On December 17, 2019, I blogged about 401(k). Coincidentally, on December 19, 2019, the following articles were published by the respective sources:
- “Congress passes sweeping overhaul of retirement system” (Source: Wall Street Journal)
- “Congress just passed the biggest retirement bill in more than a decade. Here’s what you need to know” (Source: Yahoo! Finance)
Two days thereafter, on December 21, 2019, President Donald J. Trump signed the SECURE Act into law with the spending bill. (Source: ThinkAdvisor)
Having lived through both the 2000 and 2008 market crashes – and been dealing with their effects – here is the way I see this new law. I’ll touch on two major points: (1) The fallacy of the SECURE Act and (2) the government’s bottomless appetite to squeeze more out of taxpayer assets.
The fallacy of the SECURE Act
As best as I can tell, the premise of the newly-improved 401(k) remains the same. In other words, it is all about simply “giving employees more fish” rather than “teaching them how to fish” to protect their hard-earned money for retirement.
- According to the WSJ report, “To encourage workers to save more, the legislation allows employers that automatically enroll workers in certain 401(k) plans to raise employees’ savings rates to 15% of annual earnings over time, up from a 10% cap now.”
- My view:
- The acronym gives a sense of reassurance, doesn’t it? In my view, however, the SECURE Act – Setting Every Community Up for Retirement Enhancement Act – provides anything but security for most retirees. Rather, it enables the federal government to secure for itself more of taxpayer money.
- The fundamental flaw of the 401(k) program is that it assumes – falsely – that all employees know how to invest in mutual funds. The reality is that most, if not all, have no clue. In other words, it does not prepare the savers for when another crash hits Wall Street.
- “Raising the savings rate” does not address the root cause of what had happened to the saved funds in the 401(k) program during the market crashes of 2000 and 2008.
- Nor does it address the fundamental issue of how to minimize such losses from ever happening again.
- Encouraging employees to save more means additional funds for Wall Street to keep doing what it has been doing, however reckless it may be.
- Unlike those savers in the 401(k) program who are at the mercy of the fund performance, Wall Street that sells the program cannot lose – regardless of the fund’s performance – because its fees are fixed.
- For members of Congress, its retirement plan is called the Thrift Savings Plan. Its cost is far less than that for 401(k). The obvious fact is that they have not been impacted by the failures of the 401(k) program. Yet they’re the ones that made the new rules about 401(k). What is wrong with this picture?
- As a footnote, I’m glad that (i) when the tech bubble burst in 2000, I forced myself to face the threat, head-on, of potentially not having any retirement funds left in my old age and, consequently, (ii) I’m no longer in the 401(k) program.
- Possible solutions:
- Keep Wall Street fund manager’s base pay to $50,000 per year (don’t laugh, this is not a joke); incentivize any additional pay based on the performance of each fund for which he/she is responsible. If the fund loses, the fund manager is still able to take home what the rest of the economy earns on average.
- If the above solution is not viable for whatever reason, then replace 401(k) with the TSP. This is simply a matter of expanding the TSP – the program that is already working fine for Congressional members – to corporate employees in the private sector.
Government’s bottomless appetite to squeeze more out of taxpayers
If your family member designated you as a beneficiary of assets, know that the government wants a greater piece of the pie upon his/her death much sooner, regardless of the original rule to which the deceased had signed up.
- According to the WSJ report, the measure includes a provision that requires many people who inherit tax-advantaged retirement accounts after December 31, 2019, to drain the accounts within a decade and pay any taxes due. Until the change took effect, beneficiaries were able to liquidate those accounts, known as Stretch IRAs, over their own lifetimes. Not anymore.
- My view:
- If we raided other people’s funds, it is called theft, which is a crime. But when the government does the same by stroke of a pen in Congress, it becomes the law.
- This is confiscation by the U.S. government of private funds that were lawfully attained and accumulated by families.
- We, the taxpayers, are being bound by this new law to unconditionally hand over to the government our hard-earned money. In light of the ever-increasing national debt – to the tune of over $23 trillion as of this writing – with little discernable cuts in spending, I cannot help but think that the government will keep increasing taxes until such time when people start to revolt.
- The government’s appetite for an ever-increasing amount of taxes reminds me of the 1958 movie, “The Blob” that swallows every human and animal in its path and gets bigger and bigger.
- For the government, taxpayer money is what feeds it to get bigger and bigger.
- In the movie, Co2 (carbon dioxide) is what freezes (but not kills) the blob. Once shrunk to a manageable size, it was hauled to and dropped in the Arctic. Problem solved, at least for the time being, in the fictional world.
- Few people seem to be concerned about the huge national debt, but this is a serious issue for the future of the U.S.A. Think of the national debt as the blob that will eventually come after every man, woman, and child. We need a permanent solution to arrest the government’s ever-bulging appetite for taxpayer funds.
- Instead of raising taxes, it is high time the government started figuring out what expenses should be eliminated.
- The bottom line: Regardless of whether you’re already retired or not, upon the death of a loved one who left you financial assets in traditional and/or Roth IRA, unless you happened to be grandfathered in (spouse, recipient with disability, etc.), most of us will no longer be able to rely on them for longer than a decade.
- The only way to stretch the inheritance is to transfer it to your trust account within a decade.
- On how to execute it properly, so that your inherited funds can be stretched longer than a decade after the loss of your loved one, talk to the following three individuals, all gathered in the same room: an estate-planning attorney, a fee-only financial planner, and a CPA – each reputable, well qualified, and independent from each other.
- Possible solutions:
- Vote out any big-government proponents who are bound to come after your hard-earned money in the form of additional taxes.
- Vote out anyone who promises “free” benefits to voters. They are fraudsters, who ignore basic economics, and have no business representing you and me, the American people, in Congress.
- Vote in those who are not afraid to eliminate all non-essential federal agencies and regulations that do not help protect our national health, security, or safety.
- Vote in those who are committed to cutting the annual budget in half, each year, until such time when the ever-bulging national debt will have been slashed to zero.
- Without financial strength, there is no sustainable military strength.
- An eroding military strength will erode national security.
- Remember, the only thing the evil force – bullies on a world stage – understands is its opponents’ unquestionable military might.
- The U.S.A., therefore, must retain its leadership position for the sake of freedom and independence among the masses around the globe.
p.s. As a followup and FYI, here is a WSJ article on our national debt, January 28, 2020. Disconcerting…