Saturday, April 6, 2013

Do only rich people have $3 million IRAs?

Obama's new tax plan is supposed to target IRAs worth over $3 million in order to hit the rich where it hurts. I like soaking the rich as much as the next guy but $3 million sounds a bit low, like it hit a substantial share of the middle class as collateral damage?

California is known for its generous pensions so it seems like a good place to start looking for pensions worth $3 million. Retired California teachers average $51,000 in pension income and probably around $20,000 in social security income. That pension is equivalent to about a $2 million IRA. If two teachers were married, each pulling in $51,000 pensions and $25,000 in social security income that would be the same as having a $3.6 million IRA. California is a high income state, and the pensions are generous there even relative to the cost of living, but these are pensions for teachers, not exactly the best paid profession in the middle class. If a family of teachers has over $3 million in their IRA (or pension equivalent) then I think its safe to say a large safe of the country should/could have $3 million IRAs.

So $3 million does not seem like an unreasonable amount to put away in your IRA. Many upper middle class people who save 15% of their income for retirement will end up with something like that amount when they retire. The damage to the middle class would be compounded if the $3 million cap is not indexed to inflation, as seems likely.

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