Retirement Planning the Obama Way

President Obama described several ways over the weekend that he plans to help Americans save more for their golden years, but reducing unemployment and reversing the stagnation of wages are going to do the most good for a secure retirement.

Obama’s weekly address cited three primary ways he intends to help with building citizens’ nest eggs (see Obama Aims to Increase Retirement Savings). The first involves allowing small businesses to automatically enroll more employees in 401(k) plans more easily, and letting them gradually increase the automatic contributions over time. That seems like a sneaky way to get more people to save for their retirement, but Obama noted that it’s proven to be effective. As in the Social Security system, having the money automatically withdrawn from one’s paycheck removes the troublesome need to decide how much to take out, although it also strikes me as a coercive way to make more people save for retirement, whether or not they can afford to do so. People can opt out, of course, but the thinking is that most people will just go along with it.

The second idea from Obama would let people check a box on their tax returns so they could receive their tax refunds in the form of a savings bond. Seems like a nice idea in a way, kind of like sending a newborn or a recent grad a savings bond in the hopes that they or their parents won’t immediately blow the money on something they might later regret. On the other hand, putting the money into savings bonds also lessens the immediate impact of tax refunds on the economy, including the temporary stimulative effects they have for retailers.

Obama’s third retirement savings idea involves allowing employees to put the money from their unused vacation and sick days into their retirement plan. That’s a good idea if a company allows employees to accrue their unused sick days and vacation time and get reimbursed for them. Unfortunately, many companies have a use-it-or-lose-it policy that forces people to either take all their vacation days by the end of the year or forget about using them ever again. Many companies also discourage employees from profiting from their unused sick days. Still, for those companies that allow these perks, putting the money into a 401(k) or IRA isn’t a bad idea, especially if the money doesn’t get lost in the next stock market downturn or taken out in fees by the fund manager.

All in all, these seem like modest but promising ideas, and a sign that Obama is turning his attention back to fixing the economy despite the distractions of the health care debate. While the pace of job losses was down last month compared to early this year, it’s still far too high and the unemployment rate is again on the verge of hitting double-digit percentages.

Still, most people need to have jobs before they can consider squirreling away any of their income in a 401(k) or other retirement plan. Without more jobs and better-paying jobs, retirement funds aren’t going to look any better next year, even with a little extra money from some unused sick days.