The middle class. Marketers target it. Politicians champion it. Economists talk about it. Most of us consider ourselves part of it.
Yet, when I’ve asked for a clear definition, I have not found anybody yet that really can tell me what “middle class” is.
I recently posted on Twitter that $90,000 was a middle-class household income and that it would take a nest egg of $3 million to generate that income in retirement.
A couple of my colleagues responded that my figures were way too high and accused me of being out of touch. As a lifelong South Dakotan, I’m used to being seen as “out of touch,” but the idea that $90,000 was beyond a middle-class income intrigued me.
I figured a few minutes with Google would point me to a definition of “middle class.” It wasn’t that simple. I soon discovered that neither politicians, economists, sociologists, nor financial advisors can agree on what makes someone middle class. It is a little easier to define a middle class income.
“Max out your retirement plans every year” has long been standard advice I’ve given to working adults who want to secure a reliable income when they retire. Individual Retirement Accounts (IRAs), along with 401(k), 403(b), and profit sharing plans offered by some employers, are among the most accessible ways for middle-class workers to provide for retirement and build wealth.
If a proposal in President Obama’s budget plan is approved by Congress, however, retirement plans may no longer be the first and best stop along the road to financial independence.
The proposal would limit a person’s total balance in all tax-advantaged retirement plans to the amount it would cost to purchase an immediate annuity paying $205,000 a year This appears to not be indexed for inflation. The articles I’ve read and my own calculations suggest this would mean capping retirement accounts at around $3 million.
“The Feds Want Your Retirement Accounts.” This was the headline of a February 22 post on the American Thinker blog recently forwarded to me by a reader. Normally I hit delete on articles warning of some type of impending financial doom. I read this one, since Argentina confiscated its citizens’ retirement accounts shortly before I first visited there in 2009.
According to the article, in 2007 a professor of economic policy from the New School for Social Research, Theresa Ghilarducci, wrote a paper calling for the US government to eliminate private retirement accounts. She suggested confiscating the assets in those accounts and replacing them with a “Guaranteed Retirement Account” (GRA) guaranteeing a return of 3%, which is essentially another program like Social Security.
This is basically what Argentina did one year later.