Am I the only one who wonders about the 401-k crisis ahead?

[SoCalDem]

Think back to when pensions started to be phased out. Workers were "guided" into 401-ks as an alternative. We have already seen one "correction" when those "retirement plans" took a huge hit when the Enron, et al stuff happened..That was supposed to have been an aberration, and everything's hunky-dory again..

Ponder this.

The boomers who will eventually HAVE to stop working, will be starting to pull huge sums of money OUT of those 401-ks to live on. They will no longer be pumping up the market with their contributions.

The younger (and less well-paid) folks who will be contributing to their 401-ks cannot make up for the amount that will be being pulled out.

I have started to notice the online polls about whether we 'trust" the market..Methinks somebody knows more than they are saying..


Remember last year how everyone poo-poohed the very idea of a real estate bubble, and now one seems to be leaking air??


Take it from an old timer who has weathered at least 4 recessions, something's up..

Every time there is a large sum of "surplus loot" amassed somewhere..savings & loans, banks, stocks, real estate,the dot-coms, SS, or 401-ks, the unscrupulous smarties figure out a way to get their hands on it, and the public ends up holding an empty bag..

[tanyev]

1. Crisis? What crisis? This economy is smokin'!

La-la-la-la-la-la-la.

[SoCalDem]

4. Janet, is that YOU??

[tanyev]

24. That picture's gotta be worth 2 or 3 thousand words!

:rofl:

[Squatch]

2. Not everybody starts using a 401k at the same time.

[SoCalDem]

8. True, but there will be A LOT of us all stopping the contributions

in a relatively short span of time, after a LONG period of time of ONLY contributions


500 people filling a bucket a drop at a time takes a while, but when 100 start emptying that bucket a GLASS at a time..well, just sayin'

[Squatch]

10. Tell me something...

Is the size of the labor force contributing to 401ks going to increase in size for the forseeable future, or decrease?

[SoCalDem]

12. Since 401-ks are based on percentage of incomes,

I am assuming that the contributions will be smaller, and in the upcoming service economy, do those jobs even HAVE 401-ks? Do low wage employees barely scraping by even participate?

If you are making $400 a week, can you "afford" to put money in a 401-k? I'm betting a lopt of young folks do not participate.. If the company offers it, it's a safe bet for them.. They only have to match up to a small percentage, and only match money put in by employees.. 4% of nothing./....is nothing

[Squatch]

14. Same question...

"Is the size of the labor force contributing to 401ks going to increase in size for the forseeable future, or decrease?"

My money is on increase. And, though you may be right that the actual contribution amounts may decrease, the net effect will be growth of 401ks as the labor force grows and becomes younger.

[SoCalDem]

18. I HOPE you are right..

But when we see a $20 hr job being eliminated in favor of 3 $6 hr jobs, who knows??

[Yupster]

44. your 401(k)

should have choices besides stocks.

Choose the government bond option,m or the money market, or the fixed interest account if you're afraid of the stock market.

[JohnnyBoots]

3. Remember,"Black Monday," under Reagan? n/t

[acmejack]

9. Yeah, I made a small fortune that day! How could I ever forget?

Unfortunately, I started with a substantially larger one.

[LSK]

5. thats an interesting point, havnt thought of that before n/t

[papau]

6. Any 401k crisis would occur 10 years after the economy went to hell.

:-)

[shraby]

7. That's not the only thing that's going to happen..

what will become of the housing market when all those new retirees decide to downsize their living quarters? They might decide to live in a trailer in a nicer climate even.

[lyonn]

11. Your theory makes more sense than many on TV spout

I know people who are selling stock to have extra money. Most people don't give you their personal info but what you are saying makes sense. This market is spastic, what is one to think?

[Rabrrrrrr]

13. People taking money out of 401(k)s is not going to make a difference

It's not something that other people need to feed into, like Social Security. A 401(k) account is a personal account; people taking money out of them is no different than people taking money out of their brokerage accounts or their savings accounts.

The increase in stock sales from people selling out of their 410(k)s will be an ignorable blip in the sum total of daily stock trades.

There is no 401(k) crisis unless there is a co-existing market crisis.

Please do not fuel the fires of panic with the idea of a "401(k) crisis". It's non-existant.


I will repeat this again - 401(k)s do not operate like social security. It's not a worldwide account that as people take money out other people need to feed money in.

It's a PERSONAL account.

[SoCalDem]

16. It's STOCK, though...right??

To collect, you must sell it, right??

Lots of people selling in a compressed time frame can create turbulence..right?

[Squatch]

21. Not necessarily...

you can margin stocks (though I don't think you can margin a 401k).

[Rabrrrrrr]

22. Yes and no. Yes. No, because the amount of stock they'd be selling

is such a small amount compared to daily movement, it won't make any real difference.

Yes and No - the accounts are likely a mix of stock, bonds, real estate, mutual funds, etc.

Yes, you must sell something to get the money.

No - I already answered.

[hogwyld]

34. But it's more exciting

to claim that the sky is falling and run around in a self inflicted panic attack!

[SoCalDem]

35. How old are you?

Believe me, if you are mid 50's & you are not worried, you must either be wealthy or naive.

[hogwyld]

37. Mid 40's but so what

It's not like every single baby boomer is going to hit retirement, and take every penny out in one lump sum payment. The taxes alone would pay off the national debt. No, they'll slowly draw it down to supplement their retirement, while the Gen X'ers will be socking money into their 401k's and making huge sums inventing the xbox 720 or something. It's not a zero sum game where all inflows stop and outflows are all at once.

[SoCalDem]

38. All I have to add is "Good Luck" to us all

:hug:

[Rabrrrrrr]

39. I'm still unclear as to why you think we need "good luck"

There is not one big national bank account that is "the 401k repository", that when people start drawing out of it will just dry up and disappear because other people aren't paying into it.

Our 401k accounts are individual and separate - whatever you paid into it, is all yours. It won't go to anyone else (except your taxes), it won't be taken away by anyone else, and no one else will ever put money into it. It's yours, full and clear and pure.

YOU could run it out of money if you spend it too fast, yes. But it won't run out of money because the next generation isn't pouring enough into it. They're pouring into their own 401ks.

And as I said elsewhere, the increase in trading that will occur when people start taking out of their 401ks will be so insignificant compared to regular daily trading, it won't make a difference on the market at all.

[Rabrrrrrr]

36. Yep, I think so! Especially about stuff that people don't understand.

[UncleSepp]

42. Respectfully, you haven't made your case, only asserted it

Without posting numbers to show how small a fraction of stock ownership is in 401(k) plans, you haven't proven that the effect of a net withdrawal from 401(k) plans would be insignificant to the stock market as a whole. Posting the numbers would make your case much stronger (and frankly, I'd be curious to see it). :-)

[Rabrrrrrr]

45. NYSE volume was 403,763,628,000 shares in 2005,

and that's over, roughly, 250 or so trading days (http://www.nyse.com/marketinfo/datalib/1022743347427.html)

that's a lot of shares.

Let's assume that we have 35,000,000 people who will need money from their 401(k)s this year (that's the current number of people over age 65; and let's assume that EVERY ONE of them is getting retirement ONLY from a 401(k), that EVERY ONE OF THEM HAS a 401(k) (a totally unrealistic assumption, by the way) and let's also assume that they're 401(k)s are only in stocks).

But do remember that 401(k)s are not just stocks; many are mutual funds, some would also have bonds, some are mixed with real estate, bonds, metals, stocks, and anything and everything that the managers of the 401(k) (if there are any) can come up with.

But, anyway, let's assume that these 35 million people need $50,000 a year for income (which I know is higher than reality), and let's assume that they have everything in stock, and let's give an average stock price of $56 a share, which was today's average (http://www.nysedata.com/nysedata/default.aspx). So, each person needs to sell 892 shares for their year's income, making 50,000,000 times 892, or 44,600,000,000 shares, which is 11% of the total yearly volume.

And remembering that I WAAAAAAY overestimated the number of people, that I made the assumption that the 2005 yearly volume had NO 401k related stock stales, overestimated the amount of income they needed, and made the assumption that every one of those people had their 401ks ONLY in stock, I imagine the real percentage of stock sales FROM a 401k would be about 1 percent of the yearly volume (current time), and MIGHT approach 10% by the time we get to a point in which a significant percentage of retirees are using 401(k)s - I don't know when that will be, maybe 10 years? 15 years?

I imagine we're just now getting into a period where most retirees are using IRAs, so I should think the 401k usage should lag about 10 or 15 years behind that.

[Submariner]

15. We must be on the same wave length

I pulled 95% of my 401(k) cash out of funds and moved them into the money market fund to freeze it. I wouldn't trust a stock/fund broker as far as I could throw them. In 6 months I can roll it over to an IRA so that I can control the investments and not get creamed by some repug stock broker whore.

[Squatch]

19. What's your money market make in IR%/YR?

My 401(k) is up 14% over 2005, my ROTH is up over 18% for the same period. My money market is only up about 2%. Inflation was 2.5% for 2004.

Going to cash or money mkt accounts is tantamount to throwing money away.

[Rabrrrrrr]

23. It certainly won't keep up with inflation

Money market is good for the emergency funds, and that's it.

[KoKo]

25. Is the percentage up over what you contributed to it this year, though.

It would depend on what your 401K is invested in, but I've read that many people factor in their contributions making it seem that your 401K is higher than it is at year end. If you take out your contributions would the percentage still be the same?

:shrug:

[Squatch]

27. That's just growth.

Not counting contributions. (weighted average of each of my funds)

[Submariner]

32. In the last two months my 401(k) has run up a quick 12%

After this weeks quarterly earnings report, I just feel a significant pullback occurring soon, so I don't want to throw away those gains. I'll look at the lay of the land for a month or so and jump back if indicators look better. In 6 months I can rollover the 401(k) to my ETRADE account and then make some money, and not worry about some fund manager scamming the system.

[Submariner]

46. Well I sure saved a SHITLOAD of cash today!!!!!!!

I feel psychic for getting out on Wednesday. :D:D:D

[brokensymmetry]

17. Exactly what was predicted in 1995...by Barron's...

Yep, Barron's, published by the Dow Jones news service, wrote an article that pointed out that the stock and bond markets would face about 20 years of pressure due to liquidation of investments. Further, it pointed out that the market would be relatively strong prior to the change because of all the money flowing in.

Oh, and the year of the changeover? 2006....

[SoCalDem]

20. Wow... and I have never even read Barrons..

I must be psychic.... or is that psychotic:)

[FloridaPat]

26. There was a show on a few years ago about the retiring baby boomers.

Everything would be a mess. Housing prices would crash because as we start dying, the homes will be up for sale. Stock market would do nothing or go down because all the retirement money would come out of the stock market. Everything will be effected from food, health care, clothing, cars, entertainment. We have a lot of money in our hands. And there will be a lot of scammers out to get it too.

[JPZenger]

28. More of a Risk of a Chinese Withdrawal of Cash

The baby boomers will be withdrawing their money relatively slowly from their retirement accounts. It won't cause a crash. I read a rather detailed analysis of the issue that said it was not a threat.

There is more a risk if the Chinese withdraw their flows of money into the US. I forget the numbers, but something like $600 million a day needs to flow from China to US treasury bonds to fund Mr. Bush's debt. Fortunately, the Chinese economy is so interwoven with the US economy that the Chinese couldn't act to hurt our economy if they wanted to.

[TNDemo]

29. How is America broken down as far as percentages by age?

Are there statistics about how many people are in children, in the 20s, 30s, 40s, etc.? I was curious as to how many old people there are in relation to young.

[SoCalDem]

30. This is as of 2000

http://www.census.gov/population/www/socdemo/age/ppl-147.html


and this article says that 25% are over 50

Seniority: A little digging may save you money
... with nearly 70-million Americans, or 25 percent of the US population, over 50.
As consumers, you and your purchasing power are a considerable force. ...
www.sptimes.com/2003/06/24/ Seniority/A_little_digging_may_.shtml - 26k -

add the ones under 18 and you've probably got 1/2 or close to it

Kids Today | The Newsmagazine of the Infant and Juvenile Industries
HIGH POINT -- With a quarter of the US population under 18 years old and 17%
under age 11, kids home furnishings retailers and producers have a large ...
www.kidstodayonline.com/content/14.aspx - 27k - Cached - Similar pages

[TNDemo]

33. Thanks!

[argyl]

31. Is anyone familiar with 451 accounts? I think they're available to muni

employees. I was prepared to open a Roth account but was told these(the 451's) were an option for municipal employees.

Any particular advantage or disadvantage to either one? In a few years I should be able to retire with a decent pension but I'd like to augment it.Should have started a long time ago but I should be able to put money into an account for at least ten years.

Any knowledgeable advice would be much appreciated.

[obxhead]

40. K&R... couldn't have said it much better myself.

[mopinko]

41. yup, i worry, too.

in fact, i have been trying to convince my hubby to quit his job so that we can roll that money into something smarter. i get the heeby jeebies when i think about it. i want to invest it in renewable energy for our home. this can only get more valuable with time.

[doc03]

43. I haven't made up the loses I took in 2001 on my 401 K and

what worries me I am locked into the thing at least 4 1/2 more years. When they came to us back in the 90's we were told the 401k was the best thing since sliced bread. Instead of putting my money into the 401K I would have been better off putting it in CDs. I know this because my brother did just that and when I pay my taxes I will have less than him. If you put your money into the 401K you may have a bigger balance when you retire if you're lucky but then you have to pay the taxes on it and you may be worse off. I will predict another thing when we reach retirement there will be people in government that will want to offset the income on our SS with our 401K earnings and you can take that to the bank.

[RagAss]

47. There's going to be a helluva lot more to worry about....

than 401k's in the coming years....the little matter of a police state comes to mind.....