7 votes

Your 401(k) may be gone before you get to cash in

Millions of people depend on 401(k)s and Social Security almost exclusively for their retirement. Unfortunately, I think most of these people are in for a sad surprise when they go to cash in.

The 401(k) is vulnerable to the exact same Malthusian crisis that dooms Social Security and so many pension plans: too many retirees, not enough workers.

The fraction of income the 120 or so million US workers can afford to save for retirement is fixed. First, people have to pay their bills, buy food and pay for their cars, and then they can start thinking about saving for retirement. This pot of money can only get so big.

Necessarily, the 80 million future baby-boom retirees will have to sell their 401(k)s since Social Security isn't enough. The 120 million buyers (workers) will determine the price, and if everyone is selling at the same time, prices will be LOW. Unless the retirees can find buyers to pay similar prices for what they paid, their money is gone. Poof.

A safe strategy is to own something people truly need. Investing in housing, food or transportation guarantees some kind of value. People will always need to live somewhere, eat something and get around, but they don’t need Netflix stock, especially if Netflix ceases to exist.

If retirees own farm land or a commercial building, or even 600,000 gallons of bearing grease, they are no longer gunning for the same small slice of money that workers devote to retirement. They gain access to the entire remaining fraction of spending that workers need for essentials, like housing, food, or in some cases, bearing grease.



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You can have a 401k without Netflix stock...

I have a retirement account, but you won't find Netflix stock in it. I buy stocks in companies that produce things of real value. It is a lot easier to buy and sell shares of companies that produce bearing grease than barrels of bearing grease itself.

We all want progress, but if you're on the wrong road, progress means doing an about-turn and walking back to the right road; in that case, the man who turns back soonest is the most progressive.

-C. S. Lewis

Thats a better strategy than none,

but my point is that individual retirement savings spending can only get so large, and we're looking at a big demographic shift that will seriously depress stock prices.

With 80 million baby boomers retiring over the next 15 years, who is going to buy all that stock at current or greater prices?

Currently, we have 120 million workers saving a couple percent in 401(k)s, which might be enough to provide for 5-10 million people annually. That's not enough money going into stocks to let everyone cash out at present value. Every sell order needs to be matched up with a buyer, and if theres only $1 billion answering every $8 billion in sell orders, prices will have to drop by a factor of 8. It is the exact same imbalance that's affecting Social Security, the worker-to-retiree ratio.

Since the whole system depends on a few percent of savings, it is good to own something that is paid for with that other 95% of income.

I agree, ExxonMobil stock is easier to buy and sell, but getting what you paid for it might be a different proposition when you are competing with 80 million baby boomers for buy orders.

Author of Shades of Thomas Paine, a common sense blog with a Libertarian slant.

http://shadesofthomaspaine.blogexec.com

Also author of Stick it to the Man!

http://www.amazon.com/Stick-Man-Richard-Moyer/dp/1484036417

I've stopped contributing to

I've stopped contributing to a retirement fund, which I think will be confiscated eventually. I'll be slowly converting my cash to gold and silver. It's clear which direction our country is going... Looters come first.

Confiscated or devalued...

I don't have much faith in retirement plans either, since they are all ultimately Ponzi schemes of one stripe or another. I'd rather have some tangible property where I don't get an email at 3:00am telling me all my money is gone. Madoff, MF Global, etc.

I say that, but given that the oldest baby boomers are now 66, it might be worthwhile to get back in the stock market in about 5 years when it's half its current valuation from all the 401(k) selloffs.

Author of Shades of Thomas Paine, a common sense blog with a Libertarian slant.

http://shadesofthomaspaine.blogexec.com

Also author of Stick it to the Man!

http://www.amazon.com/Stick-Man-Richard-Moyer/dp/1484036417