Not everyone will need a Trump IRA

Still, I like to think I was of some use when it came to retirement saving, which is my specialty. I was surprised how many of the women had money in a retirement account from a former job. I gently suggested they make what is called a hardship withdrawal, get out of the shelter, and stop worrying so much about retirement. They were resistant. Saving for retirement is important, they told me.

One of my controversial opinions about retirement is that not everyone needs to save for it. It is a heresy to say so — the conventional wisdom is that everyone should have access to a retirement account. Just last month President Donald Trump signed an executive order creating access to IRA accounts for lower earners (any individual earning less than $35,500, or couples less than $71,000). Less than half of Americans in the bottom 25th percentile of income have access to a retirement account, if they work in private industry — and just 23% participate in their workplace plan. The Trump IRA plan is very generous, with up to a $1,000 in matching funds each year for some participants.

In this era of wealth inequality, when market gains outpace income growth, almost any attempt to grow wealth and participation in the market among lower earners is worthwhile. The growth of retirement accounts is a big reason that both stock ownership and financial wealth are near all-time highs, even for middle-class Americans. Expanding access to higher-yielding assets among lower earners could transform their lives and help them share in a growing economy.

But retirement accounts may not be the best way to achieve these goals. Low earners who qualify for full Social Security can expect to get more than 80% of their final salary as an annual benefit, adjusted for inflation. They may also qualify for other income and health benefits. Older Americans have the lowest rates of poverty because the U.S. has a fairly robust safety net for the elderly. Low earners are hardly rich in retirement, but they are often no worse off than they were while working — sometimes better, even without much money in the bank.

But their working years can be financially precarious. In 2022, the median financial wealth of a single person earning less than $35,000 was $1,000 (about $2,000 for a married household earning $70,000). About 25% of those in these income groups have hardly any savings at all. Clearly that $1,000 would be transformative.

At the same time, lower-income people are also more financially vulnerable to disruptive events, such as divorce, unemployment or even car repair. They need liquid savings instead of retirement assets. Many of the state-sponsored retirement accounts are Roth IRAs, which means savers can take money out if they need it. A Roth may be a better structure than a traditional IRA for the Trump retirement plan — though offering a match on a liquid account complicates a program that is intended to build wealth.

Building retirement savings for low-income Americans is a hard problem, because they often need their wealth before they retire. Between the president's actions to expand access to retirement accounts and his plan to create accounts for children, this administration is working hard to reduce wealth inequality — and more directly than any government benefit that discourages work.

(COMMENT, BELOW)

Allison Schrager, a Bloomberg columnist, is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.

Previously:
• Trump accounts are a new way to redistribute wealth
• Taxing the wealthy won't reduce their power
• A wartime economy would be different this time
• Why aren't Americans working as hard as they used to?
• $100,000 in Social Security benefits is too much
• The Laffer Curve is no longer a punch line
• Yes, Americans are saving enough for retirement
• Is free trade worth the cost in lives lost?
• Mamdani's New York is flirting with fiscal nihilism
• America's human capital is eroding
• Musk is wrong about AI and retirement --- You still need to save
• Go ahead and resent boomers but for the right reasons
• Raiding your 401(k) to buy a house should be an option
• Americans are living in the worst of all tax worlds
• Think of college like you would a junk bond
• The economy needs a little bit of unfairness
• The pension revolution is better for savers
• Affordability isn't a hoax. It's not a crisis for most, either
• America gets retirement wrong. Can Vanguard fix that?
• The American middle class is shrinking, and that's OK
• Want to buy a home? It's OK to wait till you're 40
• Mamdani is benefiting from New York City's changing workforce
• How can an economy this good feel this bad?
• Why boomers have more money than everyone else
• Democratize private investment?
• Lab-grown diamonds are testing the power of markets
• Inflation ate your free lunch, but you're still better off
• Good debt? Bad debt? There's no such thing
• Megabills didn't break the economy before and won't now
• America's broken politics is breaking economics, too
• A college degree is no longer a risk-free investment
• Break up Columbia? Maybe, and the rest of the Ivy League, too
• Even Dems might like MAGA accounts
• Reality Check about possibile volatility in trade war
• Is this really how American exceptionalism ends?
• The free-market conservative is a vanishing breed
• Shareholder capitalism is back
• Europe's risk aversion comes with consequences
• The Oxford curriculum that American universities need
• Private equity won't diversify your portfolio
• The era of declining interest rates may have come to an end, and many investors don't seem to realize it
• This one weird trick could save the U.S. economy
• The Fed's damage to the housing market may last years
• The future of unions looks very different
• To bring back the office, bring back lunch
• Does it really matter who gets into Harvard?
• Our pensions shouldn't be used to juice the economy
• A soft landing won't mean the economy is safe
• The 30-year mortgage is saving the U.S. economy … or is it?
• The one true secret to successful investing
• Less work, more burn-out
• When did risk become a bad word in the U.S.?
• AI-proofing your career starts in college
• Biden has to learn the same lesson as SVB
• Say it with Rubio: Changing clocks is stupid
• Sure, we'll return to the office in 2023 but not to stores
• How to manage the biggest risk of all: Uncertainty
• If you think U.S. pensions are safe, just wait
• Harry and Meghan and the perils of superstar culture
• Norman Rockwell's economy is never coming back
• Burned by crypto? Don't learn the wrong lesson
• Quiet Quitters are looking in the wrong place for meaningful work
• America's MBAs are the latest skeptics of capitalism
• Generation Z is getting a harsh lesson in stock risk
• The biggest threat to the U.S. economy is policymakers
• Buck up, boomers. You're still better off than your parents
• How to manage the biggest risk of all: uncertainty
• Startup boom is the kind of risk-taking Americans need
• Gen Z is too compliant to achieve greatness
• A bigger child tax credit isn't the poverty solution we need
• Finding your power in a higher-priced world
• The Biden administration's plans to double the tax rate on capital gains will prove costly to all Americans, not just the wealthy
• WARNING: Feel Good Now --- Pay Later: Stimulus is crammed with goodies but makes no economic sense
• The 'Stakeholder' Fallacy: Joe Biden's vision of capitalism is a recipe for failure