The effect of Baby Boomers' 401k withdrawals

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The effect of Baby Boomers' 401k withdrawals

Postby drewhaa » Tue Aug 25, 2009 9:35 pm

Most of the article seems like fear mongering, but I have read this sentiment a few times before. From Robert Kiyosaki's latest article on Yahoo Finance:

The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.

The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.


Any truth to it?

I guess I'm one post short of being able to post a link. The full article can be found at Yahoo Finance.
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Postby DaleMaley » Tue Aug 25, 2009 9:45 pm

See this earlier posting on whether the Baby Boomers will cause a stock market bust.

Hint: Mr. Pareto is alive and well today.

As for the credibility of Robert Kiyosaki to give out any good financial advice, see this critique of Kiyosaki by John T. Reed.
Last edited by DaleMaley on Tue Aug 25, 2009 9:53 pm, edited 1 time in total.
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Postby Rodc » Tue Aug 25, 2009 9:51 pm

You can look at this thread too:

viewtopic.php?t=41818

Perhaps someone can update my back of the envelope calculation.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Postby dmcmahon » Tue Aug 25, 2009 10:07 pm

A fundamental problem with Kiyosaki's "logic" is the implicit assumption that no value is created by the investments (true of a Ponzi scheme, in theory not true of real enterprises).
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Postby drewhaa » Tue Aug 25, 2009 10:11 pm

I appreciate the links.

I usually don't read anything on Yahoo, I just use it for the quick market updates in the top left corner. However, there was a lull in my workday and... I just clicked.
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Postby MWCA » Tue Aug 25, 2009 10:26 pm

This type of article comes up every once in awhile. Just noise.
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Re: The effect of Baby Boomers' 401k withdrawals

Postby Paladin » Tue Aug 25, 2009 10:30 pm

drewhaa wrote:Most of the article seems like fear mongering, but I have read this sentiment a few times before. From Robert Kiyosaki's latest article on Yahoo Finance:

The 401(k)Ponzi scheme. A Ponzi scheme, like the scheme Madoff ran, depends upon young money to pay off old money. In other words, a Ponzi scheme needs tadpoles to finance old frogs. The same is true for the 401(k) and other retirement plans to work. If young money does not come into the stock market, the old money cannot retire. One reason so many people my age are worried, not only about Social Security and Medicare, is because they're concerned about getting their money out of the stock market before the other old frogs decide to drain the swamp.

The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market. You do not have to be a rocket scientist to know that it is hard for a market to keep going up when more and more people are getting out.


Any truth to it?

I guess I'm one post short of being able to post a link. The full article can be found at Yahoo Finance.


It is an utter waste of time to read anything written by Kiyosaki. I am surprised that Yahoo provides him a forum.
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Re: The effect of Baby Boomers' 401k withdrawals

Postby grabiner » Tue Aug 25, 2009 10:41 pm

drewhaa wrote:Most of the article seems like fear mongering, but I have read this sentiment a few times before. From Robert Kiyosaki's latest article on Yahoo Finance:

The facts are that the 401(k) plan has a trigger that requires old frogs to begin withdrawing their money at a certain age. In other words, as baby boomers grow older, more and more will be required, by law, to begin withdrawing their money from the market.


Kiyosaki either doesn't understand the law or is deliberately mis-stating it. The law requires money to be withdrawn from the 401(k) plan, but that is independent of whether the money is withdrawn from the market. The money might not be in the market (retirees often have most of their 401(k) plans in bonds), or it might remain in the market (nothing prevents an investor who doesn't need the money from taking a 401(k) distribution and putting it into a taxable stock investment).

Near-retiring baby boomers should be taking money out of the stock market before they retire, not because it is expected to go down, but because it often does go down and this is a risk they do not want to take. Anyone with 100% stock in 2007 who planned to retire in 2009 will have to wait several more years; anyone with 40% stock in 2007 who planned to retire in 2009 has taken only a small loss in the last two years and can still retire with close to the same standard of living.
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Harry Dent

Postby Analystic » Tue Aug 25, 2009 11:31 pm

Harry Dent has been predicting Baby Boom effects for years.
The math looks OK but his predictions don't seem to hold up.
Googling this just now I found this prediction:

"His target for the Dow is 40,000--which he believes it will hit somewhere around 2008."


http://www.businessweek.com/2000/00_13/b3674175.htm

OOOPS!!

Remember that the market is now Global so our baby boom is diluted to a considerable extent. You also have to figure in that the next generation of Chinese may be buying unprecedented quantities of equities.

You just never know ....
Disclaimer: I am making all of this up.
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Postby spam » Wed Aug 26, 2009 5:39 am

I agree,

There are a few people in China, India, Mexico, Africa, and South America who dont have a 401k yet......

Maybe he is only looking at his own class, race, and nationality when entertaining these fears. To some, others dont exist.
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Postby Ron » Wed Aug 26, 2009 7:34 am

Part of the problem with the discussion is the fact that 401k's/IRA's did not come into existence until the early 80's (for the individual).

My wife/me did not start ours till our respective companies (at the time) eliminated their defined benefit (e.g. pension) plan. We had to go with the "enhanced plan" :roll: quickly, and come up to speed on what we needed to do (without the support of forums, such as this to get ideas).

At the time, we were both 34 years of age. Today? I would say most young folks (if they are on the ball) start investing 10-15 years earlier. That means as boomers, we have much less in the market than today's young folk will have at their retirement, many years later.

Additionally, our retirement income plan is conservative, and goes to our age 100. Sure, we know we are not going to make it, but I've always been of the mindset that I would rather die with money, than live without it 8) ... That in itself means that we will stay in the market (in some percentage) till our end of days.

So we have less in the market than we would have had if we started many years earlier, and many years to take it out. In reality, how much we (along with millions) of boomers make any dent?

And our parents/grandparents? No money in the market at all, during their lifetime (they had pensions).

Additionally (in our case) by annuitizing part of our retirement portfolio through an SPIA, we've already taken a good chunk out of "required distributions" mentioned in the article. In fact, our projections for age 70.5 required distributions show that we will not have any "excess" to worry about. I would say for the general retired population, required distributions just for normal living expenses to supplement SS and other income sources will put most of us in the same position (except for the rare wealthy individual/couple, but I doubt if they will be the majority of retirees).

- Ron
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Postby On Approach » Wed Aug 26, 2009 8:22 am

You also have to take into account the disproportionate amount of equity investments by those boomers with substantial tax-deferred investments who may be planning large Roth conversions starting in 2010, with the primary intent of avoiding RMDs and thus leaving substantial equity holdings for their heirs.

And you also have to consider the tax advantages of the stepped-up basis of equities in taxable accounts for those investments left for heirs.

It may be that there is a lot more in equity investments destined to be passed along to the next generation than many think - just my guess.

In our case, my wife and I, although we certainly don't fall into the camp of the wealthy, will have just enough in DB pensions and SS, coupled with a relatively frugal lifestyle, to get by without significant withdrawals from our tax-deferred accounts in our lifetimes.
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Postby digit8 » Wed Aug 26, 2009 9:35 am

Add to the many sins of Madoff the encouragement of the vast over- and misuse of the term "Ponzi Scheme" for writers trying to spook people into their scams....uh..."alternate investment strategies".
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Postby downshiftme » Wed Aug 26, 2009 12:46 pm

Cannot speak for boomers, but I can provide anecdotal evidence from my parents. They had small IRA/401k and had to take distributions, now they have required (RMD) distributions. They also have to take some money from taxable investments to cover their cost of living. Aside from a temporary market swoon, they have more invested now than ever, so taking money from an IRA/401k doesn't necessarily mean big enough net outflows to move the markets. Even retirees with smallish portfolios will be unliikely to pull it all out in a short amount of time.
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Postby Steelersfan » Wed Aug 26, 2009 1:40 pm

Besides being full of half truths and a poor reading of the overall financial structure of our country, he also fails to offer any advice on what to do with the "wisdom" he has offered.

For that I guess you have to buy one of his books?

I feel real good about never having done that.
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Re: The effect of Baby Boomers' 401k withdrawals

Postby Henni » Wed Aug 26, 2009 2:08 pm

drewhaa wrote:
> guess I'm one post short of being able to post a link.

anyone can post without restriction using plain text form as in
cnn.com/something/somewhere/dalink.html
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Postby manuvns » Wed Aug 26, 2009 2:57 pm

I don't like Robert Kiyosaki . He just got lucky in real estate and teaches everyone how to get rich . To me he is just another scammers making money by selling books and seminars .
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Postby whocarez » Thu Aug 27, 2009 6:44 am

This thread and the ones linked to all refer to only demand/supply dynamics of stocks.

However what I wonder about at times is more fundamental. If and when the US population starts declining , would it lead to lower demand for most goods and thus lower sales?

I couldn't think of any clear answer to that as there are too many variables.

One argument I think of is that any slack in demand for US goods would be compensated by demand in EM countries in the long haul.

But then I think what would happen when global population starts declining? Who would pick up that slack?
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Postby mfen » Thu Aug 27, 2009 6:57 am

I am predicting a baby boom after the "great recession". If you can't make money and you have no money to spend what are you going to do for entertainment? :D

Kiyosaki lost me with the first chapter in his first book when he denigrated his own father in public. No respect for someone who treats his parents shabbily.
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Postby Ron » Thu Aug 27, 2009 7:00 am

whocarez wrote:But then I think what would happen when global population starts declining? Who would pick up that slack?


If the global population would decline, we would have more than just financial problems (e.g. war, plague, asteroid hit, etc.)

One of the main reasons I stay in the equity market is because of global human expansion. More people, more desire for goods/services.

I doubt (with the exception of a world wide disaster) that will stop.

Just an update, since I was reading an article in the Economist today. It states that the current world population is at 6.7 billion (dosen't include dogs/cats :roll: ). It is forecast to surpass 9.0 billion by 2050.

- Ron

updated to add population numbers
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