Monday, May 9, 2016

Universal Savings Accounts

Recessions often remind people the importance of saving for a rainy day. According to the MarketWatch article below, unlike popular belief, millennials have a high propensity to save. However, they are not because many work places do not offer a retirement plan.

There are many types of savings vehicles that exist. A new proposal being considered in Congress are Universal Savings Accounts (USAs). Essentially, they would allow people to contribute up to $5,500 in a account that grows tax free. This money can be invested in stocks, bonds, etc etc. Unlike similar retirement accounts, money can be withdrawn at any time for any reason.

Read the articles below for information.

What do you think? Would this convince people to save?


8 comments:

  1. Would this apply only to federal jobs or would all employers be required to utilize this plan? I think this is generally a step in the right direction. There needs to be a way for people to start a retirement fund when their employers do not have a program. I also agree that there needs to be a higher contribution limit. The $5,500 is not that different than a Roth IRA.

    It is also important to realize that the lack of employer savings programs is not the only reason people are not saving. Many people are stuck in low-wage jobs that barely, if at all, cover their living expenses. For these individuals, it is nearly impossible to save when they are living paycheck-to-paycheck.

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  2. I think that more light should be brought to this issue because I feel that many people in older generations have this idea that millennials are not saving simply because they do not want to and do not know how to. While I agree with Graham that the low wage jobs for many millennials is preventing them from saving, I think that the lack of retirement programs may have a more significant impact on higher wage employees who do not have company sponsored retirement programs.
    I think the experiment in 2017, when Illinois state-sponsored plan goes in affect, will be very telling and will help many millennials.

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  4. This looks like a great way for people to start putting money away for retirement. It's a best of both worlds situation as it would provide the benefit of a tax break while giving individuals a significant degree of liquidity. This would be a really good investment for a person our age to make, since it is a relatively low investment limit. I wonder if the returns on these accounts will be low, since it's hard to provide very high returns with very high liquidity (assuming that the investments are low risk).

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    1. I agree with Mario. I think this would be a great incentive for people to save where they may not have otherwise. I also wonder if a parent or grandparent could set one up for a child when they're born? I think that would be cool because it could then grow tax free for 18 years and then the person would have a good start for paying for higher education or getting their own place.

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  5. This idea would attract people who wants to save money perhaps particularly the Millennials. Just like Graham pointed out and the movie that we watched last week, young couples want to save money but they couldn't because of low wage jobs. After college, young people in their 20's or 30's still have to pay student debt. The amount of student debt keeps growing. The job market seems doing fine, but the youth unemployment rate is still quite high; it's around 10.8% (April). If this savings account system is well-integrated into our society, people can definitely take advantage of it, but I think it all depends on each individual.

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  6. I agree with everyone else that this is a great stepping stone to stimulate savings among millennials. However, like Graham pointed out, tax-free $5,500 sounds extremely small amount to be considered full retirement savings amount. So with the expansion of the amount for Universal Savings Account, it is more likely to see a definite increase in number of millennials start saving. Furthermore, this issue of "low propensity to save" should be tackled more fundamentally. The government should legally require the employers to offer employer-sponsored retirement plans, in which we will be able to see much more secure retirement plans for our generations, and tendency to be less dependent on Social Security programs.

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  7. The fact that many millennials are not opening savings accounts and thinking about the future is somewhat scary. But again, Graham makes a great point about Roth IRA's. From everything I've heard up to this point, especially Dr. Moffit, start a Roth IRA and max it out ASAP. Earn interest and get that retirement fund up!

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