Where they stand on nursing nest eggs through crisis

WASHINGTON -- With consumers snapping their wallets shut, the Dow taking regular nosedives and the government shoring up much of the financial system, both presidential candidates last week talked up their ideas for helping financially strapped workers and retirees get through an economic downturn.

Their plans differ in several key respects, but they essentially make it easier to do one thing: draw down your retirement savings.

WHERE THEY AGREE

The one proposal they agree on is suspending required withdrawals from retirement accounts, which kick in when you turn 70 1/2. You have to withdraw a minimum amount based on the value of your account and the life expectancy of you and your beneficiary every year for the rest of your life.

Seniors facing mandatory withdrawals are in a jam this year because the required amount is based on the value of their holdings as of last December -- before the market tanked.

"Delaying that does make some sense to help people dramatically hit by changes in the market," said David Certner, legislative policy director for AARP.

WHERE THEY DIFFER

That's where the agreement ends. Barack Obama has proposed allowing people younger than 59 to withdraw up to 15 percent of their IRAs or 401(k) accounts, up to a maximum of $10,000, without having to pay the 10 percent penalty for withdrawing early, though income tax still applies. The penalty waiver is good only on withdrawals made in 2008 and in 2009.

Obama also wants to exempt from taxation the withdrawals required for seniors 70 1/2 and older.

John McCain has proposed taxing withdrawals from IRAs and 401(k) accounts in 2009 and 2010 by those 59 and older at a 10 percent rate. Currently, such withdrawals are taxed up to 35 percent, depending on income. The proposed 10 percent rate would apply to the first $50,000 withdrawn in 2009 and 2010.

McCain said he would also slash the capital gains tax rate from 15 to 7.5 percent for two years on stocks purchased and held for more than a year, and he would increase the amount of losses from stock sales that people could deduct from their taxes from $3,000 to $15,000.

"Retirees have suffered enough and need relief, and the surest relief is to let them keep more of their own savings," McCain said in a speech Tuesday.

Each candidate has criticized the other's plan. Obama said McCain's proposal doesn't help working families, disproportionately benefits wealthy seniors and will mean a loss of at least $36 billion in tax revenue. McCain called Obama's plan destabilizing, saying that letting people withdraw early is "an invitation to capital flight ... at a moment when the opposite is needed."

WHY IT MATTERS

A study released in July by the liberal Center for American Progress found that borrowing even $5,000 from your 401(k) in today's dollars reduces future retirement savings by as much as 22 percent, even if you pay yourself back.

The reality, though, is that people are already dipping into their retirement savings to pay bills, and their numbers have been growing.

An annual survey of workers released Oct. 9 by the Transamerica Center for Retirement Studies in Los Angeles found that the percentage of people who had borrowed money against their 401(k) had increased from 11 percent to 18 percent.

Close to half of that group said they borrowed money to pay down debt. Only 18 percent said saving for retirement was their greatest financial priority now.

"People have been feeling the crunch for a long time," center president Catherine Collinson said.

McCain economic adviser Douglas Holtz-Eakin said lowering the tax rate on withdrawals isn't likely to encourage people to take money out that they wouldn't have otherwise, because the people withdrawing now are doing so only because they have to.