Is there any earthly reason to save for retirement? Why?

April 12, 1996|By Robert L. Taylor

HOW CAN ONE possibly account for the ingenuous innocence of those allegedly hard-headed and practical financial journals that, with a straight face, urge trusting men and women to begin, or to increase, IRA retirement plans, or to grasp the opportunity of 401(k) benefits, because the tax laws are so favorably biased toward the savings thus engendered.

No doubt the bias toward savings does exist, here and now in the year of Our Lord one thousand nine hundred and ninety-six. But have we the slightest assurance that those laws will prevail, even in weakened form, when the time comes for those credulous savers actually to enjoy the benefits of their self-denial and their foresight?

In the last few years we have learned from bitter experience that the federal government will, if it chooses, cynically, arbitrarily and unilaterally repudiate the undertakings, stated and implied, that it made to those who contributed to Social Security for close to half a century.

Having set that cruel precedent without any challenge whatsoever, what is to prevent it from also repudiating the understandings on which people have contributed to IRAs and 401(k)s?

I know a woman who began to work at $20 a week in the first Truman administration, and worked unceasingly for the next 43 years. She made Social Security contributions throughout the 43 years. She paid federal income taxes at as high as 58 percent on those contributions and state income taxes at 7 1/2 percent, even though she never laid a finger on it.

Return of the taxman

Not the slightest intimation was made to her, so that she could provide for the exaction, that those benefits would be means-tested or taxable; but in the very first year that she received full Social Security benefits, 85 percent of those benefits were subjected to federal income tax.

No allowance whatever was made for the amounts contributed by herself and by her employer; no allowance was made for the federal and state income taxes that had been paid on the contributions; and no credit was given for the use of her money over long periods in which interest rates on government obligations sometimes reached 16 percent.

Consider the following contrast. Very early in her working life she purchased a small annual-premium policy from a commercial insurance company to mature as an endowment at age 65. Such benefits accrued from the use of her money over that period that she has not for years paid any premiums whatever; indeed the annual dividend on the policy far exceeds the annual premium -- unlike Social Security, in which her payments were exacted unabated, with no allowance for the earnings on the fund accumulated. Furthermore, there is not the slightest possibility that the company will repudiate its obligations under the policy, as the federal government has done with Social Security.

Can you picture the indignation of Ralph Nader if the Metropolitan Life Insurance Company were to unilaterally repudiate the promises under which it had received premiums ** for 43 years? Yet such a fat cat as Michael Kinsley, graduate of an expensive prep school and with advanced degrees from an expensive university, has urged that the Social Security benefits she contributed to over 43 years of unremitting hard work should be forfeited altogether, because she had the presumption, starting from an unprivileged beginning, to prosper by rendering exceptional service to her employer and the nation.

So, I ask again, what earthly purpose is there in making plans for retirement, with IRAs or 401(k)s or anything else, so long as the federal government reserves to itself the right of changing the rules midway?

If you manage your affairs prudently, and carefully save some money instead of squandering it all day by day, the tax laws can be changed ex post facto to punish you for your presumption in trying to plan for the future.

The message that the federal government sends is that it wants people to be abject and destitute, and that it will not tolerate those who plan for the future. If they do, the benefits will be snatched away from them. So what's the use?


Robert L. Taylor, a retired bank executive, writes from Timonium.

Pub Date: 4/12/96

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