Reinventing the Individual Retirement Account

The Baby Boomers are lurching towards their golden years with way too little in the way of savings. But at least the federal government is going broke as well…

I’ve done some thinking as to why people don’t save more. It isn’t because they need some Jedi Social Scientist to do priming or play with defaults. The real reasons are much more in line with straightforward economics:

  1. The government encourages people to spend too much and go in debt.
  2. Saving for retirement is not rational when their is debt to pay down and large near term expenses on the horizon.
  3. The array of government approved tax deferred savings options is ill designed and insanely complicated.

It might be nice to fix some of these things, starting with devising the ideal IRA. It’s based on the traditional IRA, but with higher limits, fewer restrictions, fewer penalties, and simpler rules over. This could replace a whole bunch of existing programs and thereby eliminate hundreds of millions of pages of tax filings every years.

I based the Ideal IRA on the traditional IRA for several reasons. See my comparison of the traditional vs. Roth IRA. You’ll find an interesting bit of Santa Claus Economics.


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