Your Survival Guy is a proponent of saving til it hurts. Saving more is helpful for building a comfortable retirement or as a buffer against inflation. At the Cato Institute, Adam N. Michel suggests creating a universal savings account that would replace the qualified savings accounts of today (401(k)s, IRAs, etc.). He recently presented this plan to the Senate Finance Committee. He writes:
The existing qualified accounts shield taxpayers from double taxation, but they also come with income and contribution limits, age restrictions, employer requirements, required minimum distributions, and restrictions on what and when the savings can be spent. These rules are enforced with additional tax penalties and regulatory hurdles designed to increase the cost of accessing the savings for non‐qualified expenses. The complexity of this existing system and penalties for mistakes discourage uptake, especially among young and low‐income savers for whom liquidity is most important.
To fix this problem, Congress could create a universal savings account that would function similarly to retirement accounts—income saved in the account would only be taxed once—but without restrictions on who can contribute, on what the funds can be used for, or when they can be spent. Similar accounts have been set up in Canada, the United Kingdom, and South Africa, where they are wildly popular, have increased personal savings, and are used by people at every income level.
Cato’s Chris Edwards has been promoting the idea of USAs for some time. Writing with Ernest Christian in 2002, he laid out the case for an unrestricted universal savings account, and then in 2017, with Ryan Bourne, explained how such accounts were successful at promoting saving in Canada and the United Kingdom. In 2020, 40 percent of Canadian households contributed to a Canadian tax‐free savings account (TFSA)—almost 60 percent own a TFSA—and 51 percent of TFSA account holders earned less than Canadian $50,000 (about US $37,000).
In two recent pieces, the Tax Foundation has updated the case for USAs by looking at the most recent Canadian and UK data. Willliam McBride concludes that “Canada’s tax‐free savings accounts are a huge success,” and Garett Watson explains how the UK’s “individual savings accounts” should be a model for US policymakers “looking to encourage greater saving and financial security, particularly among low‐ and moderate‐income households.” Following this advice, the Heritage Foundation and the Republican Study Committee include universal savings accounts in their annual budget blueprints.
When economists and policymakers determine that an activity, like saving, is important, they tend to want to subsidize more of it. Instead of subsidizing personal savings, Congress should work to reduce existing disincentives to save in the tax code and other government programs. Universal savings accounts would encourage additional savings by reducing existing impediments to putting money away for all Americans.
Action Line: You don’t need any special accounts to save til it hurts. For inspiration, just take a look at my Save Til It Hurts Hall of Fame. But any way to lessen the pain is a good thing. When you want to talk about your retirement savings, I’m here. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter.
