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Risk-Reward Gamble

By Albert B. Crenshaw
Washington Post Staff Writer
Sunday, January 16, 2005; Page F01

Seventy-two years ago, Franklin D. Roosevelt was inaugurated as president, promising the American people what he called a new deal.

The nation at the time was already into the Great Depression, and many Americans, who felt that a few people held all the economic cards, were happy to hear that the government might use its power to deal them in.

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This week, George W. Bush will take the oath of office for the second time, promising the American people what he calls an "ownership society."

Today, the nation is adjusting to the aftermath of a boom that made tens of thousands of its citizens rich, a period in which genius, hard work and luck were rewarded on an unprecedented scale. What Bush is offering is a chance for each American to grab for this brass ring.

The appeal to independence, self-reliance and other traditional American virtues resonates with much of the public. The president clearly hopes that its attractiveness is so powerful it will persuade younger people to embrace a Social Security system that allows them to invest a portion of their payroll taxes and benefit from whatever investment success they attain.

This shift -- from the New Deal to the Ownership Society -- is a sea change in the way Americans view the relationship between themselves and the government, and between themselves and the rest of society. Whereas government, unions and other collective organizations were widely seen in the 1930s as placing a safety net under workers and their families, today they are regarded by many people, especially in the "red states," as stifling enterprise and protecting the lazy.

In contrast to the New Deal, the Ownership Society will have optional elements, with greater rewards but also far greater risk. While the administration's Social Security plan taps into taxes that workers are already paying, a key element of the Ownership Society is that to take full advantage of it, you must put up a great deal more of your own money -- pay to play, if you will. And that principle of pay to play applies in fields ranging from retirement to education to health care.

Private employers, long the source of a truly secure retirement for so many, have already begun their retreat from the social safety net and embraced the ownership philosophy. Consider the increasingly common 401(k) and related retirement plans.

Typically these have attractive tax benefits, and many employers who sponsor them chip in by matching a portion of the money a worker contributes. But the fact remains that the primary driver of these accounts is the worker's own money. To participate in a 401(k) plan, a worker has to take money out of his or her own paycheck and shift it to the retirement account.

And these amounts can be substantial. This year, a worker is allowed to contribute up to $14,000 to a 401(k), plus an additional $4,000 "catch-up" contribution if the worker is 50 or older. Next year, those amounts rise to $15,000 and $5,000. A working couple could conceivably contribute double those amounts.

The couple who sock away $30,000 or $40,000 a year for many years would, absent some economic catastrophe, almost certainly end up with a handsome retirement account.

Truly ambitious savers can tack on an individual retirement account, which also carries substantial tax benefits, or a Roth IRA, funded with non-deductible contributions.

Having a government-sanctioned way to squirrel away thousands of dollars every year, and having those assets accumulate earnings that won't be immediately taxed, is enticing, even empowering. The limiting factor for many families will be their own finances.

In 2003, the median family income in the United States was about $43,500, meaning that half of all families had higher incomes and half lower.

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