Last week I wrote an article about leaving your money in your retirement accounts instead of withdrawing it because of the economic crisis or other reasons. This reader question is one of many similar e-mails I have received asking if it is a good idea to withdraw retirement savings. It was easier to answer the questions by writing a full length article instead of recreating the wheel each time.
This read also had a different element to his question, so I will publish it, along with responses from the M-Network.
Hi Ryan, I have 2 questions:
What if the government decides to follow FDR even further and simply takes our savings to apply towards their debt (war or other social debts)?
Also, what if the government takes our retirement money and invests it in social security? The option has been brought up by more than one person in congress.
Does it then make sense to remove your money now? I am 34 and had over $170K last year, now I am around $60K I am thinking of buying gold/silver and land to live on if it keeps getting worse. What are your thoughts on those two points?
Hello, Scott, thanks for contacting us. To be honest, I don’t think there is a big likelihood of the US government confiscating citizens’ money for governmental use or anything else. If the government were to resort to that, it would probably mean that the government as we know it no longer exists and we as a nation and as people are probably facing bigger worries than our life savings.
Regarding your retirement funds, it sucks, I know. My 401k lost a lot of money as well and I hate watching it drop. Even so, I would recommend leaving your money in retirement accounts, otherwise you are going to take a huge hit on early withdrawal penalties and taxes. Early withdrawal penalties will hit you with an immediate 10% penalty on the amount you withdraw, and you will also have to pay taxes immediately upon withdrawal. Depending on your tax bracket, you could easily lose between 30-40% of your retirement funds immediately upon withdrawal. You will also lock in current losses. At least when you leave your money in retirement accounts it has a chance to increase in value.
If you are interested in investing in gold or silver as a hedge against US currency devaluation or any other reason, then I would recommend looking into a precious metals fund or other method of investing in your desired assets while keeping our money in your retirement accounts, so as to avoid penalties and fees. Keeping your funds in your retirement account may also ease the tax bite, as gold is taxed at a higher rate than many other investments.
Here is what other M-Network members have to say about your question:
Mrs. Micah from Finance Freelance Life:
No and no.
Gold & silver are only worth money if people think they are… same as stocks, etc. They have no inherent value; their value depends on demand, so it’d be no different than investing in the stock market (which you can do inside or outside a 401(k). If you do your research and decide that it’s a solid investment, then you can do so, but it’s no different than any other investment.
Land — Have you ever heard of eminent domain? It allows the government to repossess your land. They’re generally supposed to offer money for it, but they can take it anyway if you don’t agree. It can be done for civic purposes or as a way of “stimulating” the local economy… Suppose that a large corporation wants to move next to your land and they want your land for a parking lot. The government can take your land if they determine it is better used as a parking lot. Land is not safe from the government either. So if your big concern is that the government might take your money, land isn’t going to protect you.
The only cases I can think of where a government took its citizens’ savings, etc, were generally during communist revolutions (not talking Canada, talking Russia/Cuba/China) and they took everything. In those cases, neither precious metals and land were exempt. Modern-day socialist governments don’t go after savings or possessions.
The threat is SO unlikely that you’re much more likely to hurt yourself very badly by taking a big loss and getting hit with early-withdrawal penalties. Those penalties are a guaranteed loss of savings. The alternatives you’re considering aren’t “safe” from the government either, whether in day-to-day life (eminent domain) or in revolution.
Plonkee from Plonkee.com:
What if the (US) government really does those things? Why do you think that will mean that they won’t also come after your land and your gold?
Mrs. Micah is right that generally major confiscation of money implies a some sort of wholesale change in government. And normally land goes as well – the economic mess in Zimbabwe started with redistributing land, so investing in land doesn’t necessarily mean that you are safe. And I don’t think that you would be able to protect it by force from a government with one of the largest armies in the world.
Investing in land is not a bad idea necessarily. Investing in gold or silver are not bad ideas necessarily. Taking a massive tax penalty is usually a bad idea. Safest place to invest is probably in improving your own skills – your ability to make an income for yourself no matter what the government does is your biggest asset.
Scott, I hope these ideas help you form your decisions on what to do with your retirement funds. If you need more information, I recommend speaking with a professional financial planner. Best of luck to you!