Is Your 401k Really Safe?

1.Raise payroll taxes
2. Increase the retirement age
3. Cut benefits

The most likely scenario is a combination of all three. Then what? That is what brings me to a fourth option that is very worrisome to me:

Confiscation.

This sounds like a crazy idea which is what I thought when I first heard it talked about but the more I think about it the more I begin to think that it could happen someday.

Just think about what happens to our deficits when interest rates rise to 6% – 8% which is where they were just a few years ago. Remember, the government is funding a majority of our trillions in debt with short term paper. This is highly susceptible to a crisis should interest rates move sharply creating a huge increase in borrowing costs. The massive amounts of debt the government has taken on will only escalate. As the years pass by, the Social Security numbers get grim.

Imagine a scenario 10-15 years down the road where we are in a financial crisis due to a heavy debt load and out of control deficits. People are angry that options 1-3 above have already been taken and there is talk of cutting benefits even further. It’s not hard to imagine a socialistic government in place that feels that it would be best to help its citizens during their retirement years by better managing their IRA’s and 401k’s by seizing those assets to help shore up Social Security for the good of mankind.

While those who have worked and saved so hard for all those years would regard this as theft, a large majority of people who don’t save for retirement, who wouldn’t be losing anything, and would think this is a good idea in order to guarantee their retirement and financial security. I’ve seen statistics that something like 70% of Americans do not even have a $1000 emergency fund. If you have no job, no savings, and little prospects, it would be very easy to vote for a support a system that would confiscate 401k’s for the betterment of society.

There are people in Congress who want to “encourage” plans to convert people’s 401k’s to annuity streams when they retire, it makes me wonder if this is just the first step to get people used to the idea.

While I don’t think there is a high likelihood this will happen anytime soon, it does make you think about what could happen and it doesn’t really seem that far-fetched.