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Campaign focus turns to savings

The coming retirement income squeeze is gaining a sense of urgency.

January 27, 2008|Jonathan Peterson | Times Staff Writer

WASHINGTON — Move over jobs, war, healthcare and immigration. There's a new issue on the presidential campaign trail: your retirement savings.

In a sign of changing times, a dawning reality that millions of workers face an income squeeze when they retire has elevated the once-personal matter of building a nest egg to the national political agenda.

Leading Democratic candidates are calling for savings programs -- unrelated to Social Security -- targeted to moderate-income households, greased with matching tax credits and powered through payroll deductions. Republicans have avoided that strategy, instead putting their faith in tax cuts and policies that fuel economic growth as ways to promote new saving.

"The problem of inadequate retirement saving continues to fester and grow," said Mark Iwry, a former Treasury Department official who has advised the campaigns of Sens. Barack Obama (D-Ill.) and Hillary Rodham Clinton (D-N.Y.) on the issue. "Its urgency is increasing."

Concerns are fueled by a combination of events that affect millions of households. Traditional pensions that paid a set amount for life are being phased out in many workplaces. The 401(k) savings plans that have replaced them do not assure enough to retire on, except for those who have saved carefully for many years. They are also vulnerable to the kind of sharp market downturns that rattled Wall Street last week.

Almost 1 in 2 workers -- 48% -- has less than $25,000 in savings, and 71% have less than $100,000, according to a 2007 survey by the Employee Benefit Research Institute.

On top of that, more than 75 million Americans, or about half the workforce, have no opportunity to participate in a retirement plan. Experts say many of them are headed for a bleak future.

Signs that the late-life safety net is fraying come as more Americans live into their 80s and 90s, increasing the risk that they will outlast their savings, and as the oldest members of the baby boom generation advance into their 60s.

"The issue of savings, not just on a personal level but for the country as a whole -- do we as a nation save enough money? -- those issues dramatically cut across party lines," said Austan Goolsbee, a University of Chicago economist who is advising Obama.

The partisan division looms wide in the presidential campaign, however. Republicans generally oppose new mandates on private employers, and they have not specifically targeted savings initiatives at the lower end of the ladder.

They maintain, however, that lower taxes and pro-growth policies would enrich households and increase saving.

The savings incentive plan proposed by former Massachusetts Gov. Mitt Romney, for example, would exempt taxpayers who earn less than $200,000 from paying any taxes on interest, dividends and capital gains.

Romney and Republican contender Rudolph W. Giuliani, the former New York mayor, also support stalled White House proposals to boost contributions and withdrawals in Roth individual retirement accounts.

Sen. John McCain (R-Ariz.) has expressed support for private savings accounts in the context of overhauling Social Security but not as a separate initiative targeted solely at moderate-income Americans. In the current campaign he has put more emphasis on helping families by strengthening the economy through low taxes.

The other prominent Republican in the race, former Arkansas Gov. Mike Huckabee, would offer some private investment options in Social Security and give beneficiaries the option of a one-time lump-sum payment they could invest, instead of guaranteed monthly payments for life.

Such approaches jibe with what Republicans see as a rising investor class of middle-income Americans, whose long-term economic health is linked to Wall Street.

"It's more important to you how the stock market does than whether you get a 3% or 5% raise this year," said Grover Norquist, president of Americans for Tax Reform and an influential conservative. Workplace mandates, such as requiring employers to offer payroll deductions, he added, are "generally not the Republican approach."

By contrast, Democratic candidates say the emerging squeeze on retirement security amounts to an injustice that cries out for change.

To help achieve that change, they have proposed savings schemes tailored for those with moderate incomes. Though the Democratic plans vary, they all would include the carrot of government contributions to stimulate saving, and they all would rely on employers to play a role in signing up workers and steering some of their wages into new accounts.

Clinton would provide a 100% federal match on the first $1,000 saved by households earning up to $60,000 and a 50% match on that amount for those earning $60,000 to $100,000. She would encourage employers to enroll their workers in new accounts and to help build them by offering payroll deductions.

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