President Obama’s proposal to limit the value of 401(k)s, pensions and other tax-favored retirement accounts to about $3.4 million certainly sounds reasonable. After all, at a time of big budget deficits, we shouldn’t subsidize “the rich” with tax breaks, should we?
But when you look a little closer — especially when you look at the value of Obama’s own taxpayer-funded retirement benefits — you might think a little differently about what “rich” means.
For starters, the point at which Obama wants to eliminate the ability of you and your employer to deduct contributions to your retirement account isn’t actually the $3.4 million in his budget proposal — that’s just an estimate. The real number is how much a couple age 62 would have to pay for an annuity that yields $205,000 a year. That $3.4 million — which applies to the combined values of your pension and retirement accounts — is subject to a sharp downward change in the future because annuity issuers charge significantly less for an annuity when interest rates are higher than they do today, with rates at rock-bottom levels.