The beleaguered 401(k) has been under unrelenting pressure from every direction. Eliminating its tax subsidies was a much discussed idea during the march toward the fiscal cliff, then again as a way to avoid the sequester cuts.
Recently, a prominent liberal blogger stirred controversy in a USA Today op-ed titled “401Ks are a disaster,” calling for a massive boost in Social Security benefits funded by taxes on the rich and a lifting of the salary cap in Social Security taxes.
Not to be outdone, a conservative author is heating up the blogosphere with a full frontal assault on the 401(k), advocating that Americans not contribute to their retirement plans for fear the government will eventually be forced to confiscate their assets when the day comes that the liberal blogger’s Social Security scheme is realized.
Last month, the economist Duncan Black, who writes one of the most popular liberal blogs, Eschaton (an expression connoting the divinely ordained climax of history), under the pseudonym Atrios, took to the pages of USA Today, calling on the government to increase Social Security benefits by 20 percent.
“The 401(k) experiment has been a disaster, a disaster which threatens to doom millions to economic misery during the later years of their lives,” Black wrote, arguing that current and near retirees lack sufficient funds to maintain their standards of living, while younger workers will be too economically squeezed by college debt and difficulty finding good jobs to save for their futures. Black wrote the benefits hike should occur immediately, “even if that means raising taxes on high incomes or removing the salary cap in Social Security taxes.”
Meanwhile, Aaron Clarey (right), whose Captain Capitalism blog includes what he calls the “rantings and tirades of a frustrated economist,” added to the eschatological debate with a book published in January called Enjoy the Decline, in which Carey audaciously advocates behaviors like shopping for another country and not funding a 401(k). The advice is especially ironic because, according to his website, Carey teaches investment classes including one called “Figuring Out Your 401(k),” which he, no doubt accurately, describes as a “class that goes above and beyond what your HR department will” recommend.
In his book, Clarey describes recent precedents for countries absconding with their citizens’ private retirement wealth, citing Argentina’s seizure of private pensions in 2008, and similar moves by Bolivia and Hungary in 2010 and Bulgaria in 2011. AdvisorOne caught up with the controversial blogger, who teaches investment classes to students worldwide through the online learning portal Ed2Go, when he’s not teaching ballroom dancing to students of his Midwestern dance studio. Efforts by AdvisorOne to reach Black were unsuccessful.
You say the government might one day confiscate Americans’ retirement savings. What about the Fifth Amendment, which states “…nor shall private property be taken for public use without just compensation?”
Honestly and truthfully I believe the government would confiscate Americans’ retirement savings. As for the statistical chances of it, I would say only 40 percent right now as it would be incredibly unpopular, making it a theoretical “4th rail of politics.” But as our finances get progressively worse, politicians will be forced to find some source of wealth to … pay for all the various social programs. Their only other option is to hyperinflate their way out of it.
As for the Fifth Amendment, it would be rendered moot, as the reason or rationale that will be provided is — in return for people’s private pensions/401(k) plans/IRAs, etc., a government pension will be provided instead. This, no doubt, will be used to rationalize away any Fifth Amendment concerns, and barring some moral and courageous judges striking it down, I see all three branches of government invariably agreeing on this excuse.
What would the confiscation look like, were it to actually occur?
It would be very easy, almost unnoticeable, in that the vast majority of savings and retirement funds are electronically stored. It would simply be a matter of the government (via the SIPC or FDIC) merely confiscating those funds and transferring them to the U.S. Treasury. You can also look at how countries like Argentina, Bolivia, Bulgaria and Poland did it to get a perspective on how countries have done it in the past.
Is Social Security fixable?
Mathematically, yes. Increase the retirement age to the average life expectancy — as it was originally set up — and index it to any future increases in life expectancy; the thing would be solvent overnight. You could also dare ask AARP members to consider future generations and maybe take a 10 percent cut from their Social Security checks. Santa Claus could also play an important role by leaving platinum bars for every child every year at Christmas. And a bottle I found the other day might have a genie in it — one of the three wishes I’d use to solve the Social Security problem.
So technically, no, it can’t be fixed.
You teach classes on investing, including one called “Figuring Out Your 401(k).” Do you really advocate not saving for retirement?
I advocate saving for retirement…just not in the traditional manner we’ve been trained to. Since your 401(k)s and IRAs can be confiscated or, at minimum, have their tax benefits rescinded, I believe there is too much risk in pursuing those forms of retirement. Therefore you have to find other methods to retire. These methods I outline in my book, Enjoy the Decline, but they include things like physical ownership of precious metals, guns, bullets, and other items that store their value well. I also advocate learning trades and skills that are in high demand and you can mete out into your old age (carpentry, moonshining, electrician, mechanic, etc.) Unfortunately, however, none of them are conducive to the “pie-in-the-sky, we-all-retire-at-65″ indoctrination Americans were fed. They’re realistic and assume you live frugally, work well past 65, but work less overall in that you’re paying less in taxes and enjoying life more.
Being willing to move overseas is another means by which you can retire…If it gets to the point the U.S. government is nationalizing our accounts, you might as well be getting out.
Is the profession of financial advice among the most valuable services today, or is it a hopeless, Sisyphean task given all the market manipulation you see taking place?
It’s becoming progressively more hopeless not so much in terms of market manipulation, but the…clients. When you tell people the realities of the economy and our financial future, they get mad and don’t want to hire you anymore. I have no limit of aged baby boomers who at 58 finally pay off the house, finally pay off their fifth child’s “doctorate in poetry” and then decide now they want to start planning for retirement. And they want to retire by 62. I tell them point blank it’s impossible, mathematically show it to them, explain how they’ll have to work until they’re 70, and they get mad, preferring to shoot the messenger.
However, this opens up a whole new market of financial planning, the one where people are willing to listen. It’s barely populated because most financial advisors don’t want to sound like a “conspiracy nut” telling people to prepare for the apocalypse. But if you’re willing to be direct and forthright, you can find, address and serve people’s financial needs.