WTF is happening to your 401K

Welcome to the premier of this blog. I've been against this type of whining, online, bs that anyone with a computer and use of one their four appendages has been able to spew out. Normally I don't say much about anything, especially anything political or government related. However, I have taken the liberty to empty my brain onto this keyboard and speak (actually type) about a most distrubing news I have heard in my entire 31 years on this planet. The government with its infinite wisdom (and I do say this while falling out of my chair) taps some finance professor from New School to testify in front of a Congressional hearing regarding a plan to obtain (I prefer steal or seize) our deferred compensation plans (401k, 457b, etc) plans because we are so scared about the market and what will happen to our money, that big daddy wants to swoop in and save the day! Well, I sure am glad that the gov't is here to protect me in my hour of need. Enough of the ranting and raving. Here is the skinny on what may happen.

I did type "may", so don't get your panties or what have you in a bind. Here is the deal. The government feels that the American people are too afraid to invest their own money, so they will do it for us. Mind you, they, being the government with their 10.5 Trillion in debt, is telling us that they can manage our money better than we can. Not to mention their idea, which they are trying to make legitimate, is being screened by a teacher (my wife is a teacher, so don't think I'm teacher bashing) who I assume they tapped for this because she'd probably bend to their will. Why not ask the opinion of a financial professional such as a Warrent Buffet, George Soros, Peter Lynch or Jim Cramer. We have the real world and then we have the "Neighborhood Of Make Believe" (sorry Mr. Rogers) known as text books that doesn't necessarily happen in the real world. So, why would someone ask someone else who is not as qualified to answer a question as boatloads of others? Obviously, because the answer will be what they questioner wants to hear.

Anyway, enough about the reasons why this proposal is actually being seriously discussed. The government's reason for this proposal. The average person contributes approximately 7% to their deferred compenstation plan. The government loses approximately $80 billion annually in tax revenue due to the tax derferrment of these contributions. That is a current number that is going to rise with the increase of wages. So, here is government's plan to "help all of us incapable idiots".

- The goverment will seize (yeah, I said it), your current 401K (or whatever def. comp. # u have)
- You will have to contribute 5% of your pay, no more and no less, to the gov't Plan
- The gov't will then "guarantee" 3% and $600 (inflation adjusted) annually to your plan.

Wowwy, that is super cool! The government is going to tell me a bs reason why it is considering this and then tell me that I will be better off this way. Even if I would be better off, which I'm not going to be, I sort of have Constitutional rights to my property and I don't mean just real estate. Here is the fallout Chernobyl style (I'm using this as a metaphor for Communism and not because there will be a nuclear disaster).

Assuming 50K Salary per year in 2009 and 4% average annual increase due to cost of living and promotion, and works for 30 years. Here is the breakdown. The first one states what you will have with the gov't plan, the 2nd states what you will have with investing solely in a stable value fund, which averages 4.5% per year, the 3rd states what would be done with a normal, run-of-the-mill investor who has an idea what asset allocation means (we'll visit that next time).

Government Plan- $ 253,845.50
Inflation Adjusted- $ 104,580.98

Stable Fund Strategy (10% to start, 2% inc. to 25%)- $ 1,191,857.09
Inflation Adjusted- $491,029.34

My Plan (10% to start, 2% inc. to 25%)- $ 1,716,068.68
Inflation Adjusted- $706,997.58


So, the inflation was adjusted for 3%, which is the national average. The average market return is 8%, but I used 7% to adjust for resetting the asset allocation for the investments. The inflations adjustment is to imagine what you would have for buying power for your retirement. Despite the crazy market swings, this is the time to stock up on cash and wait until the market bottoms. Like Buffet says, "be greedy when everyone is scared, be scared when everyone is greedy".

Question who your government asks for opinions. These are things that fly below the radar. Just think, the government is taking over the large banks who have failed or potentially will fail, what better way to have control of them and institute this law that indirectly filter money to the government, by having the gov't make people pour money into Roth and Traditionl IRA's rather than 401K's. This will be done, because it is such a terrible deal for the tax payer. Smoke screen baby. Welcome to Russia!! I'd love to hear your thoughts.