http://www.wsj.com/articles/how-to-tell-if-your-retirement-nest-egg-is-big-enough-1421726456
The author of the WSJ article is a practicing surgeon and financial guru who frequently posts on bogleheads.org.
@lxnayBob, thank you for the wsj article link.
âIf you are netting $160K+ per year from your tax-advantaged accounts, they have done their job, and I donât think it is unreasonable to cap it.â
160K/year may sound lovely right now, but 20-30-40 years from now after inflation, it may be pretty puny.
Who really has the right to tell people what they are allowed to accumulate? I certainly can agree with not allowing people to put funny money in there, worth $5 today, $5 million tomorrow. But if itâs because you have steadily saved for your entire working life and invested well, I think thatâs invasive to tell people how much they are allowed to have. Itâs not like there arenât required distributions, and itâs not like people arenât going to be paying high taxes on those distributions, unless they are in Roths.
I think people are going to do whatever they need to in order to circumvent limits. Give more money to their kids, charities, tax avoidance investments, taxable accounts.
He also has written some good books, but they can get pretty arcane. I thought he no longer performed surgeries, but you might be right @HImom.
â160K/year may sound lovely right now, but 20-30-40 years from now after inflation, it may be pretty punyâ - Yes, inflation will be a factor. One mitigation, if possible, is to delay SS so that it can be a mid-retirement âkickerâ.
Again, according to the annuity calculator, if one chooses 2% annual increase, one can get 180K with 3.4M. That kind of takes care of inflation. 180K is not bad, probably in the top 5%.
No one is limiting how much anyone can accumulate, just what can go in tax-advantaged accounts, which are paid for by all of us. Pile up as much as you want in regular accounts, and pay the taxes.
The limits would almost certainly be inflation-adjusted.
âNo one is limiting how much anyone can accumulate, just what can go in tax-advantaged accounts, which are paid for by all of us. Pile up as much as you want in regular accounts, and pay the taxesâ
As taxpayers, we get our moneyâs worth when people pay taxes on what is generally a far larger amount than would have been paid as income. Encouraging people to save makes it cheaper overall, not having to pay for nursing home beds at a highly inflated rate when people can afford to take care of themselves. Hoping people can take care of themselves on purely social security is merely a pipe dream, we want them to have a good stash of money.
And when you start talking about how much people âneedâ and âexcess accumulation taxâ, what are the odds that this will just be limited to tax advantaged accounts? Next it will be all of your accounts, because who really âneedsâ that much money in an account, when entitlements cost so much more money than we have available.
Maybe I missed it, but where has there been any discussion of an âexcess accumulation taxâ in any of the proposals?
@IxnayBobâ, I stand corrected, Wikipedia says Dr. Bernstein is a retired neurologist, so heâs no longer doctoring but wearing the financial guru hat. 
@HImom, I was going to look it up myself. I didnât want to get in trouble with any neurologists or surgeons on CC, but Dr. Bernsteinâs personality never struck me as surgeon-like. Itâs probably the case that you would offend a neurologist and a surgeon equally if you mistook one for the other 
Just sayinâ
@IxnayBob, as Iâve never had the pleasure of meeting Dr. Bernstein and donât know many neurologists or surgeons, I really donât have a frame of reference; I do believe he may have done surgery as a neurologist or does that not count? He does write nice financial articles and books for the general population, though he does seem to enjoy the math and charts more than I do.
@HImom, I havenât met him either, but I got a sense of his personality in reading his books and posts. Also know a few surgeons and neurologists :). Theyâre both obviously smart, but surgeons tend to be more âletâs get in there and fix this thing, and if something surprises us, weâll copeâ while neurologists are more likely to analyze, categorize, test a hypothesis, analyze some more, etc. They each have the skills and attributes necessary for their profession. An over-generalization, but I donât think itâs far from true.
Loving math and charts: thatâs more neurologist than surgeon :). Not that a surgeon canât do the math, but heâs more likely to say âokay, thatâs all well and good, just give me the bottom line already.â
âMaybe I missed it, but where has there been any discussion of an âexcess accumulation taxâ in any of the proposals?â
I donât think theyâve called it that, but thatâs what I consider it to be. Interesting how everyone is just focused on the 3.4 million (which apparently is for both Roth and regular IRA/401Kâs), but it actually only says ABOUT $3.4 million, and is focused on the annual income of $210,000. Here is the exact wording:
âThe Presidentâs plan would prohibit contributions to and accruals of additional benefits in tax-preferred retirement plans and IRAs once balances are about $3.4 million, enough to provide an annual income of $210,000 in retirement.â
So why does this matter? Look at this link from Barrons, and it becomes a little scarier. This was their analysis based upon the Presidentâs 2014 budget proposal, and I donât think it has changed⊠Though it will never pass, itâs always important to take this stuff seriously: http://online.barrons.com/articles/SB50001424052748704311204578555881264127620
Here are some pertinent points from the link, for anyone who can stand to wade through it:
"William Waitzman for Barronâs
In theory, the proposed cap would be pretty simple. It would prohibit a small percentage of retirement savers from continuing to contribute to their 401(k)s, IRAs, and even pensions, once theyâd passed the capped amount. Go above that amount, and youâd lose the tax benefits of future retirement-plan contributions. Stay below it, and youâd continue to get them. The cap would simply add one more layer of restrictions for the wealthy on the existing annual limits on contributions to 401(k) plans and IRA accounts, as well as on the nondiscrimination rules that prohibit company retirement plans from favoring highly compensated employees over other workers. The proposal does not draw a distinction between traditional IRAs and Roth IRAs.
What would that proposed cap be? And how would it be calculated? Thatâs where it gets complicated. As detailed in the Treasury Departmentâs 256-page Green Book (aka General Explanations of the Administrationâs Fiscal 2014 Revenue Proposals), the capped amount would be equivalent to the amount needed to buy an annuity starting at age 62 worth $205,000 a year. The administration figures that today, that amounts to total retirement savings of $3.4 million. That number could rise over time since the maximum benefit gets cost-of-living adjustments.
However, since annuity prices are tied to interest rates â the higher rates go, the more lifetime income you can get for your money â the maximum allowed could also fall, perhaps dramatically, if rates increase, as they eventually must. In fact, if rates were to rise from todayâs historic lows to 8% â an amount thatâs higher than the norm but not unrealistic â the capped amount could drop to about $2.3 million, according to calculations by the Employee Benefit Research Institute (EBRI).
BUT THATâS NOT ALL. Since the conversion between annuities and actual dollar amounts of savings is based on actuarial assumptions, your actual cap would depend on your age. The numbers being bandied about â whether $3.4 million one year, or $2.3 million another â apply only at age 62 or older. Anyone younger would face a lower, and in some cases much lower, dollar cap. In an 8% interest-rate environment, for example, a 25-year-old would max out at $131,807, according to EBRI research director Jack VanDerhei.
The Bottom Line
A new proposal would prevent tax-deferred contributions to retirement accounts if an investor has more than $3 million saved. But as interest rates rise, that figure could decreaseâdramatically.
âYou could audibly hear the gasps,â VanDerhei says of a presentation he gave recently about the data. âPeople think itâs going to be $3 million before the cap kicks in, but depending on age and interest rates, it could be $100,000 or a couple hundred thousand.â (For details on what the cap might look like at various ages under three different interest-rate scenarios, see the graphic below, with calculations provided by EBRI.)
How many people might it affect? Well, that depends on those interest rates, as well as on any potential inflation adjustments, over time. Today, just 0.1% of individuals ages 60 or older have balances totaling $3 million or above in their combined 401(k) and IRA accounts, according to EBRI. But if you look over the lifetimes of younger workers, theyâre more likely to hit the cap at some point before they retire. Between 1% and 1.5% of all 401(k) participants ages 26 to 35 would hit a cap of $3 million by age 65, according to EBRI, but if higher rates pushed that cap down to $2.2 million, it would catch between 3.5% and 5.2% of them. Those people lucky enough to have pension plans from their current or previous employers, as well as 401(k) and IRA accounts, would face a higher likelihood of hitting the cap"
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Busdriver, I donât have a problem with limiting the amount people can contribute to tax-advantaged accounts. Not taxing funds in such vehicles means that our Dâs taxes continue to be bigger so that our taxes can be smaller.
We used to have a progressive tax structure, and we are increasingly moving to an inverted pyramid, with those of us who make the most, paying lower and lower tax rates. That doesnât make sense to me.
What are your objections from an economic perspective? I may have misunderstood your post, bit it sounded like your main objection is that your taxes on your amounts over 3.4mm might go up. While I sympathize with that, i donât see why we should pay lower tax rates than those who make less.
@hayden, I agree with you, with a small exception regarding âthose of us who make the most paying lower and lower tax rates.â If the majority of your income shows up as normal earned income, ie W2 wages, you could be paying at a very high rate, especially in states like NJ. That so much of the tax dollar, in a state like NJ, goes to graft rather than the deserving needy adds insult to injury.
My objection to changing rules midstream, btw, is not because we might owe more in taxes if our accounts exceed $3.4M. It is that I think it adds to the growing distrust of government, and a sense that you have to provide for yourself without trusting that, for example, SS will be there as promised.
I think we wonât have to limit or change rules midstrem if only publicly traded ssests are allowed in retirement accounts. Thatâs simpler for everyone concerned and easier to enforce. My question is why not tweak the existig rule a bit to level the playing field? Why create new rules and add another layer of bureaucacy?
"Busdriver, I donât have a problem with limiting the amount people can contribute to tax-advantaged accounts. Not taxing funds in such vehicles means that our Dâs taxes continue to be bigger so that our taxes can be smaller.
We used to have a progressive tax structure, and we are increasingly moving to an inverted pyramid, with those of us who make the most, paying lower and lower tax rates. That doesnât make sense to me.
What are your objections from an economic perspective? I may have misunderstood your post, bit it sounded like your main objection is that your taxes on your amounts over 3.4mm might go up. While I sympathize with that, i donât see why we should pay lower tax rates than those who make less"
I donât have a problem either, with limiting the amount that people can contribute. In fact, if they decided to completely disallow contributions to IRAâs, Roths for everybody or certain income levels, I might think it was a mistake, but I would not vehemently disagree with that. I certainly donât think they should increase taxes even further on a specific number in your account, just because you have managed to accrue a set amount. Right now, if people take distributions at a high enough level, they are already paying up to 39.6% tax, plus potentially a state tax, and the new Obamacare tax on investments. That certainly seems like enough to me
Also, I agree with Bobâs thought on changing rules midstream. It does further peopleâs mistrust of government, as it rightfully should. The 3.4 million dollar number is not a set number, the annuity of $210K is, which is a floating target. The 3.4 million could be far lower than that if interest rates go up, or the younger people are. So I think talking about 3.4 million is very misleading, and the purpose, Iâm sure, is to make it seem like such a high number that few people would be affected, so why should anyone care?
Iâm also with Bob, on disagreeing with your premise that people at the top of the pay heap are paying lower taxes than those at the bottom. This quote is so true, âIf the majority of your income shows up as normal earned income, ie W2 wages, you could be paying at a very high rate, especially in states like NJ. That so much of the tax dollar, in a state like NJ, goes to graft rather than the deserving needy adds insult to injury.â If you get your money like most people in the top income percentages do, through salaries, you are paying a very high level of taxes. Sure, there are some hedge fund managers and CEOâs who get paid by stock options, and a small number of people can do the fancy tax avoidance trick. But for the vast majority of high income earners, they are getting reamed by taxes. At a certain level, you could be paying easily over 50% on much of your income, if youâre in a highly taxed state.