Forced Retirement Savings

Obama has enacted programs that in effect force people to have retirement savings.

On the surface this may not sound like a bad idea. We should all save for retirement, espically considering the uncertian future of Social Security. Look closer at this plan and it is a gross stripping of personal freedom.

Obama's plan enables "small companies to set up 401(k) retirement savings plans in which all workers are automatically enrolled unless they ask to be omitted" and "[a]llow[] such plans to automatically increase the amount that workers save over time unless the workers object."

In short, this plan forces participation in 401(k) plans and the amount forcibally invested increases over time.

Let's do the math.

A person makes $50,000 a year. Initially, they are forced to invest 3% into a 401(k). That's $1500 a year. Over time the amount increases to say 5%, and the amount forcible invested rises to $2500 a year. That's a nice boost to the stock market.

The problem with the plan is two fold.

First, historically the stock market has a significant drop every five years or so. While over time the market increases, there are signicant stretches where the market has taken extensive time to recover it's losses.

The drop in 1906 took until the end of 1915 to reach 1906 levels. The drop of 1920 took until 1926. The stockmarket took until 1955 to return to levels right before the great depression. Even in that time span the drop in 1937 too until 1946, then the market immediatly dropped again and didn't reach 1946 levels until 1950. More receintly 2002 recovery in 2004, and 2007 until today and counting.

The second problem is that although the market has had some long runs of increases, it also has been flat for large stretches of time. We have the aforementioned 1906 to 1915 stretch. Then there was 1966 until 1983. The market was also flat 1999 to 2006.

The market is no sure gain in return. Individuals should have the option of investing how they choose, not being forced into a 401(k). Risk adverse individuals have plenty of other options for investing. This smaks of an attempt to artifically force the market up, not the best interest of the public.



Sources: http://news.yahoo.com/s/ap/20090905/ap_on_go_pr_wh/us_obama_retirement_savings
http://stockcharts.com/charts/historical/djia1900.html