24 Nov

Say bye bye to your 401(k)?

A month ago, I wrote on AOL’s WalletPop about the money grab being done by the government of Argentina. Essentially, the government needed money, saw $30 billion sitting in privately-owned retirement accounts, and decided to take the money away from the rightful owners.

I’m convinced that America will go in this direction soon too. Why shouldn’t our government do the same thing? There’s billions of dollars sitting around… why not take it away from the people and promise them a retirement fully funded by our government? I speculated in my article on Argentina that this would be sold to Americans as a bigger and better Social Security system.

And now would be the time to ram this through Congress. Consumers are in pain over the stock market, and most have seen their account values cut in half (or even worse) with the financial turmoil. That leaves them vulnerable to a move like this, which would be peddled as the answer to all their problems.

But it won’t be the answer. Are you confident in our Social Security system as it is? The system is broken. Elderly people are currently getting much more back out of the system than they put in, and that’s being financed by younger people like me. (And I doubt if I’ll ever get anything back out of Social Security thanks to my proclivity toward hard work and saving money.) When has our government ever run anything efficiently? I have no doubt that an expanded Social Security system would be even more of a failure than the one we currently have.

One of the current ideas sitting in committee in our Congress is that of “Guaranteed Retirement Accounts.” This would be the aforementioned expanded Social Security system. Here’s what’s being proposed:

  • No more tax benefits for putting money in 401(k)s. Consumers would no longer have an incentive to save for their retirement.
  • 5% of your paycheck would be taken away and put into an account theoretically for you. (I say theoretically, because I don’t believe that we will all keep our own money. That’s just not the way of our government.)
  • The 5% taken away from you is in addition to what’s currently being taken for Social Security and Medicare, which is 7.65% funded by the employee, and another 7.65% funded by the employer.
  • Consumers earn inflation plus 3% on their money. So if inflation this year is 2%, the funds will earn a guaranteed 5%.
  • Upon retirement, your money is converted to an annuity, to give you regular payments for the rest of your life.
  • This plan would be expected to pay you 25% of your pre-retirement income after you retire.

Why is this idea being pushed so heavily? Some say that the 401(k) system is broken. They say that 401(k)s should have been only a supplement to the old style of pension plans. But since employers have been doing away with ridiculously expensive pension plans, workers have had only their 401(k)s. It’s suggested that 401(k)s simply aren’t enough to support people in their retirement.

Simple math debunks that idea.  It’s not the failure of the 401(k). It’s the failure of the consumer to save for retirement. They’ve counted on the government footing the bill for them in their golden years, which amounts to my generation paying for them.

And one of the chief arguments against 401(k)s is that they can’t support people in their same standard of living after retirement. HELLO! Neither does this “25% of pre-retirement income” nonsense.

There hasn’t yet been much talk of actually taking away money currently sitting in 401(k)s, but I think that suggestion is not far down the road. Mark my words…

Isn’t it nice to think that our government is going to take care of us all? Personally, I want nothing of the sort. I want to determine my own destiny, financially and otherwise. I love hard work, and I want to be able to reap the benefits of that… not get the same thing as the lazy bum who lives next door to me, who can’t be bothered to hold down a regular job.

3 thoughts on “Say bye bye to your 401(k)?

  1. This is just sad. I wonder if the politicians supporting this crap are truly socialist or if they are just plain dumb to the core. It is all about one thing – POWER. The more they control, the more power they have.

    As you said, basic math debunks their falsehoods. Why do I want to get a 4% or 5% return on my money? Regardless of the current downturn, smart well-planned long-term investments can easily double this.

    Why do the financially responsible once again have to suffer because of the financially incompetent?

    If they must, force people to invest for their retirement, but don’t force the people who are already planning for it suffer with less than desirable returns.

  2. Yes Chad, but you said the magic words “smart well-planned.”

    As it stands, people have to be responsible for themselves and save and plan. If the government promises to take care of them, they have no worries!

    Unfortunately, those of us who normally plan and save will be hurt by this.

  3. What is sad is my husband has made no money on his 401k plan this year. Everything he has put in has been lost because of the investment plan chosen by the 401k company. Sure my husband has the choice of low moderate or high risk but to loose everything put in for a year because of moves made by the politicians is just wrong. My husband invests our money wisley. Looks for the best return on CD’s puts money into an IRA account and puts the max allowed into his 401k and now loosing what we have. If people would go shopping and spend a little money this would not be as bad as it is. (media hype is screwing us all) But to know there is a plan sitting on the table waiting for some Moron in congress to vote on that will hurt the working man more than he has already been hurt is just SAD. Don’t touch my husbands hard earned money… don’t take away our Social Security and for god sakes don’t pass another bill that will be compleatly messed up by the time my husband decides to retire and has nothing to show for it. Keep the money grubbing feinds away.

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