In the near future, the government may be planning to take over your 401(k) and Individual Retirement Accounts (IRA) and managing it on its own. Why, you ask? Well, mainly because there is an unprecedented trillion-dollar deficit that needs to be taken care of.
Plans for Your Money
So this is the deal: somewhere out there is a major deficit that is struggling to lower despite the government’s efforts. However, there are tons of 401(k) and IRA accounts floating around with tons of money (well, at least what’s left after the financial crisis).
So now, according to BusinessWeek, the Treasury and Labor departments are asking for public comment on “the conversion of 401(k) savings and Individuals Retirement Accounts into annuities or other steady payment streams.”
How Would the Conversion Work?
Basically, in order for the conversion to work, the government would take over you retirement savings. In return, it would promise to pay you some type of monthly benefit in your retirement years.
In exchange, the workers would be required to invest 5 percent of their pay into a guaranteed retirement account that would be administered by the Social Security Administration.
However, this guaranteed retirement account would actually be an investment in U.S. Treasury bonds that would go toward paying down the huge trillion-dollar budget deficits.
Will This Actually Happen?
While the government is only asking for opinions now, experts think that this conversion will actually happen. It will probably start off as a choice at first; however, as noted by Karl Denniger of the Market Ticker site, “‘Choices’ have a funny way of turning into mandates.”
What’s even more unfortunate is that if the conversion does occur, the benefits based on Treasury bond interest rates may end up being inadequate compensation for years of saving since the government has been suppressing yields since the crisis started.
So what will happen to your retirement savings? There’s no guarantee at this point. Based on the plans, there’s now no clear-cut guarantee of how much would be available at retirement – or whether you’ll have a retirement account at all.
This may be a good time to consider exploring options outside of the 401(k) and IRA just to make sure you’re able to diversify your savings. It’s okay to trust in the government, but remember, this is your money. It’s best to make sure you’re protecting you and your family first.
How do you feel about the government’s desire to take over your retirement savings?