On money

Getting workers to save for retirement is a challenge

By null, Times Personal Finance Editor
© St. Petersburg Times
published April 27, 2003

How do we get people to save more for retirement? It's an important question since Social Security is headed for insolvency and a third of all workers have no retirement savings. But no one has found the perfect answer yet.

One approach has been to offer cash incentives, otherwise known as employer matching contributions. You save $1 and your boss might kick in 50 cents, up to 6 percent of salary. That's how it worked at Clearwater's Tech Data Corp. until the company stopped contributing its part a year ago.

And how did workers respond to the loss of this savings incentive? The company says participation fell less than a percentage point. Apparently the savers saved and the nonsavers didn't, no matter what the company did.

Tech Data is bringing back the match for 2003, though the rate will not be decided until year-end, then applied retroactively.

Another frequently proferred solution is to increase the amount that can be contributed each year to tax-deferred retirement savings accounts. Those limits went up last year and the Portman/Cardin bill now pending in Congress would raise them again.

But here's an area where the law of diminishing returns has kicked in. As the limits increase, an ever smaller and wealthier group can take advantage of them. Most workers not only can't afford to contribute what they are permitted, they have no idea what the limits are.

When CIGNA Retirement and Investment Services recently surveyed participants in workplace retirement plans, nearly half said they contribute the maximum to their 401(k) plans. Unfortunately, studies of actual contribution data show that only 11 percent were contributing the maximum in 1999, before contribution limits increased. It's a sure bet that the percentage is lower now.

Just how much can you stash away? If you participate in a 401(k) plan, IRS rules allow you to contribute up to $12,000 this year, $14,000 if you are 50 or older. That's up to $28,000 for you and your working spouse who also participates in a plan.

Add to that IRA contributions of $3,000, or $3,500 for those 50 or older. That's an additional $7,000 in potential savings for a 50-plus married couple. That's great if you've got the money, but I doubt many couples have $35,000 to stash away in their retirement plans each year. So how much additional savings will there be if Portman/Cardin passes and it becomes possible for couples to contribute $52,000 next year, $40,000 if they're under 50?

Perhaps the most creative approach of late has been the new saver's credit, a great deal even though it is limited to people with incomes below $25,000 (single) or $50,000 (married). If you qualify, you can get a credit worth 10 to 50 percent of your first $2,000 of retirement savings. It will be interesting to find out how many taxpayers took advantage of it this past tax season. Portman/Cardin would expand eligibility to those with incomes of up to $30,000 (single) or $60,000 (married). We have come a long way since the days when IRA contributions were limited to $2,000 and most workers had little or no access to company-sponsored retirement savings plans. Now we allow workers to contribute; we just haven't figured out how to get them to do it.

Q. Can you tell me where I can find quarterly net income figures for public companies? Most information services show this number as income per share. I want the total net income.

This information is readily available on the Internet. Go to finance.yahoo.com, put in a ticker symbol to call up a stock quote, then click on "financials." The numbers are not always up to date, so check under company news for recent earnings reports. The most detailed information is available in the Securities and Exchange Commission (www.sec.gov) EDGAR database.

If you don't have Internet access at home, try it at the public library.

Q. What is the interest rate for I-bonds?

At the moment it's 4.08 percent, but savings bonds rates change Thursday. Get to the bank before then if you are thinking about this type of investment. I bond rates are a combination of two rates: a fixed rate that applies for the life of the bond (1.6 percent on bonds purchased through Thursday) and a variable rate based on the rate of inflation. The fixed rate has been declining along with other interest rates the past three years. As with EE savings bonds, tax on the interest earnings can be deferred until the bonds are cashed.

- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.