401(k) plans. A part of the Internal Revenue Code of the United States that (basically) allows employees to invest money in qualified (ie safe/diverse/regulated) plans. The employer puts the money directly into the plan, so the employee doesn't pay income tax on that money. At 59 1/2 years old, the employee can take the money out - and then it gets taxed. The benefits are numerous...1) people save money, so they will have it when they are older, 2) the money is invested in companies (in the form of stocks and bonds) that help fund the economy, etc.
They became popular in the 1980s, and only got more so as the decades went on. Part of their draw was that people saw how much their money could grow when not spent, and not taxed. Many people who would otherwise not save or invest, began to.
A recent WSJ article noted that in 2011, 60% of American households nearing or at retirement age had 401(k) type plans. (The article was focused on how 401(k)s are falling short - but read between the lines, did any of these people really think that putting away 6-9% a year would eliminate the need to work for the last 20 to 30 years of their life, while maintaining their lifestyle?)
But my thought is this:
As the baby boomers start to cash in their plans, the TRILLIONS invested, they will start to get taxed. So the smart guy (or girl...who listened to some guy explain it to her) who has been maxing his contributions, cashes in his cool million - and the millions of baby boomers who start to cash in on their hundred$ of thousand$ - will be giving huge chunks to Uncle Sam.
So that giant sucking noise you will hear...will be large portions of the stock market being sucked into the government coffers.
We better get rid of these socialists now, before its too late...
3 comments:
This sounds like the TSP portion of FERS may not be the pot of gold at the end of the rainbow that was/is promised.
5% matching - free taxpayer money. They still had to make it automatic sign up as part of the 'you're hired' process to get people enrolled...
Most people don't understand the 'deferred' part of 'deferred compensation'...
I just hope BO and his ilk don't crash the whole thing (including the dollar). It's not any dismantling that I fear, its the slow degredation of 'profits' and the use of regulation to cut all risk...and with it - the reward.
Many local law enforcement and state law enforcement retirement plans are 3@50 with single highest year. Anyone going for the princely federal pot of gold of 1.7@50 with high three aggregate must wonder what they got themselves into in this regard -- 'free 5% matching' on the TSP notwithstanding.
However, your point is well taken that inflation will make the dollar look like the Greek Drachma. In fact, I may blog about this....
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