Monday, August 23, 2010

Obama Wants Your IRA - What's Left Of It

I have two articles of interest to share with you - especially if you have some sort of nest egg.
First off - Congress and Obama want your 401 (k)s and IRAs
It's in the works kids.... you've been saving and investing for years and now they are moving in on taking it.
Congress and Obama are ogling the trillions of dollars sitting in Americans' 401(k) s and IRAs and have begun a scheme to tap into more of our money. Their passion is to use our money today with a promise to repay it when we need it down the road. We would do well to remember this is exactly what happened to the Social Security Trust Fund. The original intent was to require people to pay into the plan with all money going into an interest bearing trust account, and when we reached retirement age, we would receive a monthly stipend for life. They sold it to Americans as an insurance policy. ...

Lawmakers have proposed changes - and the Obama administration will seek to force the conversion of 401(k) accounts and IRAs into annuities or other fixed income streams, and eliminate tax credits for future contributions. Annuities, of course, typically offer lower interest rates but promise a guaranteed income. Politicians will use this “guarantee” as a way to filter our money into the government coffers. Logically, the next step will be a requirement to invest in Treasury Bonds (loaning politicians the money in our accounts) with the usual promise of reimbursement when they feel it necessary. Following the examples set by their morally bankrupt predecessors they will impose new rules establishing “means” testing, changing the age of eligibility, and increased taxes and penalties. ...

Another scheme they will use is arguing that taxes on most of these accounts are unpaid, and they simply want their money early. With a simple stroke of the pen, they change the rules to allow early collection of taxes. Thus, they take control of the money people have worked and saved for to ease and supplement their retirement years.

Politicians also have their eyes on your stocks. Liberals are demanding a capital gains tax "adjustment" and some are floating a trial balloon that would "allow" people to have Congress take over their stocks with a guarantee of no loss in value with that tired old promise of a steady income, etc., etc.

There is one undeniable fact that everyone must face; the spending by this administration and Congress will result in massive tax increases and outright confiscation of wealth from people who played by the rules, worked hard, and saved. Furthermore, there is no limit to how creative politicians are at separating people from their money. Obama and Congress will try to obfuscate the facts and put off the inevitable until they are out of office. The delineation between rich and middle class will soon be indistinguishable. Consequently, there will be two classes; the élite ruling class and the huddled masses.

Government policies have already led to the virtual elimination of pensions and benefits from the private sector. Above all, we must remember their goal is to control all wealth and income to redistribute it as they see fit. This is what authoritarian regimes do to liberty; eliminate it, one step at a time.
If the government cannot get foreigners to continue to buy our debt - then they are going to get you and I to buy this debt by requiring it be part of our IRA and 401-K portfolios.

However - with the economy continuing down its downward path and employment staying at high levels... people may not have much left in their IRAs and 401-Ks anyway...

Zerohedge had this article - Record Number Of Americans Using Retirement Funds As Source Of Immediate Cash - The statistics are shocking.
If our readers have been wondering where, in addition to the decision to never make mortgage payments again, do Americans get the money to buy a 2nd iPad (for that real 3D-effect of iTunes porn), preorder the iPhone 12.499, and bid up Amazon stock at 999x P/E, here is your answer: according to a new study by Fidelity, a record number of workers tapped their retirement funds and made hardship withdrawals from their accounts in the second quarter. In other words, just like the country they live in, Americans no longer give a rat's ass about the retirement years in a narrow sense, and the future in a broader one, and since real unemployment is about 20%, wage deflation is everywhere, even as Solitaire time is down to 0 (except for SEC employees), and nobody has any money left, the only logical recourse is to borrow from the self-funded pension fund.

According to the Fidelity study, "Among the 11 million workers whose 401(k) plans are run by Fidelity, 11 percent took out a loan from their plan during the 12 months ended June 30, the company said, up from 9 percent at the same point a year earlier. By the end of the second quarter, plan participants with loans outstanding against their 401(k) accounts had reached 22 percent versus 20 percent a year earlier." And if anyone is so deluded to think that these not so gracious retirees have any intention of ever paying these "loans" back, we have some AJ-rated CMBS to sell you at par prime. Which also means that suddenly Fidelity may find itself with worthless liens instead of cash, and should the market plunge again and the fund giant find itself in a need to satisfy billions in collateral calls, it is game over. But why worry: after all, it is not like investors have been steadily pulling cash out of stocks over the past 15 weeks.

More from Reuters:

During the quarter, 2.2 pct of Fidelity's active 401(k) participants took a hardship withdrawal, up from 2 percent a year earlier, and another peak, Fidelity said.

Often those withdrawals were used to prevent foreclosure on a home or pay college tuition.

"People have been looking to their 401(k) plans as a source of relief to help them meet financial hardships," said Beth McHugh, a Fidelity vice president who oversees the area. "For many individuals that is their primary savings vehicle."

Loans and withdrawals were highest among workers between 35 to 55 years old, Fidelity found, peak earnings years.

Fidelity, the Boston mutual fund giant, is also the country's largest administrator of retirement savings plans like 401(k)s, making its quarterly survey a closely watched barometer of saver behavior.

As more companies end traditional "defined benefit" plans like pensions, workers are relying more on "defined contribution" plans like 401(k)s to carry them through retirement.

To encourage savings, tax codes and other rules discourage early withdrawals. Distributions from 401(k) plans are taxed as ordinary income, and withdrawals by individuals younger than aged 59 1/2 may be subject to an early withdrawal penalty.

Balances in 401(k) plans, which tend to be held in mutual funds dominated by U.S. equities, slipped in the second quarter as major stock indexes tumbled more than 10 percent.

The average 401(k) balance as of June 30 was $61,800, up 15 percent from a year ago but down 7.6 percent from $66,900 as of March 31.

Fidelity found signs of continued thrift in the workforce. The average percentage of salary saved in a 401(k) held steady at 8 percent, similar to the rate in the first quarter, while 32 percent saved 10 percent or more of their pay.

And since the administration will most certainly do the expected and react wrongly to this development once again, we expect to see even greater penalties to pension fund redemptions, which will do nothing to decelerate this troubling trend (and quite likely do the opposite), but merely take even more money out of circulation, as the government's bloated machine keeps ever more capital to fund such massively value added activities as the SEC daily porn surfing habits.

Either way, savings for retirement is being destroyed.

That is really not cool... not cool at all.
In fact, it's a recipe for a baby boomer retirement disaster.
Let's hope their kids will let them come live with them, or that they get used to eating cat food.