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Retirement a mirage for spenders

| Saturday, May 17, 2014, 9:00 p.m.

People work to live and to retire one day. Time was when Americans saved for their retirement, but, too often, this is no longer the case.

The concept of bank saving has given way to borrowing on credit cards to purchase goods that have no savings or investment content. Some government policies and the near-zero interest rates offered to banks by the Federal Reserve have discouraged saving.

Because savings are down, people must work long past the traditional retirement age of 65. These days, 75 is the new 55, and many people can no longer afford to retire — making job hunting for the young even more difficult.

A “Retirement Confidence Survey” by the Employee Benefits Research Institute found 68 percent of households with less than $35,000 a year have savings of less than $1,000. A 5 percent annual return on an investment of this size is only $50.

In addition, the percentage of workers surveyed with less that $1,000 in savings has leaped from 28 percent to 36 percent in just the past year. The institute reports that 53 percent of workers cite “cost of living and day-to-day expenses” as the main reason for their failure to save.

Young adults aren't saving either. Many of them are crippled by the higher costs of education. Rather than put aside money for retirement, they use what's left over from monthly living expenses to pay down student loans. It is a debt that one cannot escape from — not even through bankruptcy.

What are individuals to do? The short answer is to save hard and invest prudently, contributing either on a tax deductible or a post-tax basis to a tax-deferred or tax-free retirement vehicle approved by the government.

Saving something is easy to suggest, of course, but individual situations vary greatly, and it is very difficult, if not almost impossible, for those who live paycheck-to-paycheck. To build a nest egg that will support a restful retirement involves saving 15 percent of income. This requires individuals to deny themselves and their families some of the good things in life today in order to be able to remain independent of a declining welfare system and likely without a Social Security safety net at some point.

Saving may involve reducing the time and money spent “going out” to restaurants, movies and shopping malls. A good way to achieve such unpleasant discipline is to have banks make regular deductions to savings when paychecks are deposited.

Programs offering tax incentives to help savers build a nest egg do little if insufficient money is saved. The benefits of even tax-advantaged savings are skewed toward the young. The key to successful retirement planning is to start young with prudent investments.

Broadly, there are two government-approved vehicles for retirement savings. The first grows tax deferred, the other tax-free.

Tax deferred savings include 401(k) and Individual Retirement Accounts (IRAs). Contributions are tax-deductible, but distributions are taxable. Roth IRA contributions are funded with after-tax money, up to $6,000 per person per year. Then, growth is tax-free without mandatory distributions.

While these strategies lessen the impact of taxes, they do not provide the savings. Baby boomers who can't find a way to save for retirement will have one option: work until they drop.

John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Contact him at

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