How the Government Caused the Depression of 2016

I work in finance and specifically with retirement accounts, but when I read a portion of an email, I was stunned by not thinking of the repercussions of tax deferred investments.  Look at this:

Did You Know An Obscure 38-Year-Old Law

Almost Guarantees A Stock Market Crash In 2012-2016?

The crash could start as early as this year – all because of a short-sighted law passed 38 years ago called ERISA.

And the scary part is, it doesn’t matter who gets elected this November.  It’s likely too late to stop it. 

Here’s what you need to know…

ERISA is a bill passed in 1974 that brought us IRAs and 401(k)s. And since then millions of workers have been stuffing money into these retirement accounts.

That’s nearly 40 years of savings and wealth inside IRAs and 401(k)s.  And almost half (48%) of that wealth is invested in the stock market.

Here’s where it gets dangerous…

ERISA threatens retirees with losing 50% of their retirement account if they don’t exit the stock market by age 70.

Once a retiree turns 70 and 1/2 years-old, starting the next April 1st they must start withdrawing at least the required minimum each year… or else pay a large penalty.

So what happens if a large demographic starts turning 70 all at the same time… like the baby boomers will starting in 2016?

They will leave and the stock market will tank.  The sudden drop will cause more investors to leave the stock market, and the full-blown crash will be upon us.

Many baby-boomers, having past age 65, are already retiring and taking their money out of stocks

Of course, this email was part of a marketing plan to get me to invest in something, but the logic behind the message makes sense. At 70 1/2, a person must start taking a minimum required distribution every year. This can be once a year, quarterly or monthly. You can take it from various sources, but the point is that you have to start taking out a portion of these tax-deferred investments so that the government can collect taxes on your money.

The problem comes with accounts that are variable or stock based in nature. In order to take a distribution, you must sell stocks/mutual funds/ETFs or whatever investment vehicle you have been making money on. When too many people sell off at one time, the price goes down. This won’t be due to a lack in consumer confidence but an unavoidable event. If the market has not corrected or at least become more stable by this time, you are looking at the next depression.

Emergency Essentials/BePrepared
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