Is Contributing to a Retirement Account Worth It?
A growing number of voices are warning investors that continuing to fund your 401k, IRA or other "tax-advantaged" retirement account could be a bad idea.
The general thesis is that the government will find a way to dip into that savings, whether through more taxation or outright confiscation.
This concern falls under the "they'll just change the rules" prediction. Yes, these plans currently offer varying degrees of tax deferment. But what's to prevent the government from worsening or eliminating these benefits in the name of national interests if we get into another 2008 (or worse) type crisis? Or perhaps they'll do this obliquely, like summarily putting your money into special US Treasury bonds to "ensure" you get a guaranteed return (while spending your capital and delivering a real return much lower than its nominal value).
At a recent conference, Jim Rogers and Congressman Ron Paul had this to say:
Rogers: They will take our retirement accounts. They will take our 401k’s. They will say, ‘you’ve all been having such a hard time earning money in your 401k’s, so what we’re going to do is we’re going to save you.’
Paul: I don’t doubt it for a minute. They’ll do what they think is necessary. and they’ll use force, and they’ll use intimidation, and they’ll use guns. Because, you can’t challenge the state and you can’t challenge the State’s so-called right to control the money… I think that’s very possible at that time when things get a lot rockier than they are now.
Yes, this all sounds very extreme. But how much can/should we discount this potential?
Personally, I stopped contributing to these types of government-sanctioned accounts three years ago for these very reasons. Largely because I've heard other investment advisers whom I respect voice the same concerns (though sometimes only privately).
At this point, since there is a lot of anxiety but little visibility that such drastic steps could be taken, I don't actively advise people to stop contributing. But I do think that prudent investors should research the matter, calculate their own assessment of the probability, and invest accordingly.
So I ask those reading this: What's your assessment of the risks, and what steps (if any) are you taking?
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In theory, 401(k) loans, or borrowing some of one’s 401(k) resources, make sense. The interest rate is low and the money is borrowed from one's self. However, the number of 401(k) loan defaults is still worryingly high. Get more information here.