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Plan to Cap Retirement Funds May Reach Beyond the Wealthy

A Washington-based think tank says the Obama proposal would affect 20 percent of Americans ages 25 to 64 with retirement plans that could hinder incentives to save money.

May 17, 2013
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Related Topics: Retirement/Pensions, Benefit Design and Communication, Defined Benefit Plans, Finance/Taxes, Defined Contribution Plans, Retirement Planning, Featured Article
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Kevin Avery is a bit of an overachiever when it comes to saving for retirement. He's only 25 and has nearly $40,000 in savings in his 401(k) and Individual Retirement Account.

That's quite a good start, considering the average Generation X and millennial worker has only $8,792 in retirement savings, according to a 2005 U.S. Bureau of Labor Statistics report.

But Avery says he is a bit discouraged now that President Barack Obama wants to put a cap on retirement savings. In his April budget, Obama proposed limiting the total amount workers could save from all types of retirement accounts—including 401(k)s, defined benefit plans and IRAs—to an amount that would equal, in today's dollars, a $205,000 annuity payable at age 62.

The amount, which roughly equals $3.4 million in today's numbers sounds sky-high, but under current interest rates, the amount could affect many average workers. In fact, Alicia Munnell, director of the Center for Retirement Research at Boston College, says workers who invest $7,500 annually from age 20 to 70 could possibly hit $3 million, assuming a 7 percent rate of return.

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