Taxation Without Representation
How I Passed My Passion for Retirement Saving On to My Children
Many Americans are struggling with themselves over their own retirement savings strategy. Some are praying Social Security will be enough. Some are participating in employer sponsored retirement plans, but haven’t planned or budgeted for how much they’ll actually need to sock away to last them through retirement. Some are putting off the prospect of saving, thinking they’ll have plenty of time to save later. And some simply plan to work for the rest of their lives. One group in particular – the 30 and under crowd – may have a difficult time grasping the importance of retirement saving and planning purely because it’s so far away. However, I can proudly say that because retirement savings influences so much of my life, it has seeped into my personal life and finally caught on with my children.
The Mommy Law
When my oldest son, who is now 21, was five years old we began giving him an allowance. He received one dollar per week for every year he was old (so $5/wk). To earn his allowance, he had to do chores. He was required by “mommy regulations” (much like government regulations in the eyes of a child) to donate $1 to church, $1 to college savings and he could keep the remaining $3 to spend. This continued throughout his childhood and when my middle child turned 5, he started as well. When they received cash for Christmas or birthdays, the split was the same.
This “Mommy law” soon led to a revolt. Once my oldest began learning about early American history at school and why we fought the revolutionary war, he began spouting rhetoric about taxation without representation each time I “taxed” his allowance or any other funds he received as gifts. He taught his younger brother this same lesson and recruited him to join the revolution. Together they informed their grandparents and aunts and uncles about the “mommy tax”. Then, my parents and siblings joined their revolution. They all agreed that I should not be allowed to “tax” their Christmas and birthday gifts, no matter how honorable the cause. Therefore, they began giving my boys gift cards instead of cash so that it could not be taxed. I know how the King of England felt when America won the war.
As the boys grew older, they began cleaning my office and receiving wages for doing so. As my employees, they were eligible to participate in the 401(k) plan that I sponsored. I educated them on why they should save for retirement at such a young age. I would like to think that they understood and appreciated my reasoning because they did agree to defer a portion of their pay into the 401(k) plan. They would continue to tithe and save for college out of their wages as well.
While the revolution seemed to be over, I believe that they still whispered about “taxation without representation” behind my back. My siblings and their grandparents still warn me every Christmas and birthday that there is no “mommy tax” allowed on gifts.
Mothers Know Best About Retirement Savings
My oldest has recently finished his junior year in college. During his senior year in high school, he took a personal finance class. He came home one day and asked me what his 401(k) account was invested in. He wanted to make sure that it was in growth funds because of his age. I nearly fell over from shock. Finally, there was proof that he does listen, even if it’s not to me! I felt vindicated.
After his freshman year in college, he began waiting tables for the first time. He brought home all of the new employee forms and paperwork to review with me, and he was ecstatic that they had a 401(k) plan with a match. He was truly excited and asked me if I thought they had Roth deferrals available. He was terribly disappointed to discover that he had to be 21 to participate in the 401(k) plan. I almost had his DNA checked to make sure that this was the same person that used to rant about “taxation without representation.” However, I was once again patting myself on the back and feeling very proud of my son.
He came home one weekend concerned that he was not saving any of his earnings for retirement. He asked me to help him set up a Roth IRA so he could ensure some of his earnings were going toward his retirement. He has since started a new job during his junior year and he is making great commissions. He called me last week to let me know that the company he works for has a 401(k) plan with a match. However, he has to work there for a year before he can participate. He has done his budget, and because he cannot participate in the 401(k) plan right now, he has increased his Roth IRA contributions and opened a savings account for his excess earnings. He asked me what his maximum deferral would be next year when he can participate in the 401(k) and he has decided to start budgeting to defer the maximum.
The Pay Off
As you can imagine, because I have dedicated my life and career to saving for retirement and helping others do the same, when I got off the phone with him I was on cloud 9. My first thought was, “Glory be! I have finally done something right! All of the taxation without representation has finally paid off. He gets it.” Now, on to the other two…
I will leave you with this final thought. In my humble opinion, Washington has it wrong. We do need to increase coverage in retirement plans. We need more employees to be eligible to participate in some form of employer sponsored retirement savings program. It has been proven that people are far more likely to participate in an employer sponsored retirement plan than they are if left to save on their own. However, simply increasing the number of people covered by some form of plan will not solve the retirement crisis facing our country. The only solution to the crisis is participant education on the importance of saving for retirement and how to determine how much they need to save. Many employers offer retirement savings plans. They even offer a match within the plan, and still, hundreds of thousands of participants refuse to participate in the plan. So yes, we need to begin educating our participants. But we need to go beyond that. We must educate our young people while they are in grade school and high school on the importance of saving and saving as early as possible. This is the only way to solve the retirement savings crisis.
As parents and family members, as business owners and leaders, we need to make retirement savings education a priority at our jobs and in our community.
– Shannon Edwards, ERPA, QPA, QKA, APR, APA, President & Founder of TriStar Pension Consulting