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What Would a New House Bill Mean for Retirement Funds?

Aired May 02, 2001 - 16:09   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOIE CHEN, CNN ANCHOR: All right, and on another element of retirement, if you're looking forward to that, the House has just passed a pension reform bill. The measure raises the annual cap on IRA contributions by $1,000 a year until the annual limit reaches $5,000 in 2004. Now, the previous annual ceiling is just $2 000.

Also a boost for 401(k)'s. The current annual limit is $10,500. By 2006, you could stock away up to $15,000 each year, and that would be tax-free. To talk more about all this and what it could mean to you, from San Francisco for us today, Jeff Maggioncalda, CEO of Financial Engines.

OK, let's see if you can get our financial engines going on this, Jeff.

JEFF MAGGIONCALDA, CEO, FINANCIAL ENGINES: Hi, Joie.

CHEN: What does this mean to me and to people looking to a retirement where we hope to be comfortably living? Does this help us out much?

MAGGIONCALDA: Well, I think it helps a lot. Today, we have about 50 million Americans who are participating in 401(k) plans, and they've been socking away a lot of money over the last years. At this point, there are about $2 trillion being invested by these individuals, and by many accounts, experts would agree that it's just not enough yet.

CHEN: But there are plenty of people who are not in those middle- to upper-income levels who've been able to finance their 401(k)s to that level anyway. Does this do anything for them?

MAGGIONCALDA: Well, I think that what it really does, particularly for younger folks who want to put away a higher percentage of their income, it gives them a lot more ability to shift savings and get more after-tax effects on that savings by basically socking away the money early, letting that grow without taxes, and think at the end of the day, they will end up with considerably more money if they actually utilize the increase and the limits that have been proposed by Congress.

CHEN: Do you see really a difference in the way different generations now look at their expectations for retirement, what they're going to count on in the years ahead? Say, a generation in an older age category thinking that Social Security is still going to work for them, but some of the people just entering the workplace now thinking there's not going to be any of that, and I really do have to rely on this 401(k) money.

MAGGIONCALDA: Yes, that's absolutely the case. Survey after survey, what it shows is particularly for the younger investors out there, there is an emerging sort of philosophy of self-reliance, where they're not expecting the government to take care of them in the years ahead. And so typically, what is happening, is they're participating earlier, they're saving more money, and they're spending a lot more time trying to make better investment decisions.

CHEN: All right, Jeff Maggioncalda, CEO of Financial Engines joining us today. Let's talk more about what expectations you have and what you can count on for your retirement. A recent Gallup survey shows 58 percent of Americans will depend on their 401(k) while a third say they are banking on employer pensions. Twenty-eight percent trust the Social Security program will be around to help them out, and 24 percent say they are relying on their own investment portfolio.

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