(Bloomberg Business) — The White House releases its 2016 budget today, and among other initiatives aimed at raising tax revenue from the richest of the rich, the Administration is proposing a cap on how much money a person can have in their all of their retirement accounts combined. They suggest a ceiling of more than $3 million per person.
The vast majority of Americans will only ever dream of such a well-padded retirement. Even most of the rich wouldn’t hit Obama’s cap. In 2011, only one out of every 1,000 Americans had more than $3 million dollars in their retirement accounts, according to the Employee Benefit Research Institute. But it is not clear how that number will change in the future.
The administration says it wants to “prevent additional tax-preferred saving by individuals who have already accumulated tax-preferred retirement savings sufficient to finance an annual income of over $200,000 per year in retirement—more than $3 million per person.” In other words, it reverse-engineered the cap, figuring out how much it would cost to buy an annuity that generates more than $200,000 in annual income. That’s great — today. Annuity prices vary with interest rates because insurance companies buy bonds to finance pay-outs. When bond yields are low, as they are now, annuities are more expensive. Right now a 10-year treasury bond yield is just 2 percent. If it jumps to 5 percent (the rate in 2006), that $205,000 annual annuity would only cost $2.2 million.