Over the years many discussions have taken place regarding the relative wisdom of dancers in their 20's 'committing' money to 'gov't sanctioned' retirement plans. The upside argument is always that these 'gov't sanctioned' plans allow for the legal avoidance of income taxes in current years. The downside argument is always that such 'gov't sanctioned' plans also allow the gov't to maintain 'strings attached' to your retirement money, that the gov't can change the rules at any time etc. thus contributing to 'gov't sanctioned' retirement plans does involve risk.
At any rate, with the increasing difficulty the US Treasury is now experiencing in regard to its ability to continue selling newly printed treasury bonds at near zero interest rates ( i.e. historical foreign buyers like China and Japan have stopped buying ), a 'new' proposal is now being seriously discussed in Washington in regard to IRA's / 401k's etc.
(snip)"Lawmakers have proposed changes, and the Obama administration will seek ways to promote conversion of 401(k) accounts after their average value fell in the past three years alongside a 46 percent drop in the Standard & Poor’s 500 Index.
The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are leading the effort.
Tax Benefits
The institute’s member companies manage $11.6 trillion of assets in mutual funds, including employer-sponsored 401(k) accounts. Some lawmakers have questioned the public-policy value of the tax benefits for people investing in retirement accounts, the ICI said in a report today.
U.S. direct-contribution plans, which include 401(k) and other employer-sponsored retirement programs, held about $3.6 trillion as of mid-2009, according to the report. They account for 25 percent of total U.S. retirement assets. Annuities, with $1.4 trillion, represent about 10 percent of U.S. retirement funds.
Annuities are “very expensive” and there’s “no ability to tap them if you have an emergency,” John J. Brennan, former chairman of the Vanguard Group, the biggest manager of stock and bond funds, said on Bloomberg Television today.
No Missed Payments
The guaranteed stream of retirement income from annuities is attractive amid fluctuating 401(k) values, said Cathy Weatherford, chief executive officer of the Insured Retirement Institute, a Washington-based trade group.
“The financial crisis has left millions of people desperately wanting answers on how to protect themselves and some hope of a secure retirement,” Weatherford said. “Throughout the crisis, not one annuity provider ever missed a payment.” (snip)
According to both Bloomberg pundits and some professional investors, the bottom line on this new proposal is as follows. On the premise of needing to 'guarantee' an adequate income stream for financing of retirement, holders of IRA's / 401k's etc. would be required to shift some amount of their total 'gov't sanctioned' retirement fund assets into financial instruments that are 'guaranteed' to be able to provide X percent of interest income ( and consequently out of other financial instruments which are potentially subject to market losses ). Where the gov't is concerned, there is only one financial instrument that meets this criteria ... US Treasury bonds !!!
From the gov'ts standpoint, forcing such a shift in IRA / 401k asset allocation would guarantee the gov'ts ability to continue printing and selling new US Treasury bonds at near zero interest rates because it could essentially force contributors to IRAs / 401k's to become a 'captive market' of buyers. Historically speaking, this has already been done in other countries like Argentina ( who also faced a scarcity of foreign bond buyer interest as their currency / economy began going to hell circa 2001 )
From the IRA / 401k account holders standpoint, forcing such a shift would
A. restrict the ability of account holders to allocate retirement assets to non-US dollar denominated investments ( thus restricting ability to 'hedge' against future loss of US dollar purchasing power )
B. restrict the ability to 'cash in' IRA / 401k assets before legal retirement age, penalties or no penalties ( since new rules would probably require that US Treasury bond durations more closely match the account holder's actual retirement age )
C. restrict the number of stock shares and corporate bonds that will need to be 'sold off' as baby boomers start reaching retirement age and start 'cashing in' their IRA / 401k accounts ( thus minimizing future US stock market downside risk ).



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