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.)
