The Federal Gov't Decides to Let Old Folks Keep Their Own Money - What's Left of It

As one of its final acts in the worst economic year since the Great Depression, the federal government passed legislation suspending for 2009 the rule requiring old people to withdraw a minimum amount of money from their 401Ks, IRAs, or other individual retirement accounts. The current rule imposes a 50 percent tax penalty on anyone over age 70 1/2 who fails to take their so-called mandatory distributions by the end of the year.

That's right, fellow oldsters--as a parting gift to all of us, the 110th Congress and George W. Bush, who failed to prevent or contain the financial meltdown that has cost some of us a third or more of our life savings, is now giving us permission not to spend some of what's left.

The idea behind the legislation is that seniors shouldn't be forced to sell off their investments at a loss. Unfortunately, however, it applies to 2009, not 2008--which is, of course, when our retirement accounts got gutted. According to the New York Times, some members of Congress urged Henry Paulson's Treasury Department to apply the same change to 2008, but it declined to do so.

In a letter to members of Congress, the Treasury Department said any steps it could take to address the issue would be "substantially more limited than the relief enacted by Congress and could not be made uniformly to all individuals subject to required minimum distributions." It also said carrying out the changes would be "complicated and confusing for individuals and plan sponsors."

Well, by all means, let's not confuse the old farts; we're having a tough enough time figuring out how how it is that we did everything we were supposed to do--worked, planned, saved, invested--and still got so royally screwed. And let's not complicate things for the financial institutions, who are already overburdened figuring out how to spend their $700 billion handout.

In any case, the legislation only helps those who can afford to live without taking any money out of their retirement savings (assuming they have any to begin with). This would apply mostly to the well-off, and to those of us who still have jobs.

And we working geezers, apparently, would be wise to hold onto what we can. The last month of 2008 also brought reports of companies large and small reducing or suspending their contributions to employees' retirement plans. These cuts, notes the New York Times, are "putting a new strain on America's tattered safety net at the very moment when many workers are watching their accounts plummet along with the stock market."

To many retirement policy specialists, the lost contributions are one more sign of America's failure as a society to face up to the graying of the population and the profound economic forces it will unleash.

Traditional pensions are disappearing, and Washington has yet to ensure that Social Security will remain solvent as baby boomers retire and more workers are needed to support each retiree.

The company cutbacks may mean that some employees put less money into their retirement accounts. Even if they do not, the cuts, while temporary, will have a permanent effect by costing many workers years of future compounding on the missed contributions. No one knows how long credit will remain scarce for companies, or whether companies will start making their matching contributions again when credit loosens and business improves.

"We have had a 30-year experiment with requiring workers to be more responsible for saving and investing for their retirement," said Teresa Ghilarducci, a professor of economics at the New School. "It has been a grand experiment, and it has failed."

It may well be that, as Shamus Cooke writes on the Dollars & Sense blog, "Unless things change fast, human history will show that the phenomenon of 'retirement' was limited to one generation."

This post also appears on James Ridgeway's new blog, Unsilent Generation.