It is a fact that Social Security provides a higher “rate of return” on the contributions lower paid workers than higher paid workers. As a matter of personal values, I think that is a good thing, and that it tends to compensate for the cap on social security payments by the people with the highest incomes, which I regard as a bad thing.

But another consideration in the complex subject of “which class of people benefit the most” from various government-created programs of personal finance is this: employees of companies with 401(k) plans receive the highest percentage of “matching” contributions from their employer with their initial (pre-tax)contributions from their own wages. These “matching” contributions are typically very substantial — in the range of 50% to 75%.

From a national perspective, another fact is that the revenue that is foregone as the result of the tax “breaks” to individuals from 401(k) plans and other retirement plans (and every other type of tax “break”) must be made up by higher taxes in other forms on Americans as a group. This means that people who take maximum advantage of tax-advantaged plans such as 401(k)s come out a little ahead, at the expense of people who don’t take advantage of such plans and who pay taxes that are higher than if such plans did not exist.

Whether American society as a whole benefits from such tax-advantaged savings plans is highly questionable. There’s no such thing as a free lunch for society as a whole.

Ted, how long did it take you to come up with that twisted logic.

People that take advantage of 401k benefit a little at the expense of others? At who’s expense am I benefitting if I choose to save for my retirement?

Social Security is the worst possible trick played upon the American people. It is unfortunate that people are too dense to realize that fact.

In response to #2, it’s not the saving/investing that is at other people’s expense. In fact, that is good for everyone because it makes capital available for investment. What is at everyone’s expense is the “tax break” associated with retirement accounts. Whatever revenues are not collected there need to be collected through some other tax (or the money needs to be borrowed by the Treasury or “printed” by the Federal Reserve.) That’s basic financial economic reality that stems from the “no free lunch” principle.

If people did not get a tax break for retirement accounts, they would still invest, as many people do now outside of retirement accounts. They would collectively pay essentially the same amount in taxes by paying on more taxable income at a lower rate (assuming a given level of government expenditure).

Wrongggggg! Most of the retirement vehicles are TAX-DEFERRED. The government is going to get their money, eventually. And if I were a betting man, I would bet my 401k balance that taxes are going to be much high in our future than they are now because people like Ted seem to be much more common than they should be.

Even if we disregard the Roth IRA, which is totally tax-free, the reason why other retirement accounts are so appealling to INDIVIDUALS is that the present value of the probable future taxes is much less than the taxes that would be paid if the gains in the account were treated as ordinary income. But there’s a basic political/economic principle that what’s best for a particular set of individuals (i.e., an interest group) is not necessarily best for society as a whole. Tax-advantaged retirement accounts MAY have an advantage of encouraging people to invest, but it’s just a FACT that whatever revenue is foregone by government as the result has to be collected somewhere else, and the Chinese and the rest of the world aren’t making up the difference without collecting claims on our future economic output in the form of U.S. Treasury bonds and other U.S. securities.

I don’t LIKE taxes any more than I like, say, rain storms. I simply recognize the necessity of them. And, yes, taxes are going to be higher in the future to support medical and other demands of the growing retired population, and to pay off the foreign debt that is accumulating today. That’s not because I LIKE it, but because those of us who are in touch with economic reality recognize that billions of dollars don’t just drop from heaven to fund government programs and pay off debt.