The Reich Way to Save
ROBERT REICH - union booster and scourge of "corporate welfare" - may yet win praise from corporate America. His new Labor Department campaign to persuade more Americans to save for retirement fits the outlook of business leaders and the needs of average Americans.
Large firms have flocked to 401K-type pension programs, where employees who agree to save regularly gain matching contributions. But many small businesses, unable to offer such benefits, also would like to see employees save to supplement Social Security. And there are millions of workers who are laid off and rehired, or job hop, without having portable pensions.
Economists have long been mystified that baby boomers didn't save more as they reached midcareer and began to worry about tuitions or the future of Social Security.
As long ago as the 1980 Carter budget message, economists confidently predicted that this huge population group would start to save in the '80s. The rationale was that in the '70s boomers had caused inflation by driving up demand for household goods while lowering productivity by being new to their jobs. But, said Carter, with higher midcareer wages and declining "furniture" needs, the savings years were about to start.
Not so. Even in high-growth years the savings trend failed to appear.
Now, 15 years later, Secretary Reich reports that fewer than half of Americans have squirreled away money for retirement. And, he adds soberly, today's low-income workers will need retirement incomes equaling 90 percent or more of current pay to maintain living standards. The average retiree will need 70 percent.
The Reich campaign's slogan reads "Save! Your Retirement Clock is Ticking." We hope it also sets congressional tax-writers' clocks to ticking on the subject of expanded IRAs. The ceiling on those tax-deferred retirement savings accounts ought to be lifted so workers can tuck away more for retirement. To make IRAs more attractive, Reich might also jawbone small business employers, banks, and mutual funds to create IRA paycheck withholding plans to cover workers who don't have 401K withholding available. The best way to convert American spenders to savers is to have them see how little tax-deferred saving reduces take-home pay.
And there's a side benefit: Those deferred tax revenues would flow into the Treasury later, when they would reduce the tax burden on the thinner ranks of the post-boom generation.
