upon to support more and more recipients from a dwindling contributor base. When you look at it from that vantage point, a top-to-bottom overhaul of the savings system may merit the highest priority we can give it.
Bloomberg newsroom, New York
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