By Cathy DeWitt Dunn
Our recent article, “Is the Federal Government Eying your 401k,” raised awareness—and a few eyebrows––across the blogosphere, social media, and more.
As we suspected, it also raised a lot of questions.
Following are just a few questions we have received regarding this very complicated subject. We will continue to address additional questions as our readers send them. And, as always, you are welcome to give us a call anytime at 972.473.4700 to discuss your specific questions and concerns.
“How is the value of a fixed index annuity protected if the dollar collapses?” The key word to focus on here is “value.” If the dollar collapses, a dollar won’t be worth much of anything no matter what you are invested in or have in your bank account. Thus, there’s no true way to protect a dollar against losing value outside of just not owning dollars. As insurance products, fixed index annuities (FIAs) provideprincipal protectionguaranteed by the issuing insurance company. Therefore, in the worst possible scenario, in a total economic collapse (and the insurance company happens to survive) your principal plus any interest earned would still be “the same” amount. If you started with $100,000, you would still have $100,000. However, the purchasing power (“value”) of those dollars would be decimated. If you take a not-the-worst-case-scenario approach and just believe we’re in for a rocky market ride, then a FIA with its principal protection and ability to make money in up markets and down may be a good option for you.
“If I’m in a FIA why can’t the government force me to liquidate it and put the proceeds into their forced retirement accounts?” This is difficult to answer because, well, if the government decides to run amok…the government will have tried its best to run amok. Our take on this is that there are very different laws governingcontracts. An annuity purchase (made from your IRA) is a legal contract between you and the insuring company. The question then becomes “Does the government really want to take on contract law in order to confiscate your money?” It may … but it’s a huge hurdle above and beyond its proposed intent of confiscating retirement money held in brokerage accounts.
“Do you have options for annuities in foreign currencies like a Swiss Fixed Index Annuity?” Unfortunately, there is not a foreign currency-based annuity available in the market.
Remember, there are numerous options available for retirement planning in an ever-changing and uncertain economy; however there is no “one size fits all” financial strategy as some seem to think. We strongly suggest that you consult with a retirement planning expert to discuss your own personal situation and your options.
Once again, feel free to contact us with your own questions.
RELATED >> Is the Federal Government Eyeing Your 401k?
FAQs
If the dollar collapses, your 401(k) would lose significant value. Exponential inflation would result if the dollar collapsed, decreasing the real value of the dollar compared with other global currencies, which, in effect, would reduce the value of your 401(k).
What happens to my 401k if the bank collapses? ›
A bank failure is unlikely to impact your retirement funds if they are held in separate accounts and managed by a reputable custodian or investment firm.
How do I protect my 401k from an economic collapse? ›
5 steps to protect your 401(k) investments
- Continue contributing to your 401(k) plan. First and foremost, don't abandon your retirement planning during a recession. ...
- Maintain a well-diversified portfolio. ...
- Consider investing in defensive stocks. ...
- Opt for value over growth stocks. ...
- Make room for income-producing assets.
Stock market crashes can lead to 401(k) losses, but often, these are only short-term setbacks. As long as you've diversified your savings among many companies and sectors and you're not investing too aggressively for your risk tolerance, you will likely see your portfolio rebound in time. Patience is key here.
What happens to Social Security if the dollar collapses? ›
Since the trust funds allow the Social Security Administration to pay benefits when program costs exceed tax revenues, benefits would have to be cut once the trust funds were exhausted.
Where to put your money if the dollar collapses? ›
Some investors may choose to invest in asset classes considered safe-haven assets, such as government bonds or gold. Others may invest in volatile asset classes, such as stocks or commodities.
Can you lose all your money in a 401 K if the market crashes? ›
What Happens to My 401(k) If the Stock Market Crashes? If you are invested in stocks, those holdings will likely see their value fall. But if you have several years until you need your retirement account money, keep contributing, as you may be able to buy many stocks on sale.
Can your company take money out of your 401k? ›
If your account has a vested balance of less than $1,000, your employer may force you out and pay the amount left in your account with a check, or roll your funds into an IRA of their choosing.
Can a bank take your 401k? ›
If you're struggling with debt, you may worry that the funds in your company 401(k) account could be tapped by creditors to satisfy your financial obligations. Fortunately, those assets are generally safe from seizure or garnishment by creditors, such as banks, at least as long as they remain in the 401(k) account.
Should I cash out my 401K before economic collapse? ›
“Don't let a recession deter you from adding money into your 401(k). Don't let yourself make an emotional decision due to a recession or bear market.” Taking money out of the market during times of volatility can have the opposite effect of what you might be trying to accomplish in the long run.
In the meantime, here are seven investments that can help create a balance of income and growth:
- Dividend-paying blue-chip stocks.
- Municipal bonds.
- Stable value funds.
- Real estate investment trusts.
- Index funds.
- High-yield savings accounts.
- Certificates of deposit.
Legally, there are no restrictions on how long a company can keep a 401(k) plan frozen. Normally, however, management wishes to rectify the situation as soon as possible. In the event that your 401(k) plan is frozen indefinitely, you do have the option to roll it into an IRA and manage it on your own.
Is my 401k ever going to recover? ›
Retirement 401(k) account balances lost nearly one-quarter of their value in 2022, but there is still the potential for a comeback this year, one expert says.
Should I just cash out my 401k? ›
As much as you may need the money now, by taking a withdrawal or borrowing from your retirement account, you're interrupting the potential for the funds to grow through tax-deferred compounding — and that could make it more difficult for you to reach your retirement goals, Walker notes.
How to stop a 401k from losing money? ›
Portfolio diversification should be a priority for every retirement saver. This concept basically relates to spreading your 401(k) contributions across several different categories of investments. This is done to limit risk and 401(k) losses.
Will I lose all of my 401k if the market crashes? ›
What Happens to My 401(k) If the Stock Market Crashes? If you are invested in stocks, those holdings will likely see their value fall. But if you have several years until you need your retirement account money, keep contributing, as you may be able to buy many stocks on sale.
Should I cash out my 401k before economic collapse? ›
“Don't let a recession deter you from adding money into your 401(k). Don't let yourself make an emotional decision due to a recession or bear market.” Taking money out of the market during times of volatility can have the opposite effect of what you might be trying to accomplish in the long run.
Is 401k money guaranteed? ›
While traditional pensions promise retirees a fixed monthly benefit for the rest of their lives, 401(k)s and other defined contribution plans offer no such guarantees.
Can you deplete your 401k? ›
However, early withdrawals deplete retirement savings permanently and, minus a few exceptions, carry a 10% penalty and an income tax bill. 1 A company's human resources department can help you explore your options.
