The Financial Realities of Individual Retirement

I am writing this for several reasons but one important one is to further establish the importance of paying attention to the real world when attempting to make policy recommendations like some recent suggestions as to how to deal with the entitlement mess.

To begin, let’s review the current situation:

1. The current ideal is to retire at age 65 and live in blissful non-productivity for 20 to 30 years.

2. Up until the 90s, it was expected that a worker would accumulate pensions from his employers over the years and when he retired he would receive a fixed income to support him. These pensions have been disappearing steadily for decades and there only a few left for new hires. The health of company savings to support existing pensions is in question. There is a federal agency that would supposedly put funds into a failing pension fund, but it is underfunded itself and could not rescue an economy wide problem (such an agency shouldn’t exist, either). (For example, see)

3. Self-funded retirement plans, such as the 401(k), have been shown by repeated surveys to be insufficiently funded by employees to provide for their retirement. The gap is very large. Employees also have the tendency to remove the funds from retirement accounts at various times for various reasons.

4. Survey after survey has documented that Americans have a very poor grasp of how to manage their savings and investment, including retirement accounts. The primary element driving most decisions is fear of loss. The sources of their fear are stories about the Great Depression, reading newspaper headlines, incomprehensible discussions of investment options, stories of thief and greed, and the economic chaos around them.

5. Retirees are becoming increasingly dependent upon Social Security and Medicare after retirement (see below).

6. The government dominated economy has resulted in two major recessions in the last ten years resulting in the current period that is described by the government and press as a recovery but feels very much like a bad, senseless downward spiral.

Consider the situation of a reasonable, hardworking, educated baby-boomer who has been successful from the standpoint of the quality of jobs and his level of income. Let’s call him Max. Max is 62 and all his life he has accepted the idea that age 65 he will retire. As a responsible person, he has saved and tried to make sound investments his entire life. He has not hired professional help other than talking to various stockbrokers. He began working as adult in 1972 but didn’t begin paying attention to the issue of savings for several years. His initial experience in the 70s was with high inflation and then the recession that ended in 1982.

But Max has now entered what will surely be remembered as the golden years of investing for the baby-boomers. From 1982 until December 1999, the market rose nearly continuously (for example, 1987, which is remembered as the year of a crash, was actually up slightly for the calendar year.) The later 90s were somewhat skewed by the inflation fueled tech boom, but overall, the period was the best of the Twentieth Century.

Since 1999, the investment markets have flattened or worse. Consider that the inflated high of the Dow Jones Industrial Average of December 1999 was 11497. As I write the Dow is 11471 (and in my opinion, it is over priced). After nearly twelve years, the Dow sits at the same place, nominally. I say nominally because the dollar today is not the dollar of 1999. If we accept the government Consumer Price Index as a real measure of consumer prices over time (I am not advocating using the CPI, but I don’t know of a good alternative.), since 1999 the dollar has fallen over two percent a year. According to the Department of Labor’s online inflation calculator, it takes $1.36 today to buy the same stuff as one dollar in 1999, or today’s dollar is worth $0.73. (The same calculator gives the today’s figure of $234.76 in relation to 1982.) That means that if you correct for inflation today’s Dow is 73% of what it was, or 8434, not 11471. Even if you add in dividends and subtract taxes (capital gains taxes as well), you have a result that a general investment in American productive assets for the last twelve years has been a very large loss. Max has suffered a major blow to the prospect of a comfortable retirement. Maybe Max may not be able to retire at all, even with Social Security, although I am not sure that there would a job for Max when he needs it.

How could Americans prepare for retirement in such an economy?

Most prescriptions offered for investing for retirement assume an economy that is growing. Those recommendations didn’t work in the decade ending in 1982 and they aren’t working now. There are recommendations for periods of crashes and depressions. If these ideas work at all, they generally don’t work for prolonged periods of time. There are other approaches that do work to a certain extent and are good. However, they tend to be complex and assume knowledge that few have. They also wouldn’t work if widely practiced (which is to say that I am here concerned with the general situation and not how an individual could protect himself). For the vast majority of people, there is no good investment option today that will help them through to their last years.

Another little known fact is that those people who have saved some assets for retirement have often not actually planned. Their accumulation was based on what they could save and invested in what made sense at the time. Many, when they retired, accepted the conventional wisdom that retirement income needed to be “income without undue risk” and placed significant amounts in bonds. These people will tend to run out of money even faster during retirement. They don’t have enough to support their rate of spending for very long. Nor do they or their advisors have the tools to recognize the threat and make changes early enough to make a difference. They have not made provision for consumer price inflation or the rapidly rising cost of medical care. They aren’t prepared for 20 years or more of idleness. They just don’t know how to plan financially and don’t know they should.

For the many people who keep whatever they have managed to save in “safety of principle” accounts (fixed annuities, savings accounts and CDs) or fixed income accounts (bonds and pensions), they have seen their assets and income slowly decline as the Fed has kept interest rates low, inflation continues, and the what small income they receive is taxed. People with bonds have seen their principle increase as interest rates and their income have declined. But, if they are paying attention, they know that the future probably holds higher interest rates (see Greece, Spain, and Italy today), and their principle will drop like a rock if they still hold those bonds.

Beyond that it should not be surprising that very few people have any idea of how to invest. They do not know how the economy works. Where would they get that knowledge? It isn’t taught in schools at any level nor do the academics actually know anything about the real economy. They don’t know how retail businesses work. They don’t know how manufacturing works. They don’t know how businesses make profits. They don’t know how international commodity or currency markets work. They really don’t know why stocks have the prices they have or why they change, short term or long term. The ignorance about economics or our economy is more than widespread. It is terminal. Who suggests that it is important to know? People learn about their own professions, but often not much beyond that. Business schools are not good sources, either. Most businesses have to retrain business school grads, even MBAs. It is no wonder that few people are able to save and invest in a manner that will successfully support them into their 90s, especially if they retire later than normal. The number of people who do adequately save and invest has to be less than five percent.

A realistic look at today’s economy would suggest that the foreseeable future does not hold the promise of better results. There is no indication that anyone in authority has a clue as to what makes an economy grow and contract. They do not even understand that only productive, profitable jobs are worth creating. Government debt will continue to pile up. The Fed will continue to add stimulus, achieving nothing but a huge financial overhang that may fall and crush us. Don’t forget that the regulations required by all of the reform bills after the Meltdown in 2007-8 have yet to be released and implemented.

It seems to me that any criticism of people for not being prepared for retirement is not based upon a recognition of the facts of the real economy. Only a very few are going to have found a method to invest their savings in such a way to be able to support themselves if they retire.

To sum up, it is very difficult for salaried or wage paid individuals to save and invest successfully for their retirement, standard pension plans have suffered significantly due to the economic conditions, and from other sources we know that Social Security and Medicare can not continue for very long. So, what can we conclude? My conclusion is that the mixed economy, the welfare state in the United States, cannot support the coming old age of the baby boomers, with or without Social Security.

These problems that people have with their savings and investment, the nature of our economic situation, and the poor future prospects are not the fault or the responsibility of individuals. The responsibility lies with the people who control the dominate actor in our economy, the Federal government in its many aspects: the President, the Congress, the Fed (and the intellectual leaders who guided them).

What else did you expect from 100 years of constant legislative attacks on capitalism and the businesses in the United States. That the problem has not been big until now is a testament to American perseverance. It couldn’t last forever.

For the future to achieve the promise of a happy old age, not to mention prosperity for everyone, in the US, a couple things have to happen:

1. The economy has to be freed up to become productive and prosperous. In other words, our country needs to become a capitalist nation. The process of transforming ourselves from a welfare state to a nation that recognizes right must do so in a manner that does not further victimize the present day population, as I discuss elsewhere.

2. People need to revise their thinking about retirement and work. Work is not the onerous thing most people make of it. Retirement for 20 or 30 years, after working for 40, is not generally feasible in good situations, let alone the one we are in today.


This Post is one of three that deal with the issues connected with the entitlement mess and how to resolve it. All three should be read in order to fully understand the issues. The other two Posts are:

A Flight of Fancy (Not Fantasy)

The Right Way to Solve the Entitlement Problem


Thank you.

C.W.

Treasury Grab of Retirment Assets: So Far

As far as I can find, there has been no public comment or action from the government regarding this issue since the hearings last September. The IRS, in its December annual statement about planned new regulations, etc., included annuities and pension plans in its list, without any indication as to what it has in mind.

The news reports about the combined Treasury and Labor Departments’ hearings last September do not mention any discussion regarding the fears that I and others have voiced. Our fears is that the Federal government will soon try to take some action that will force Americans to place our retirement savings in U.S. Treasury Bonds. The government need not take our savings, just control where we put it. Putting our savings into Treasuries will reduce our potential retirement income flow, remove more money from the productive economy, and further destroy our freedom of action. If, as I expect, interest rates on Treasuries begins to climb, the size of our investment portfolios will shrink.

There were two sets of themes in the testimony during the hearings. Those who are self-styled experts on retirement focused on what they perceive as the failure of American’s to properly prepare for retirement. They are concerned that people will not make good choices about their savings after retirement and that retirees will run out of money. They regard a guaranteed lifetime income option as vital. I doubt that these people were confronted with the question of forcing the poor, misguided Americans to place their savings in lifetime income vehicles. That is really the question. Somehow, the thinking seems to be, just having the option will be the solution. Later, the experts will discover that the option isn’t being used, at least sufficiently, and the experts will cry that further measures need to be taken to take care of us.

The other theme was the concern of industry representatives, almost entirely members of the insurance industry. Beginning in the mid-90s, critics of the insurance industry, including many regulators, have attacked the industry for putting annuities within pension plans and IRAs. In the critics’ view, pension plans and IRA’s provide tax deferral, which annuities also provide. The criticism was that there were cheaper investment vehicles than annuities to put into a 401(k) or Simple Plan. Critics, such as Susie Orman and the industry regulators, claimed that the only reason annuities were sold were much higher commissions and profits. These complaints ignored the actual commission rates of the majority of mainstream insurance companies (as well as other issues). These critics also tended to ignore features of annuities that weren’t provided by other investment vehicles, such as the lifetime-income feature and the insurance element.

The comments of the insurance representatives at the Treasury and Labor Departments’ hearings was that these criticisms had to be addressed. Their companies would not participate if they were exposing themselves to legal harassment, even if the harassment was ultimately baseless. I expect that the criticisms of annuities by regulators is the primary reason why annuities aren’t available in 401(k) plans now. It is also possible that the government will use the intent of private insurance companies to profit from their business as a justification for creating a government annuity, thus fulfilling the fear that all of this is just a ploy to force retirement plan money into funding the U.S. government.

I saw no mention of any consideration of what kind of annuity that should be offered, e.g., fixed (like a bank CD) or variable (which allows investments in stocks and bonds with in the annuity). If the intent is to put more money into Treasury Bonds, variable annuities would not be allowed. Nor did I see any mention of the interest rates that would be paid on a fixed annuity. With the Federal Reserve Board forcing interest rates to be very low for long periods of time, the income available to an annuity holder would be very small. For someone who lived a long time, an income resulting from a low interest rate would suffer financially, especially if there were any level of inflation, even 1%. Fixed annuities only make sense in a gold standard, where even a low rate of interest would provide a growing standard of living.

We are now left waiting for Treasury and the Labor Departments to take the next step, if any. It may be that the next step would be to propose a law for Congress to consider. It is another shoe that we are waiting to hear from.

Background notes: Annuities, Retirement Plans, and the Government

After seeing comments by Burgess Laughlin on my earlier post about the Treasury request for comments on “life-time payments”, I realized that there were some underlying history and understandings that I had not included. This background is not general knowledge and it would be helpful, I think, for this information to be available. This is not a research paper. I am not including references and quotes from “authorities”. I am giving you my understanding of the situation, which provides some of the foundation as to why I came to the conclusions I did in the earlier post.



Annuities are one of the oldest financial products. Originally, an annuity was purchased when a person was ready to receive an income stream. It is purchased from an insurance company because the insurance company has the expertise in computing life expectancy and using long-term, incoming producing assets. When purchased, the life expectancy of the person to receive the income was computed, the current interest rate considered, and the income stream is determined. The income stream continues for the entire lifetime of the annuity owner. Some owners die early, some late. If the insurance company has made good life expectancy computations over sufficient number of owners, it will be able to meet all lifetime payments and make money.


Two things have changed over the years. One, annuities became tax shelters. You can purchase what is called an annuity without beginning the income stream, or as it is called today, annuitizing it. The interest rate may be fixed at purchase, or the interest rate may be adjusted before annuitizing as the market changes. The interest rate is not adjusted after the income stream is begun. When you purchase the annuity and don’t begin the income stream, it accrues interest, that is the principle grows, deferring income taxes until the income stream begins. Actually, there is no requirement that you begin the income stream. You may withdraw cash as you wish from the annuity until it is all withdrawn, and will have some taxes to pay. Under current law, if you withdraw money prior to 59½ there will be an additional 10% tax penalty. If you annuitize it, you will also pay taxes on the growth.


The other development is the creation of “variable” annuities. After hearing severe criticism that interest-bearing vehicles provided poor returns, the insurance industry created annuity vehicles with “sub-accounts” that were similar to stock and bond mutual funds. The poor returns of fixed annuities are actually worse than most critics argued. After internal costs, i.e., the insurance company’s costs and profit margin, taxes, and inflation, the return on an fixed annuity tends to be negative. Variable annuities are almost identical to what were now called fixed annuities in tax treatment and structure, but their return was based upon the results of the stock and bond sub-accounts that the owner selected. Of course, as opposed to an interest bearing account, returns based upon stock or bond markets might show declines in the principle. Some insurance then added optional benefits to variable annuities to try to overcome some elements of the potential negative return, adding costs and complexity.


After the tech stock crash ten years ago, another type of annuity gained popularity called the indexed annuity. Its return was tied to a stock market index, but did not actually contain stocks. The returns were lower than the market to allow the annuity company to engage in hedged trading to counteract equity market declines. An owner could have higher return than a fixed annuity but not have the fear of the declines in the stock market.


Annuity products came under attack from several quarters. It was claimed that annuities themselves had higher internal costs than they needed, and thus the insurance companies were making too much money at the publics expense. Since these products were offered to the public through normal sales channels that insurance companies used, it was claimed that salesmen were taking advantage of the public to earn huge commissions, especially when the owner was elderly. Finally, it was argued by the Federal Regulatory authorities as well as others that placing an annuity within a retirement plan or IRA was often a bad idea because the retirement plan already deferred taxes, so a major reason for purchasing an annuity before retirement was not applicable and were sold within retirement accounts only to earn the insurance companies excessive profits and salesmen huge commissions. (Regarding some of these accusations, it is true that that some of the products offered on the market had excessive expenses and commissions.)


Thus, for the federal government to now suggest that annuities are important and to suggest that they should be a required option in a retirement plan is a complete change.


What is interesting is not just that there seems to be a change in attitude, but where this change is taking place.


There is no part of the federal government that concerns itself directly with the retirement income of individuals. Even with Social Security, the administration only follows the law. It is the Congress that has had some concern over the years, putting in place various tax-advantaged options as incentive to retirement savings.


You might say that the Treasury has some connection with pensions because its responsibility for pensions paid to retired government employees. Actually, there is no comparison. The only similarity to a federal government pension and that paid by any other organization, including, I believe, state and local governments, is that the recipients are retired. The federal pension is financed in the same manner as Social Security, that is, it is paid from current revenue. In addition, federal pensions are indexed to inflation. Pensions paid by others are funded at retirement and placed in annuities, which is a lifetime stream of income at a fixed rate of interest. The Treasury doesn’t have to concern itself with the funding, just the cash flow.


Three government agencies have interests in tax-deferred retirement plans: the Labor Dept., the IRS, and the SEC/FIMRA (was NASD). The interest of the Labor Dept. is to ensure that lower level employees are treated the same as the managers (e.g., upper management is penalized if the lower level employees don’t contribute sufficiently to defined contribution plans). The IRS is responsible to make sure that regulations are complied with to maintain the tax-deferred status of the plan. The SEC and its little “independent” regulators oversee the compliance with security regulations if securities are offered within the plan. The system has no governmental body that is concerned with the success of a plan or the decisions of the employee during their work years or retirement.


Now the Treasury is leading such an effort. Not the Labor Dept., although it seems to be tagging along with the Treasury. But why is the Treasury involved at all?


There can be only one connection. One of the primary investments for fixed annuities for the insurance company is “safe” government bonds. Insurance companies don’t use only government bonds, but it is certainly a major component. If a significant number of people began buying fixed annuities, the market for government bonds would expand.


If you look at the questions for which the Treasury wants answers you will see a concern about the costs of annuities. My expectation is that they will find that using private insurance company fixed annuities would be too expensive. This conclusion fits with the anti-business philosophy you find in many different parts of the economy, the financial sector, and the current administration. They want to cut out the middlemen, including the salesman and the profit seeking business. As with the justification for removing funding of college tuition, they would see supplying government created annuities as a cost savings to the retiree. They would also be able to fund the annuity entirely with government bonds.


So, as a result of their “studies and analysis” they would ask the Congress to allow the creation of government annuities and require all employers above a certain size who have 401(k) retirement plans to offer the annuities for “investment” or for an income stream at retirement. Then, brick wall. You see, offering them and not selling them will not have the results the Treasury is expecting. Few people will buy annuities, even with the government backing. Certainly any advisor, money oriented writer, or publication will point out the complete lack of benefits for the buyer.


No. If the Treasury wants to see bonds sold to retirees in the form of annuities, they will have to require the bonds to be “bought”. It isn’t going to happen any other way.


That is why I say that the Treasury is going to grab retirement accounts. That is why I am concerned. That is why I wrote the post I did.


This process may take a couple years. It might not come to pass. There are certainly many obstacles that stand in the way.


But if they could sell ObamaCare, they can sell this. If they can legally require people to buy health insurance, requiring them to buy annuities to keep them from needing welfare in later years will not be a big jump. All the government wants to do is to “assure” retirees that they will have an income for the rest of their lives. It is the same type of justification that Obama has used for other intrusions into our lives. It is in line with the justification for Social Security. If it can be done, I am sure that Obama and his Gang can figure out all the buttons to push to get what they want.

Treasury Grab of Retirement Assets, Personal Consequences

I have been thinking more about the consequences of the Treasury’s grab of retirement assets. It is what the Treasury is calling the issue of providing a “Lifetime Income Option in Retirement Plans”.



The idea is that they will take control of assets in defined contribution retirement plans, probably only 401(k) plans because those show the largest accumulations. The owners of the retirement accounts would then receive a government issued annuity backed by Treasury Bonds, i.e., the interest paid on Treasury Bonds will be used to fund the annuities and provide for the periodic payment to the retiree when he retires. There are a lot of details that are uncertain. For example, I have seen the suggestion that accounts under $250,000 are too small and won’t be touched.


Right off, there are several problems, not only for the retiree but all of us. In this post I am not considering the unparalleled damage done to the economy by removing such a huge pool of savings from private hands. Nor am I including the additional amazing damage to the rights and concept of property that seizing retirement accounts would entail. (a good blog on these points, see Bokor) My focus for this article is on the financial consequences that are more immediate.


It is somewhat difficult to predict exactly what is going to happen because none of the details are available, and may not be until the Treasury begins moving retirement accounts into the annuities. The following is clear. At some point the government will begin seizing accounts. It may seize only the accounts of retirees and those it deems close to retirement. It is unknown if they’ll seize more. But it will at least seize those and issue annuities for at least those who are retired. This may not be for just the newly retired, but anyone who is retired and has an account large enough to be attractive to seize. Since the reason for seizing retirement accounts is to use the money for government purposes, it will convert the assets to cash to buy government bonds, probably a newly created special class. The government will sell the securities in the seized retirement accounts.


This point is absolutely necessary to understand: The government will be selling the seized securities.


Since it will be selling at least the securities of the retired and the soon to be retired, we can count on those securities entering the market. What will happen when these securities hit the market? Who will buy them? Where is the money going to come from to soak up all of the securities being offered? Remember, the government is beginning to soak up funds for the massive amount of new Bonds due to BO’s deficits. The Fed may try to pump in the money, but it will take maybe up to a trillion dollars to cover the securities being offered by the Treasury, if they only offer amount for retirees and the soon to be retired. Even the Fed would be wary to begin pumping that much money. The Fed is currently trying to find a way to remove nearly $1T from the economy without letting interest rates rise.


Further, as people realize what is going to happen, there will already be selling. The market will have dropped significantly already by the time the Treasury begins selling the newly seized retirement accounts.


What is going to happen is that the markets for stocks and possibly bonds will both tank (and interest rates will skyrocket). With the amount of selling pressure that the Treasury will exert upon the markets, the stock market will see drops beyond anything in its history.


Generally, I am not an alarmist. I am not one of those who have expected the stock market to dive at various points in over the last forty years. I didn’t take Harry Browne or Peter Schiff particularly seriously. So my thoughts here are not the conclusions that I reach in most circumstances. I am saying that I am very concerned about the consequences of this particular potential action by the government.


The drop in the stock market in the recent panic occurred because it was a panic. The media began pushing the idea that our economy was failing months before real signs could be seen. The government didn’t really react one way or another at that time (I mean in terms of immediate actions that pushed the market lower.). Much of the dive was panic and fear, and not due to immediate economic factors.


The stock market dive in 1929 had much to do with the attempts of the Fed to stop price inflation by sharply reigning in the money supply (see Economics and the Public Welfare by Benjamin Anderson). Then the panic was due to government caused economic factors.


The panic and dive of the stock market as a result of the seizing of retirement accounts will be due to massive selling pressure from the government trying to raise money by selling stolen securities. It will be very obvious. Even if they try to do it in a phased manner, e.g., over the course of a year, it will be steady and relentless. And since everyone will know what is going on, there will be few buyers.


Let me compare the potential situation with another scenario. There are some commentators who suggest that as the baby-boomers retire, they will be selling off their retirement assets causing the market to decline. It might be suggested that there is little difference between the government doing it and the actions of the retirees. I suppose that there are some retirees who will sell all of the stocks on retirement day and buy bonds to have an income in retirement. It would be a bad idea, but there are many bad ideas floating around out there being used to “guide” people in their personal financial decisions. The difference here is that the government is going to seize all of the assets of this group and sell them off comprehensively. For the two to be similar, all of the baby-boomers retiring that year would have to sell all of their stocks without regard to current market conditions. I am expecting the Treasury to ignore current market conditions because they have the requirement to come up with the money. There certainly will be some heat, at some time, but will it be soon enough, loud enough, and principled enough to stop it? The Treasury won’t stop before the markets come down. They may later, but there will already have been much damage.


One factor in the Treasury’s “thinking” that should not be forgotten is that their justification for seizing retirement assets and issuing annuities is for the benefit of the retiree. The Treasury is doing a good thing for those poor, innocent, clueless old people. The rationalization will see the Treasury through any disaster that occurs. It won’t be their fault, but the market, capitalism.


You might think that the extreme drop in the equity markets would be a good buying opportunity. It isn’t. This sell off is planned to be a continuous thing, because the Treasury is aiming at all of the retirement assets of everyone (at least over a certain size of account). It will need the following years of stolen securities even more because the people at the Treasury will not be expecting the drop in market value that will occur. As every politician in history has planned on things not changing when they enact their plan to extract money from the economy, the Treasury and its supporter will not expect the market drop, so their plans on what to do with the money will be thwarted and they will need more. Lots more. If there is any economy left after all that BO has planned for us, the markets will only begin to recover when the retirement plan windfall dries up and the government has no more to sell. That is, the market will recover if the government hasn’t taken all other assets as well.


The bond market may react a little differently. Many of these retirement accounts have significant government bonds, which the Treasury might just hold as is. Depending upon when this occurs, since BO’s deficits already requires expanded bond sales, interest rates may already be higher and the Treasury may not want to put more bonds on the market. Some of the money that came out of the stock market before the Treasury begins selling the stolen securities may have gone into the bond market, especially if the interest rate had begun to rise. There are too many variables, including the foreign Treasury Bond investors. How the foreigners will react, and how the dollar will be affected will take much consideration. Certainly a sell off of our stock market will not be considered a good thing for the dollar. It should drop.


For the retirees and the others that had their assets seized by the government the situation will be dire. They may have said to themselves that at least they would get an annuity equal to their retirement account. But instead, they will get what the government received for their assets as the market fell. Don’t expect the government to keep tabs on whose account held what. Expect that the original owners of the retirement accounts will be treated very badly. Explicitly, the original owners of the seized retirement accounts could receive $0.50 on the dollar, $0.35 on the dollar, $0.10 on the dollar. Who knows? We can count on these victims to end up with a government annuity worth much less than their original retirement account, that it will not payout a significant percentage, and since the government may go broke, that it may not last as long as needed (if our failing health care system doesn’t do them in first). If what the government provides is a standard annuity, the income will be fixed, and all of the retirees will be left defenseless to the continuing price inflation. Given the potentials for rising price inflation in the next several years, the retirees could experience severe hardship.


What should you do? Right off, regardless of your age, when you see that the government is going to be able to get its hands on retirement assets, stop contributing to your retirement plan. Stop! Get your friends and relatives and colleges and everyone to stop contributing. Save your money from being taken. Next, to the extent you can, withdraw your assets from all retirement accounts. Yes, there is a tax penalty. For anyone over the age of 59½ it will be a straight shot of income tax. For those younger, it will include a 10% penalty for early withdrawal. You have to do the math, but to leave the money in the retirement accounts is to subject yourself to the risk of the government seizing it.


Don’t put any money into the markets. Keep cash. Sell what securities you own in any taxable accounts that you can. I expect many more will be doing the same, so try to be the first. The market is going to go down and down, even before the Treasury starts liquidating the retirement accounts it has seized. Some cash from those sales is better than less. Liquidate. You might try foreign investments. You might try commodities. You might try monetary metals. You might try foreign cash. As people flee the Treasury’s asset grab and the equity market, the government may attempt to put in place controls to achieve its purpose of seizing assets. If so, many of these avenues may be closed off. Again, keep up to date on news and make cautious decisions.


What we can do now is to express our opposition to the Treasury’s plan. We also have to keep a careful watch on the progress of their plan and, if it gets approved, its implementation.

My Return; Four Comments

Storms, cat sitting (my good friend, George), being sick – for way too long, and stuff have put me way behind. I haven’t touched this for weeks. I hope to get back to my efforts.



For today, let me hit a news story or two, err…four.


HEALTH CARE

Recent announcements from people who keep track of it put government spending on health care at almost 50% of the total this year and more than 50% next year. After that, especially with Medicare and then whatever BO gets into the system, government spending will soar!


What does this mean? You know already. More of the same annual inflation of the cost of health care, plus probable rationing, attempts at price controls (MA is approaching that now), and a lowering of the quality and quantity of health care in America. Because of the recession, the loss of our high health care standards will happen earlier than we might have expected. It is all interrelated, the economy and our quality of life.



RECESSION

Speaking of the economy, the recession is lingering. Yes, some have proclaimed the recession over. Maybe in some respects it is, but even then, it is a very marginal thing. I see no immediate reason to declare that our standard of living is recovering. In fact, it is just the opposite.


Now there are stories in the press that the economy will suffer a decline again very soon. You might say that it is good that the press is recognizing the failure of the approach accepted by both Dems and Republicans alike (does “Repub” sound like a nice fit with “Dems”?). You would be wrong. These “economists” who are forecasting renewed recession are doing so because the government hasn’t interfered sufficiently or in quite the right way for their taste. They want more government activity, in areas they think are important. How bizarre. The disconnect with reality is so severe for today’s “economists” that no level of failure will cause them to reevaluate their position.


As the decline in January of the housing market indicated, the stimulus programs that BO put in place are failing to get the economy going. In stead, the economy is still pretty much not going anywhere. Job losses have flattened, bank lending is still falling, and businesses are trying to do the best they can.



PRICE INFLATION

If BO does get some more of his programs in place I think that we will begin to see some more significant price inflation. He will be pumping massive amounts of money, new, made-up money (by way of selling bonds overseas or through the Fed), directly into the economy (as opposed to the method used when new money is created by the Fed via bank credit expansion), which will chase after the stuff already available, and prices will rise. We won’t be seeing the asset or commodity bubbles because bank lending is still declining. Price rises will confound everyone, including the Fed, and we may revisit price controls. We certainly will not see spending reductions from the Federal government for the next three years, even if the Dems lose a lot of seats in the coming election.



GLOBAL WARMING

I don’t write much about this because it is well covered by others and I don’t have anything new to contribute. I did see this on facebook, so I thought that I might mention it.


This was referenced by some conservatives as a good reply to the global warming croud. I’m not sure why. It may be a put up job. It certainly is a denunciation if you regard religion as wrong, but it is offered by the conservatives (?). It does take the science out of the global warming movement, which is a good thing. It doesn’t give any importance to the political aspect of the global warming people, which is their main objective.



GRAB FOR RETIREMENT ACCOUNTS

This subject should make you very concerned, if you have any significant amount of money in what are called qualified retirement accounts, i.e., IRAs (Roth or traditional), 401(k)s, Simple Plans, Money Purchase Plans, etc. The government, under the assertion that most investors are mismanaging their retirement assets, are suggesting that the funds be turned into annuities. Annuities give you a stream of income that lasts as long as you are alive.


The intention of the government is to move that money into government securities, i.e., bonds. Thus, it won’t matter what China or other overseas bond buyers do in the future, the government will have trillions of dollars to use from the retirement accounts.


There are many downsides to this plan for you, financially speaking. The biggest is that an annuity offers absolutely no protection form inflation. You are on a fixed income. But that, of course is a secondary point. Most important is their plan to forcibly separate you from your assets. Watch this carefully. If they get close to bringing their plan to fruition, you will want to pay the taxes and move whatever money you can to a non-qualified account. In the meantime, you will need to talk to your representation to stop it.


Like the attempt to subvert your health care, this attack on your retirement assets has personal repercussions on you. If you talk to make comments to the Treasury, I think that it is important to point out the principled and practical consequences on you, both moral and financial. You don’t want to lose this battle because the authorities did not realize that you feared for your financial health as well as your freedom. If they don’t care about your freedom, they still might be concerned about the other. We don’t know. Don’t leave out either issue.

Their Plans for You

Courtesy of Lisa Doby, on Facebook, where she referred to this article. 

The government has plans for you, your money, your retirement plan.  You know that Obama and his gang are looking out for you, don't you?  So everything will be okay, right? 

Seriously, keep your eyes open, and be prepared to act.

http://market-ticker.org/archives/1830-401kIRA-Screw-Job-Coming.html