Imagine if some of the wages from your high school job washing cars were invested for retirement?
At a 7% average rate of return for stocks, just $1,000 saved at age 16 would be almost $40,000 by age 70.
That is exactly what Oregon State Treasurer Tobias Read wants. He is pushing Congress to lower the minimum age for IRAs contributions to age 16 (Oregon’s minimum age to open an IRA is 18; different states have different minimum ages). During recent testimony before the Senate Finance committee, he said “we sure like the idea of getting them in the habit of saving from the beginning of their career.”
In an interview with Yahoo Finance, Read expanded on this idea: "The simplicity is what most appeals to me.” For Read, 18 years old is “sort of an arbitrary date,” adding, “it just seems to me that we should not treat people who are working legally differently.”
Oregon has a program in place that automatically enrolls workers in an IRA if their employer doesn’t offer a retirement plan.
Chris Carosa, the author of “From Cradle to Retirement: The Child IRA,” wants to go even further. During an appearance on Yahoo Finance’s YFI PM, he said, “I would prefer that they lower it more,” noting that it currently is legal for a parent to set up an IRA for their children.
“The child IRA is really an underutilized tool," he said. "It’s available now but the requirement is that you need to work in order to do it.”
Focus on young people
Policymakers are struggling for ways to spur retirement savings among young people. A 2018 study by the National Institute on Retirement Security found that two-thirds of working millennials have nothing saved for retirement. In Washington, lawmakers are currently considering an idea to allow employers to make matching contributions to an employee’s retirement account equal to the amount of that employee’s student loan payment.
Treasurer Read remains optimistic that Congress will take some action to help young people save. “There was general agreement [in the Senate Finance hearing] that helping people to get started saving earlier is a good thing” he said.
As for the idea to lower the savings age to 16, Senate Finance committee ranking member Ron Wyden is “exploring the idea,” according to an aide. But there is no provision in the current bill and new policies are not expected to be added.
As for the chances of his idea ever becoming law, Read demurred, saying that “of all the people who are prognosticators about Congressional action, I gotta rank right near the bottom.”