The American Retirement Crisis

by Addison Wiggin & Ian Mathias

  • Retirement picture worsens again: 401(k) “hardship withdrawals” hit a record

  • Dollar up, euro down as French leaders interrupt August vacation (!) for crisis summit

  • The yen at a critical juncture… Our currency specialist calls where it goes from here

  • What happened to the epic wheat rally? Alan Knuckman threshes for answers

  • Readers write: Oil consumption, the Russian Revolution, Social Security


  Just when it looked as if the baby boomer retirement picture couldn’t get any worse, it did. The number of workers making “hardship withdrawals” from their 401(k) plans hit a record during the second quarter, according to Fidelity.

A hardship withdrawal is something you take when you’re still working and still on the company plan… provided you can prove to the IRS you’re having a genuine “hardship.” 62,000 Fidelity 401(k) account holders took that step during Q2… compared to 45,000 in the same period a year ago. Ouch.

Granted, the IRS has a pretty loose definition of “hardship,” judging by this part of the press release accompanying Fidelity’s report: “Plan sponsors report that the top reasons why participants are taking hardship withdrawals are to prevent foreclosure or eviction, pay for college and the purchase of a primary residence.”

OK, foreclosure would be a genuine hardship. (Never mind that 401(k)s are usually untouchable in bankruptcy, so it makes next to no sense to tap into those funds to keep your home… but we digress.)

But a home purchase or college tuition? Let’s get this straight: These people are tapping into their retirement nest egg… paying income tax on it… plus the 10% early withdrawal penalty if they’re younger than 59½… to make their measly 3.5% FHA down payment? Or the kid’s tuition for next semester? The mind reels.

Meanwhile, 11% of Fidelity’s 11 million account holders borrowed against their plans in the last year. That brings the total with loans outstanding to 22%, a 10-year high.

  Just to put these numbers into larger perspective, 43% of all workers say they have $10,000 or less in savings of any kind, retirement or otherwise, according to the Employment Benefit Research Institute. That’s up from 39% in 2009. And 27% have less than $1,000.

That same survey, conducted earlier this year, says 24% of workers postponed their planned retirement age during the previous 12 months.

Let’s hope they’re not counting on Social Security…

  Someone in Washington floated a trial balloon in today’s Wall Street Journal about benefit cuts, tax increases or both to support Social Security.

It’s no great shock that President Obama’s blue-ribbon deficit commission is studying the matter. But a few specifics are now being thrown out there, just to see what the reaction in Congress might be…

• Raise the retirement age (currently, it reaches 67 in 2027)

• Means testing benefits

• Trimming annual cost-of-living increases

• Raising the cap on income subject to the Social Security tax (currently $106,000)

• Raising the tax rate.

"Are Republicans willing to sign onto a tax increase, and are Democrats ready to sign onto a benefit cut? I think the answer is probably yes in both cases if the other is willing to do it," says commission member Alice Rivlin, one of the many voices of I.O.U.S.A.

The commission issues its recommendations Dec. 1. Plan accordingly to provide for your retirement income. Here’s one way you can get started.

  The stock market is adding onto yesterday’s losses. At 1,070, the S&P 500 is hanging onto technical support levels for dear life.

  Countering the typical trend for 2010, gold is down while the dollar is up. Spot gold goes for $1,224 as we write, while the dollar index is up sharply, past the 83 level.

The euro (which makes up more than half the dollar index) is down more than 1%, to $1.268. That’s in large part because…

  French President Nicolas Sarkozy has called his senior advisers away from their August break to discuss a fresh round of budget cuts, under threat of a downgrade from Moody’s.

Well, “threat” might be too strong a word. Moody’s says France is “well-positioned” to keep its AAA rating, but the “distance to downgrade” is shorter than it used to be.

Sarkozy hopes to cut France’s deficit from 8% of GDP this year to 3% by 2013. Among other measures, he’s looking to raise the minimum retirement age from 60 to 62. Quelle horreur!

  “The dollar-yen pair is providing a summer fireworks show,” says our currency specialist Abe Cofnas. “The implications are enormous from a technical and fundamental point of view. Both forces are coming together and are now at a key monthly multiyear support at 85.40.

”The price action here could break down and begin a panic in the global markets because too strong a yen creates huge imbalances in global capital flows, which creates a collapse of any expectations of Japanese growth.” That is, if the yen appreciates, it’s bad for Japanese exports, and Japan heads into another down leg of its perma-recession.


”Global sentiment takes time to reflect economic shifts,” says Abe, “or perhaps more accurately, economic shifts need time to reflect global sentiments! We don't know exactly when, but the potential for a reversal moving up is great.”

We’re getting closer to the relaunch of our forex service with Abe at the helm. When it’s ready, you’ll be among the first to know.

  "The wheat market has made a huge move,” says Resource Trader Alert’s Alan Knuckman, “but needs another catalyst or issues to develop elsewhere in the world to drive prices higher.”

Wheat has fallen in seven of the last 10 trading sessions, after hitting $8 a bushel on news of Russia’s export ban. Still, new catalysts can develop almost out of nowhere, as Alan explains in this MarketWatch article also featuring Chris Mayer: "The dynamic agricultural markets are always at risk of explosive rallies if the growing seasons have problems.

"Right now, other parts of the world are ready to make up for the decline in Russia, but it illustrates how quickly price volatility emerges with the upside risks of disruptions or weather issues.”

“The dollar decline is a much-overlooked aspect of the recent grain rally,” Alan wrote this week to members of Resource Trader Alert. “U.S. grain is much more attractive to global buyers with the present currency discount. That has added another layer of price support, with additional demand to push corn and beans higher last week.”

  The Russian drought is also bullish for corn, Alan says. With less wheat and barley coming out of eastern Europe, corn becomes a cheaper source of feed. That’s great news for U.S. corn producers. All that surplus they expect to harvest soon? They can export it. No wonder corn remains more than 10% above its levels of two months ago.

“Bullish news like this is finally starting to get digested in the corn market,” says Alan.  “Remember, until now, all we’ve heard is news of a bumper crop for corn — but, as I’ve stated before, high expectations can let you down.  I’ll be keeping an eye on the grains in the weeks to come.”

Earlier this month, Alan closed out a corn position after just one week for 83% gains. That’s on top of other gains of 103% and 187% within the last 30 days. To learn how folks just like you are growing their account balances by multiples of seven, 10, even 16 times… here’s where to go.

  “The graph of per capita oil consumption is astonishing,” writes a reader responding to something we showed in Monday’s edition. “The '30s Depression and World War II correlate with tiny blips in a rising curve to the '70s, and there is a slightly larger blip in the early '70s corresponding to the first oil crisis.  Then, from 1978-1983, there is very large uninterrupted decrease and a similar, though slightly less dramatic, change in China!  Why?


“My first thought is the transition from oil to gas in large power plants.  Other contributors: the price of oil, automobile fuel economy in China at that time, big population increase?”

The 5: Your first thought is a pretty good one. Peter Tertzakian, in The End of Energy Obesity, reminds us that oil made up about 20% of America’s power-generation mix until the energy shocks of the '70s pushed us to use more coal and uranium. Today in the developed world, oil is used almost exclusively for transportation.

  “Your reader attempting to correct facts of Russia in 1917 has just further confused things,” writes an astute reader (who speaks for a couple others who wrote in).  “Lenin and Trotsky had nothing to do with the authentic Russian Revolution of February 1917, which led to the Czar's abdication.  (Lenin wasn't even in Russia then.)

“It is important to realize that there were two Russian Revolutions in 1917: the popular one in February and then the coup of October, in which the Bolsheviks, led by Lenin and Trotsky, seized power from the democratic Kerensky regime and the elected Duma.” 

  “I enjoyed reading your 5 Min. Forecast until recently when you started to bash Glenn Beck.  I now see that you mention more often than not CNBC and George Soros.  I personally do not watch or respect either. They are both as far-to-the-left liberal progressive base you can get.  We all know King Obama is very close to Soros and the NBC gang.

“Don't think for a minute that Czar Soros does not have inside information.  A lot of left progressives are getting very wealthy with the green environmental issues that are going on these days.”

The 5: So you’d rather remain ignorant of what “the enemy” is up to?

  “I have found the ongoing debate on Social Security to be rather amusing, at least in a comic-tragedy sense.  Like one of your readers, I too have known that the 'government began stealing this money back around 1960, when they first started transferring from SS to the general.'  But unlike this reader, who thinks 'the government owes me this money,' I have always known that the money I contributed was no longer mine.  It was a tax, nothing more or less.”


“As this particular Ponzi scheme draws to a close, it is going to be very amusing watching the politicians either figure out how to keep the promises their predecessors made or figure out how they can squirm out of them.  For years, I figured they would inflate their way out of it.  Now I'm not so sure.  It's going to be very interesting to see how Rome, er, I mean the USA, deals with this. Caveat emptor!”

  “People have a right to be upset about Social Security whether they feel they are entitled to receive payments or entitled to be shed of the corrupt system altogether.  I think most subscribers are missing the point.  The problem is our entire fiscal and monetary policies of the past 50 years are reaching their endgame, and the 'can' can't be kicked down the road to even the next generation anymore.

“Complain if you want — heck, write an angry letter to your congressman — but it is not going to change a damn thing.  The dollar is toast and going to take all payments denominated in dollars with it.  It is time to grow up: The world is changing and it doesn't suffer fools.  How long do we have left?  I have no idea. All I know is the clock is ticking.”

The 5: You’re right. In fact, Social Security is due to take another hit just 41 days from now. You can learn the dirty details, along with what you can do about it, right here.

Have a good weekend,

Dave Gonigam

The 5 Min. Forecast

P.S. As long as we’re on the subject of retirement, have you seen the “secret retirement blueprint” prepared by one of our top analysts?



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