Wednesday, September 17, 2014

Retirement Accounts, the 99 Percent and the 1 Percent

I find money fascinating. Money is often on our minds. Thoughts, discussions, and transactions involving money consume a substantial part of our waking hours.

Kids learn early in life money has value. I had a savings account in elementary school and possessed a real bankbook. Occasionally money was deposited – usually gifts from relatives on holidays and birthdays – and notations made in the book, in pen, by an adult.

As a new mom, money was not in great supply during my kids’ early years. One day Number One Son wanted something at the store and I told him I did not have enough money.

“Well, Mommy, just go to the bank and get more.”

Now why didn’t I think of that?

Unless living a hermit-like existence in the wilderness, money is an important component of life, needed for the necessities – food, shelter and clothing - with hopefully some left over for a few extras.

The boomer generation faced the prospect of saving for retirement with limited role models or instructions on how or where to invest. The concept of retirement was changing in 20th century America. Living longer and enjoying a healthy, active lifestyle was just beginning to come into vogue as boomers matured.

The federal government passed legislation establishing IRAs in 1974 (ERISA – Employee Retirement Income Security Act), and subsequent legislation launched 401(k)s and other employer supported retirement plans. Large companies like Johnson & Johnson, PepsiCo and J.C. Penney’s began offering 401(k)s in the early 1980s.

Sometimes government accomplishes good things!

We – hub and I - started IRAs and 401(k)s and now have a nest egg.

I thought we were doing pretty well.

Until reading the latest news.

I came across an article entitled Romney-Sized IRAs Scrutinized as Government Studies Taxes. Summarizing, some very, very, fortunate individuals accumulated retirement accounts worth millions over the past few decades.

Statistics indicate it would be impossible for most people (like hub and me) to amass a fortune worth millions, even if contributing the maximum amount allowed every year from the time these accounts were established to the present.

A minuscule number of Americans – 9,000 – accumulated more than $5 million in retirement accounts.

How was this possible? Savvy businesses and individuals manipulated retirement accounts, placing assets in accounts that should have been taxed, or undervaluing stock contributions, or…I have no idea, but shrewd financial gurus come up with tax-avoidance measures all the time. And they work hard to ensure certain people accrue lots of money tax-free.

The money is taxable when withdrawn, but I bet financiers have an angle minimizing taxes on withdrawals also…

Getting back to statistics, IRA accountholders could have as much as $350,000 stashed away if contributing the maximum from 1975 through 2011, and if the funds were invested aggressively. Higher contribution limits to 401(k)s theoretically allowed accountholders to pile up as much as $4 million in their retirement accounts.

I am going to take a risk here and say that most people did not contribute the maximum every year, nor did they invest the entire amount as aggressively as necessary to amass these sums.

A grand total of 1,100 American taxpayers own accounts worth over $10 million, and 314 amassed a fortune over $25 million.

In comparison, the value of 99% of the 43 million IRA accounts is under $1 million. The average value of retirement accounts for those 55+ was $150,300 as of March 31, 2013.

Romney is mentioned in the title of the article because he is one of the blessed beings, one of the .003% with retirement accounts valued over $20 million (Romney never publicized the size of his IRA; we only know it is worth $20 million or more). His account is considered an example of companies using retirement vehicles as tax shelters. As a business owner (co-founder of Bain Capital) extra contributions, such as company stock, boosted the account value well beyond normal investment gains.

Getting back to my original ramblings, hub and I are doing nicely.

We are proud members of the 99% club, and as the saying goes, sitting pretty.

Not as pretty as those in designer clothes, cars, boats, houses, and accessories, but pretty enough for us.

The moral of this tale?

I am not sure. Maybe the rich will always find ways to work the system.

Bu that does not mean the rest of us cannot take advantage of the system.

We can and we should.

(Statistics cited are from this article unless otherwise noted.)


  1. I cannot imagine what our life would be like if I hadn't had a TIAA/CREF investment account forced upon me during my working years. My company required me to put in 5% of my salary, and they put in 10%. For the last ten years, I added another 5% and we now have twice as much money coming in each month than we would if we only had social security. It's not a huge amount, but it's enough. Glad I can join you in the 99% column. :-)

  2. You were wise to take advantage of the system, and you deserve your rewards from prudent investing. As a society, however, we ought to be trying to adjust national legislation to make the playing field more level so that individuals such as Romney cannot commit highway robbery.

  3. It probably doesn't matter, but the 99% and the 1% don't add to 100%. Why should anyone doubt MR has a nice nest egg salted away. Some people will have nothing because they started to ith nothing and had several missteps along the way. Many people in the future will have no nest egg but lots of college debt. Too sad.

  4. Luckily I was not one of those boomers who "faced the prospect of saving for retirement with limited role models or instructions..." and what I called my 'forced savings account' with TIAA/CREF also has helped me a lot!
    My Dad pretty much brainwashed me to save, save, save, and now I'm so happy about that!
    Thanks for sharing this info. Meryl! The rich get richer and most are screwed at this point in time...