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401(k) + Mandatory Withdraw age 70 1/2 + Baby Boomers = BAD

I've commented on this a couple times in recent weeks, when 401(k)'s or stock market problems were brought up. It appeared to be ignored, so I figured I will start a thread to increase the number of eyes seeing this, and spur some potential research.

The baby boomers (born between 1946 and 1964) are beginning to retire.

The oldest of them are now 62 years old.
The youngest are now 44 years old.

In 1974, ERISA (Employee Retirement Income Security Act) was enacted. Then the Revenue Act of 1978 added Section 401(k) to the Code.

In Section 401(a)(9)(C)(i)(I) requires that a person must begin withdrawing from their 401(k) (or other applicable plan...I'm just focusing on 401(k) right now) by April 1st of the calendar year in which the employee attains age 70 1/2, or
(II) the calendar year in which the employee retires.

The rules are strict, and have few exceptions, and have severe tax penalties if not followed correctly.

Now with baby boomers beginning to reach the age of 70 1/2 in the year 2016, we will likely begin to see major problems by that time.

"It is estimated that there will be 2,282,887 people turning seventy years of age in America in 2016. In 2017,the number of people turning seventy years of age jumps to 2,928,818. . . That is a jump of nearly 700,000 more people turning seventy than in the year before and the number increases from there on. In one year there is a jump of nearly 30 percent." - Prophecy by Robert Kiyosaki (page 74)

There will be a massive increase of selling in the stock market over the next decade or so.

The stock market's been having trouble (due to government invention of course) with the baby boomers purchasing stocks and investing in their 401(k)'s and other stock market related investments!!!

Imagine what is going to happen to the stock markets when they are forced to sell their 401(k)'s at age 70 1/2, since they are required to by law!!!

There will be a huge increase of sellers in the stock market! There will be no such increase in buyers at that time. The prices will plummet.

Once people realize what is going on, there will be panic. Everyone, especially the younger baby boomers, will be trying to save what's left of their retirement since they're already at that age and there will not be time to rebuild their retirement savings and investments. They will have to sell as soon as they can to save what little they will have left once they realize the crash can't really be stopped. They will be limited by the fact that they don't have time to start over again.

This will be horrible for the baby boomers, and leave a huge economic/financial mess for the rest of us for many years afterwards.

I have yet to see Ron Paul talk about this issue...maybe he's not aware of it, or maybe because there's so many other huge issues going on right now that it's hard to talk about a specific thing like this coming in the future.

I was hoping to find some videos about this on youtube, but I could not.

I hope this has been informing, and that you will continue research this, and if anyone has any more information, please share it with us here.
And please plan your investments accordingly!

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Non issue

I do not have numbers in front of me but if you look up the total $ amount of all 401k plans and then compare it to the $ amount of volume traded on the major US stock exchanges you will see how this is a non issue.

401k plans are tiny compared to the value of the actual market. I do not believe that it can cause a market crash, maybe some pressure but it would take all the plans to liquidate at the same time in the same way for this to be an issue... we will see, it is coming and will happen i just dont think they are large enough to matter.

Two possible scenerios:

1. The rules could be amended
2. If there is a bull market going on at that time, then many might see the forced selling by others as a buying opportunity for themselves.

I do not think this is a

I do not think this is a worrysome point ..What I would worry about right now is if they lock your funds up until 70..
naughty, naught

A couple arguments...

The other rules for these scam retirement programs is that the government will allow you to withdraw (your own hard-earned money) at the age of 59 1/2 and you can only withdraw a small fraction of your own money out each year.

Usually as investors age they tend to use more conservative investments like money markets or savings bonds, not stocks.

I was tricked into these stupid programs myself but just recently was fortunate enough to withdraw the entire amount with no penalty.

I could go on all day about this

Seriously, let's stop the fear mongering:

-In a 38% decline, Congress postponed minimum distributions. In your doomsday scenario they would probably be emliminated all together
-The % of Americans owning stock is abismal, therefore the wealthiest own the most. These wealthy individuals: 1) often have no need to generate income, 2) hold stocks NOT in IRAs or 401ks because they benefit more by placing their bonds in those accounts.
-See point above, wealthy people have no need to sell; retirees without work income are often adverse to selling, and adjust their standard of living based on the INCOME they have from pensions and investments, rather than touching their principal
-Boomers will work longer, not be subject to the RMDs
-Boomers are drooling over Roth IRA conversions, which, in addition to telling you they feel the need to NOT SELL stocks, tells you they will not face an RMD
-When the stock market just collapsed, and a boomer had a target of 50% in stocks, 50% in bonds; and their stocks now make up 40% of the portfolio, what do you think they did? BOUGHT STOCKS.
-When stocks are beaten down so low that the dividend of GE is 8% (taxed at preferred rates) and a bond yields 5%, what do you think a retiree will likely hold?

Taz41, I think the fear is reasonable

because many Baby Boomers are not active traders in the stock market, but rather passive contributors to 401K's. Their psychology is different from that of the active traders.

IF the Baby Boomers cut back their purchases of stocks through their 401k's, and if they are net sellers of stocks through the slow liquidation of their 401k's, then the overall demand for stocks will be affected. Whether or not this will, by itself, lead to an overall decline in stock prices depends on the insertion of new money into the equation. Yes, I suppose it is possible that the next generations or foreigners would buy up the stocks....after the stocks had declined to a point that made them good buys again.

The passive holders of the 401k's are, to my way of thinking, at risk, but the future active traders can look forward to buying cheap.

Wrong

Baby boomers who are 60-70 generally have less than 50% of their account in stock.

What does that mean?

It means they are withdrawing 5% per year; most of that comes from interest on bonds. Maybe 2% of their portfolio comes from stocks.

You must also understand that there are far more buyers today then sellers and that a stock is an asset that has value. If my neighborhood decided to sell all of our cars, you would say the sky is falling and no one will get anything for their cars. You better put it on the market a day before the next guy.

Your argument does not address the fact the car seller will seek a fair price; may not sell if they do not get it; will sell to their children at a fair price; will sell to other neighborhoods.

Foreigners (the ones with all the dollars) are sick of Treasuries. Guess what they will do with their dollars when stocks are depressed?

Tell me this, what will a retiree do when the stock market is depressed to get his withdrawal money? Sell stocks???? NO!! They will sell BONDS because the stocks are at a discount and the bonds are at a premium, and they are too big a part of the portfolio.

And now, many retirees hold variable annuities with income benefits. Those are invested pretty damn near 60-80% in stocks and not one of them cares if they go up or down because the benefit makes it not matter. They won't ever sell stocks.

The idea is so nieve and shows a complete lack of common sense or understanding of investments, or what a retiree holds as investments. It's not true and will never happen.

Explain

How 30% of the market is in money markets, and by my estimatation about that 40-50% of a retirees portfolio being in bonds, and the remaining 20-30% in stocks is going to cause this alleged catastrophe?

Does anyone knowledge know about the way in which US bonds

impact 401K accounts and/or pensions a) private-corporate pensions b) government pensions, military/congressional ?

How will each of these retirement vehicles be impacted by our debt/bonds issued and sold as we progress from this point forward?

Don't Assume Baby Boomers Will Withdraw From the Market

Just because they must withdraw from the 401k, does not mean they won't turn around and put the money back in the stock market, if they want to.

And, whatever the spend, will benefit those businesses who capture their business.

And, as we die off, our heirs will have to invest or spend.

That said, I prefer Ron Paul's plan to let everyone do what they want, and if we were getting interest, some might prefer that to the stock market as they get older, which would provide real capital for the economy.

Since I'm at the tail end of the baby boom, I'm hoping rest homes will be at bargain prices! ;)

IMissLiberty

What do you think? http://consequeries.com/

Simple, retire broke

but seriously, I invested on an 18-hectare (not acre) parcel overseas. Generates income because its loaded with fruit bearing trees. I have someone managing it for now. It rakes in about $90,000 per year. I can live with that. I love our country, don't get me wrong. But when the people who actually runs her are trying to destroy her just to serve the purpose of a handful of people, trying to help one small state at an unimaginable cost: blood, sweat, tears, and wealth, I will try to change things first by helping Ron Paul get there. If not, and when I get old and there's not much I can do, I will walk away and disappear with this anger still boiling up in me.

"He who exercises government by means of his virtue may be compared to the north polar star, which keeps its place and all the stars turn towards it." Confucius

"He who exercises government by means of his virtue may be compared to the north polar star, which keeps its place and all the stars turn towards it." Confucius

Disagree

If they kept in because they didn't need the income, unless their situation changed and they now need the income it would be reinvested (after taxes, of course.)

Unless your point is that they WILL need the money I don't think it's valid. In that case, we're already seeing the drain on that end as they don't normally magically need it at 70 1/2.

More than likely the drain

More than likely the drain will start earlier than that, just because 70 1/2 isn't a magic number. I would guess that the majority of baby boomers aren't withdrawing yet, so there wouldn't be a big decline in the markets because of them...there's plenty of other things the government has done the led to our current situation in the stock markets, housing markets, and the "possible upcoming" recession that we've been in for a while, and this is all likely setting the stage to amplify the future problems caused by the laws regarding the 401(k).

It only takes a small increase in buyers to raise prices. It only takes a small increase in sellers to lower prices...but when the number of sellers starts increasing for years, while the buyers don't increase, the prices will fall quite a bit.

If you're acknowledging that

If you're acknowledging that then you are refuting your own post and also admitting that the 401(k) is not the problem. If you think RMDs are the problem, I just showed how they aren't since anyone not needing money would reinvest after taxes. If you're saying they are already withdrawing because they need income, then RMDs are not the problem because they are withdrawing anyway.

I don't understand your post. You can make the case for an aging population affecting stock prices, but it has absolutely nothing (or next to nothing) to do with 401(k) accounts or any other retirement accounts. They are merely the vehicles.

Remember Rule #1 in Life

Don't Panic.

At 70 1/2 people are required to withdraw the Minimum Required Distribution (MRD). It is actually a very small percentage of the whole. People who have needed the funds for retirement would have already been taking distributions. So they don't fit in the scenario you present. People who haven't needed the funds can simply reinvest the funds outside the 401K. All this requirement does is make the funds taxable.

We're talking about a lot of

We're talking about a lot of people that have been buying or not selling yet, that will suddenly be selling...even if it's only the MRD, that's still a significant amount of selling compared to what they were doing before, even if some of them have already withdrawn some or all before then.

Ultimately, there will be an increase in selling over the coming years, and we are probably seeing some of it now, from those that are retiring early.

And I'm not trying to get anyone to panic, but to look at the facts of what is about to occur, and to make decisions on those facts, instead of just assuming that they're going to have the funds for retirement when that time comes.

Quote

"We're talking about a lot of people that have not been selling yet."

Yes. They have. They become more conservative every year. At 70, they probably will have 30%-50% in stocks.

Meanwhile, there are now people in their 20s and 30s that are 80-100% in stocks.

So, retiree with 5% withdrawal from a 401k (3% of which is income from their bonds, part is also stock dividends, but let's say they need to sell 2% of their portfolio from stocks).

2% of a fair sized portfolio is being bid on by a multiple of buyers ages 20-50, all over the world, and more are grown every day.

Your comments show a lack of understanding of what is in a retirees 401k, and also a lack of understanding of the mindset of a retiree. It's not all, or even mostly, stocks.

You're Correct

Many/most/all government programs (401K included) were established on the assumption that economic "growth" would continue indefinitly. If the economy is expanding the amount of pull back caused by manditory IRA distributions would be hardly noticable.

The selling has already started. The problem is the economy is not expanding according to plans. It will be worse when the holders of the IRAs die and their children inherit. That is when the big sell off will occur.

that's why republicans want private accounts

I tend to believe that republicans are pushing for "private retirement accounts" in an effort to bail out 401k accounts! i.e. politicians are looking for the next generation of suckers!

I wouldn't worry

There will be WWIII and they draft everybody or they let a virus loose and kill us all so I wouldn't worry.

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