Bush Saving Proposal Creates The Wrong Icentive

The answer is pretty obvious. The incentive would be to place the money in the short-term account, and it would be very hard for many younger people who dont want to think about retirement to resist the temptation to withdraw the money for short-term desires.

Not only would LSAs undermine the Bush administrations own RSA proposal, but insurance products that encourage long-term savings, such as annuities, could be devastated.

Thats why we call LSAs an incentive to consume. Our tax code already creates many incentives to consume, and LSAs will provide a “savings” vehicle that encourages short-term thinking.

The issue of the ticking demographic time bomb and the lack of preparation among baby boomers for retirement is certainly not new.

But for too long, policymakers both on Capitol Hill and the White House have found reasons not to address it.

In the 1970s and 1980s, concerns over high interest rates and huge deficits led Congress to scuttle initiatives that would upgrade retirement savings.

In the 1990s, despite the economic boom and budget surpluses, the Clinton administration seemed more interested in taxing wealth accumulating life insurance products than in encouraging wealth accumulation.

Now the second Bush administration, while talking about long-term savings, encourages short-term thinking.

Frank Keating, president of the American Council of Life Insurers, proposes establishing a National Commission on Long-Term Savings.

It is an idea whose time has certainly come. The nation, starting with President Bush, must face up to the retirement savings crisis.

Reproduced from National Underwriter Life & Health/Financial Services Edition, February 13, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.