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BloodRider

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Halleluia. I am reading The Big Short right now, and the shit that Wall Street got away with is mind boggling. They need regulation like a food addict needs portion control. They don't want it, but its gonna save their life, and keep them from damaging the lives of others.

Reagan was 2nd Edition. I remember 1st. Heck, I remember it before the A in AD&D.

But there is an 'A' in Chainmail.

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3. Why just encourage retirement savings? Americans under-save by horrifying rates, but encouraging retirement savings at the cost of all else is a sure way to lead to under-saving for emergencies.

But, mostly, I'm against it because it is as intrusive as all hell.

I'm with you here. I'm certainly an Obama supporter, and think that retirement planning is something everyone should be doing, regardless of age and income. But the government getting involved seems like a tangled, overbearing mess. I can see what they are trying to accomplish with this bill, but I very much doubt it will succeed. I hope this doesn't come to pass.

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I don't think that government can really regulate the follies of youth. Or middle age. Or hell, old age. I shudder to think of what Darling's grandfather spends his social security checks on. We'll call it "paid female companionship", and leave it at that.

Takes Cigar Out Of Mouth And Waggles It, Then Says In His Best Groucho Voice:

I don't think she's talking about a nurse, unless Social Secruity payment can pay for the costume.

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But, mostly, I'm against it because it is as intrusive as all hell. We already encourage people to save for retirement with traditional and Roth IRA's, both of which are geared toward those making less than $170,000 a year (because you only get a tax break from a traditional IRA in certain circumstances - like if you don't have a retirement account at work, and if you make less than $x, and the Roth phases out at $170k or so).

It wont fly, because people will only hear, "you're taking my money and giving it to wall street, the same bastards that brought this whole economic catastrophe". That is how it will be sold to the droves by the talking heads.

I am also against it, mainly because it is intrusive as hell.

If this was mandatory on the employer level, unless you opted out, I could understand, but this is a mandate from the government. which = no.

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I don't think that government can really regulate the follies of youth.

If only there isn't a choice to opt out, I would agree with you. And going by your cousin experience, the IRA could also be cash in in case of emergencies, yes? (it probably was an emergency for him)

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US personal saving rate is currently about an abysmal 4% or less of disposable income. All other policies/encouragement/incentives over the decades to promote saving has been epic failures.

But this isn't an incentive either. Retirement savings are not savings. They don't help you when you're looking at $10K in medical debt after a car accident. They don't put the down payment on your house. That's what savings are for.

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That is an AWESOME savings rate compared to the past 10 - 15 years. Ever since the early 90's, the savings rate had floated between less than 3%, and negative (by use of debt, rather than any savings at all).

Why do you think that this paternalistic encroachment by the government "incentive" would be any more successful than previous incentives?

It peaked at 5% last year, and then started to go back down the last few quarters. If the trend continues, it'll be back to the same level of the past 10-15 yrs if nothing is done.

Would this succeed? I don't know; I see it as another useful mean to encourage saving. Have it been tried before? I don't think so.

If people want to spend their money on bright, shiny things, they will.

Very true. Those people will choose to opt out regardless.

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They don't help you when you're looking at $10K in medical debt after a car accident.

That's more of a problem with the current health care system than what any personal saving could alleviate. If you got into a major car accident, the medical debt you incurred afterward would send you into bankruptcy.

They don't put the down payment on your house.

And the reason why people couldn't opt out until they've saved up enough for a house down payment would be? Unless you don't think that people who are planning to buy a house didn't have the foresight to do so?

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That's more of a problem with the current health care system than what any personal saving could alleviate. If you got into a major car accident, the medical debt you incurred afterward would send you into bankruptcy.

UMMM... how? You incur a large unexpected bill ---> savings ---> problem solved! Same could be said about a transmission needing fixed or a pipe bursting in your house.

Unless you don't think that people who are planning to buy a house didn't have the foresight to do so?

Ahahahahaha.

On a related note, I have weekly conference calls with Fannie Mae and Freddie Mac. They have not changed how they are doing things at all. The subprime loan is alive and well!

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On a related note, I have weekly conference calls with Fannie Mae and Freddie Mac. They have not changed how they are doing things at all. The subprime loan is alive and well!

You're the one that brought up the house payment issue as an impediment, yes? I do agree that the example was quite laughable.

You incur a large unexpected bill ---> savings ---> problem solved! Same could be said about a transmission needing fixed or a pipe bursting in your house.

A huge medical bill isn't the same as paying to fix a busted pipe or car transmission. For those needs, I do agree that emergency savings should be prudent and hopefully sufficient.

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You're the one that brought up the house payment issue as an impediment, yes? I do agree that the example was quite laughable.

I brought up an example of a down payment as something that (should) requires savings. I laugh at the idea that people have the foresight to do something like opt out of this program to save for a house, since nothing at all has changed regarding the mortgage market.

A huge medical bill isn't the same as paying to fix a busted pipe or car transmission. For those needs, I do agree that emergency savings should be prudent and hopefully sufficient.

In the sense that it is a large and unforseen expense, yes it is. The point being that retirement accounts do nothing about these issues, which are they type of things that lead to bankruptcy.

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1. Where would the money be saved? (what kind of investments would be allowed?)

2. Would the government guarantee the principal? (or, more likely, be seen to guarantee the principal, a la Freddie, Fannie, etc)

3. Why just encourage retirement savings? Americans under-save by horrifying rates, but encouraging retirement savings at the cost of all else is a sure way to lead to under-saving for emergencies.

#1 is my biggest concern. What type of investments would be allowed? Are employers required to cut money from your check to put into it, or does it come out of your check after the employer pays you? What are the rules on access? Is it linked to your Social Security qualification, so that you start receiving income from the account at the same time as you start receiving Social Security income?

I would guess that the Feds would not cover the principal above and beyond what is already offered in terms of deposit insurance in savings account. Particularly if the money for the account is being automatically taken out of your check, or from your employer.

I'm actually not wholly opposed to #3. My personal favorite idea for a health care system in the US, for example, would basically consist of the government re-directing the money you pay for Medicare (along with some of your income tax) into a kind of mandated Health Savings Account (kind of like the Singaporean system), then have the government pay for universal catastrophic insurance coverage to go with it. Then toss in possible subsidies for people earning less than a certain amount of income, and maybe allow people to use a portion of the money in the account to pay for supplemental insurance.

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I brought up an example of a down payment as something that (should) requires savings. I laugh at the idea that people have the foresight to do something like opt out of this program to save for a house, since nothing at all has changed regarding the mortgage market.

Right; so those who saved for house downpayment would have done so anyway with that foresight. Those who don't save will take their chances with subprime loan. I struggle to see how your example of the need for a house down payment would be an impediment to the proposal.

In the sense that it is a large and unforseen expense, yes it is. The point being that retirement accounts do nothing about these issues, which are they type of things that lead to bankruptcy.

On the contrary, with a huge medical bill and your emergency fund exhausted, any money saved in a retirement account would help you to avoid bankruptcy:

http://www.bankrate.com/finance/retirement/penalty-free-401-k-ira-withdrawals-1.aspx

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Lev, I love you, buddy, but your English comprehension in matters of personal finance needs work. The link that you cited states that a retirement account liquidation MAY help you avoid bankruptcy...IF your 401(k) plan allows for "hardship withdrawals", and includes one's specific hardship. Even then, the withdrawal is taxed at ordinary income rates.

Whereas with personal (non-retirement) savings, one doesn't have an income effect upon liquidation. Investment accounts are similarly subject only to capital gains if liquidated.

ETA - let's not get into any UHC debate on this. Assume that the savings are needed solely for a down payment on a home, a car (due to the fiery death of the old one), or a new roof.

Chat,

The articled described quite a few circumstances in which withdrawal from IRA is penalty-free; I'm assuming that you're glossed over this bit:

"Unreimbursed medical bills

The government will allow investors to withdraw money from their qualified retirement plan to pay for deductible medical expenses, "to the extent that the unreimbursed medical bills exceed 7.5 percent of the person's adjusted gross income," says Alan Rothstein, a CPA at Rothstein & Co., in Avon, Conn.

The withdrawal must be made in the same year that the medical bills were incurred, says Rothstein.

You do not have to itemize deductions to take advantage of this exception to the 10 percent penalty, according to IRS Publication 590."

or

"First-time homebuyers

Though you may take money out of your 401(k) to use as a down payment, expect to pay a 10 percent penalty.

However, take the money from your IRA, and it's penalty-free. The penalty-free withdrawal is not limited to first-timers either. Homebuyers must not have owned a home in the previous two years, though. Further you can take more than one penalty-free withdrawal to buy a home, but there is a $10,000 limit.

For example, says Rothstein, "You can do two $5,000 withdrawals, but $10,000 is the lifetime limit."

Even then, the withdrawal is taxed at ordinary income rates.

True, but money saved from your paycheck for emergencies is also taxed at ordinary income rates.

The point is that money in IRA accounts could be effectively turned into funding for qualified emergencies without incurring early-withdrawall penalty, thus undermining your earlier arguments that the former would be an impediment to the latter.

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I don't really want to touch this with a 10-foot pole - "the government will allow investors to withdraw money from their qualified retirement plan to pay for deductible medical expenses, "to the extent that the unreimbursed medical bills exceed 7.5 percent of the person's adjusted gross income," but I should. Do you know how rare it is for unreimbursed medical expenses to exceed 7.5% of AGI??? For someone with an AGI of $100,000 a year, that means that anything ABOVE $7,500 in medical bills. So, if you have $10,000 in medical bills, you can take $2,500 tax free out of a retirement account. Good luck with that!!! Also, you have to be able to itemize deductions, so you'd better have home mortgage interest and donations to charity, too!

Chat,

The national household median income is about or below 50K or so. According to wiki, the overall personal median income for all 155 million persons over the age of 15 who worked with earnings in 2005 was $28,567. It's not that rare for unreimbursed medical expenses for most people to exceed $3500, especially in emergencies.

Retirement savings are NEVER a substitute for personal ("rainy day") savings

It shouldn't. It's another crutch you could rely on for qualified emergencies if you've already exhausted your personal "rainy day" savings.

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