16/03/2010 – What To Do With Your Pension Plan

Make sure you fully understand all aspects of your government’s
individual retirement plans. In the U.S., this includes
such structures as IRAs, 401Ks and Keoghs. If you anticipate
severe system-wide financial and political stresses,
you may decide to liquidate any such plans and pay whatever
penalty is required. Why?

Because there are strings attached to the perk of having
your money sheltered from taxes. You may do only what the
government allows you to do with the money. It restricts
certain investments and can change the list at any time.
It charges a penalty for early withdrawal and can change
the amount of the penalty at any time.

What is the worst that could happen? In Argentina, the
government continued to spend more than it took in until
it went broke trying to pay the interest on its debt. In
December 2001, it seized $2.3 billion dollars worth of
deposits in private pension funds to pay its bills.

In the 1930s, the world heard a lot of populist rhetoric
about why “rich” people should be plundered
for the public good. It is easy to imagine such talk
in the next crisis, directed at requiring wealthy people
to forfeit their retirement savings for the good of the
nation.

With the retirement setup in the U.S., the government
need not be as direct as Argentina’s. It need merely
assert, after a stock market fall decimates many people’s
savings, that stocks are too risky to hold for retirement
purposes. Under the guise of protecting you, it could ban
stocks and perhaps other investments in tax-exempt pension
plans and restrict assets to one category: “safe” long-term
U.S. Treasury bonds.

Then it could raise the penalty of early withdrawal
to 100 percent. Bingo. The government will have seized
the entire $2 trillion — or what’s left of it given
a crash — that today is held in government-sponsored,
tax-deferred 401K private pension plans. I’m not
saying it will happen, but it could, and wouldn’t
you rather have your money safely under your own discretion?