Author Topic: US Gov. Retirement asset confiscation?  (Read 13329 times)

cheapass

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US Gov. Retirement asset confiscation?
« on: December 28, 2015, 08:38:33 AM »
I've been allocating a great majority of my investments into my employer sponsored 401k for the obvious tax benefits - I plan on being in a lower bracket post-FI than we are currently in.

Recently I have been concerned about potential confiscation of retirement funds/mandatory conversion to treasury notes, etc. It may seem like a theory for the tinfoil hat club but it has happened in several European countries before, and with the unsustainable debt spiral we are currently in, the retirement accounts seem like a prime target for a fat greedy government with a spending problem. All it takes for the game to completely change is the stroke of a pen on some bureaucrat's desk.

Has anyone factored this possibility into their asset allocation strategy? I'd love to hear others' thoughts on it.

pbkmaine

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Re: US Gov. Retirement asset confiscation?
« Reply #1 on: December 28, 2015, 08:41:54 AM »
No, I have not factored it in. This is not even in the top 1000 of things I am worried about.


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arebelspy

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US Gov. Retirement asset confiscation?
« Reply #2 on: December 28, 2015, 08:52:27 AM »
This is not even in the top 1000 of things I am worried about.

+1.

Our government is nothing like Cyprus, and if it was, we'd see it coming quite a long way off.

Some people would be in denial, of course, and still do nothing, but we're nowhere close to that, and there are many, many better ways to deal with our debt.
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Re: US Gov. Retirement asset confiscation?
« Reply #3 on: December 28, 2015, 08:53:45 AM »
Even supposing I did believe that was remotely likely, how would I use this information to change my investment decisions? Surely a taxable brokerage account wouldn't be much safer if the government just started confiscating peoples' money. Gold under the mattress? That has actually been banned before in real life, so I wouldn't count on that either.

dcheesi

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Re: US Gov. Retirement asset confiscation?
« Reply #4 on: December 28, 2015, 08:55:15 AM »
The US is not Europe. Nationalizing assets, especially personal assets, just doesn't fly here; it's antithetical to our political mythology. They'd be much more likely to go after government programs like Social Security first. By the time we got to something as drastic as what you're suggesting, you'd have a lot more to worry about than just your retirement account balance....

ShoulderThingThatGoesUp

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Re: US Gov. Retirement asset confiscation?
« Reply #5 on: December 28, 2015, 08:56:11 AM »
I believe that our government is more like Cyprus's than many people think, but the scenario this happens in is absolutely catastrophic and it's unlikely that this would be my top concern in the conditions when it would happen.

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Re: US Gov. Retirement asset confiscation?
« Reply #6 on: December 28, 2015, 09:20:04 AM »
The opportunity cost of the "insurance" you would have to buy to protect against such an event would be so expensive, it is not even worth consideration.

arebelspy

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Re: US Gov. Retirement asset confiscation?
« Reply #7 on: December 28, 2015, 09:50:53 AM »
I believe that our government is more like Cyprus's than many people think, but the scenario this happens in is absolutely catastrophic and it's unlikely that this would be my top concern in the conditions when it would happen.

The key difference is we control our currency, they don't. Thus we have other options to deal with debt they didn't, which would make seizure pointless.

It would also make our assets rapidly lose value, so you need to be invested to prepare for that scenario, if you think it's plausible, but seizure seems very implausible.
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LAGuy

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Re: US Gov. Retirement asset confiscation?
« Reply #8 on: December 28, 2015, 10:09:01 AM »
Yeah, nobody is going to grab your stuff here. What certainly could happen, however, is government money printing might drive inflation reducing the value of your accounts. Or, tax brackets could change. Or, Roth IRA conversions might be shut down. Plenty of things could happen that would be a de facto money grab. Some might even argue that the current low interest rate environment is a harmful money grab on savers - that is retirees expecting to live off of their CD's or something.

cheapass

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Re: US Gov. Retirement asset confiscation?
« Reply #9 on: December 28, 2015, 10:12:10 AM »
I believe that our government is more like Cyprus's than many people think, but the scenario this happens in is absolutely catastrophic and it's unlikely that this would be my top concern in the conditions when it would happen.

The key difference is we control our currency, they don't. Thus we have other options to deal with debt they didn't, which would make seizure pointless.

It would also make our assets rapidly lose value, so you need to be invested to prepare for that scenario, if you think it's plausible, but seizure seems very implausible.

Perhaps seizure is more far-fetched, but I can envision a scenario where the government forces a 401k conversion to T-bills, essentially "nationalizing" the private retirement system. Of course, it would be for the good of the victims, to get their money out of the hands of the greedy Wall Street bankers. I'm sure they would provide you a generous "safe" yield of .5% or even 1% annually.

I don't plan on ceasing contributions into the 401k plan, but additional investment dollars I may explore some offshore options. Post-tax dollars outside of IRS control would be preferable.
« Last Edit: December 28, 2015, 10:18:00 AM by armueller2001 »

cheapass

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Re: US Gov. Retirement asset confiscation?
« Reply #10 on: December 28, 2015, 10:16:24 AM »
This is not even in the top 1000 of things I am worried about.

+1.

Our government is nothing like Cyprus, and if it was, we'd see it coming quite a long way off.

Some people would be in denial, of course, and still do nothing, but we're nowhere close to that, and there are many, many better ways to deal with our debt.

Other than accelerating the issuance of T-bills (printing money) and devaluing the currency, what options are left? There will be a tipping point at which the debt is unsustainable and the government defaults on its obligations.

Options at that point will be 1) increase taxes (likely on high net worth individuals, aka mustachains), 2) decrease spending (unlikely), 3) raid the cookie jar of tax-advantaged retirement accounts, 4)...?

matchewed

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Re: US Gov. Retirement asset confiscation?
« Reply #11 on: December 28, 2015, 10:44:33 AM »
Fear mongering about things which are not even being discussed on a legislative level is useless and silly.

At best it's just going to be rhetorically framed into a scenario that makes it seem inevitable... oh wait that was already done.

At worst you're spreading fear which makes people act irrationally.

Not worth wasting your time on unless you see a move within the government.

Telecaster

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Re: US Gov. Retirement asset confiscation?
« Reply #12 on: December 28, 2015, 11:01:20 AM »
Other than accelerating the issuance of T-bills (printing money) and devaluing the currency, what options are left? There will be a tipping point at which the debt is unsustainable and the government defaults on its obligations.

Options at that point will be 1) increase taxes (likely on high net worth individuals, aka mustachains), 2) decrease spending (unlikely), 3) raid the cookie jar of tax-advantaged retirement accounts, 4)...?

Actually, the first option almost certainly would be increase taxes on high income individuals.  It is not entirely clear a wealth tax would be constitutional anyway.   The states can tax wealth, but the federal government might not be able to. 

But that's putting the cart before the horse.   You keep saying there is an unsustainable debt spiral, but is there?    The deficit expressed a percentage of GDP has decreased every year for the last six years, down to about 2.8% of GDP last year.   While a lot of money, that's not particularly high by historical standards and the trend is that the debt is becoming easier to manage, not harder.   If we were to return to roughly Bill Clinton-era levels of taxation, that deficit would be mostly wiped out.

In short, the debt is a problem but a manageable one for the foreseeable future. 

soupcxan

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Re: US Gov. Retirement asset confiscation?
« Reply #13 on: December 28, 2015, 11:04:37 AM »
No one in Washington is going to "seize" your 401k. But I would not be surprised if someday your retirement accounts count against you for means testing SS. Or if a new tax on Roth withdrawals is imposed (regardless of the fact that it was originally after-tax money). Because after all, anyone with retirement savings is "rich" so naturally that should be shared with everyone else who didn't save...

jim555

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Re: US Gov. Retirement asset confiscation?
« Reply #14 on: December 28, 2015, 01:06:44 PM »
US gov can print its way out.  Your assets will be there, just won't buy much.

One Noisy Cat

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Re: US Gov. Retirement asset confiscation?
« Reply #15 on: December 28, 2015, 02:00:21 PM »
    I don't worry too much about it but I've been doing some reading on the Lindbergh baby kidnapping in 1932. Some of the money was in gold certificates and when they were taken out of circulation, it helped catch Hauptmann as the serial numbers were recorded and gas station attendants were told to record license plate numbers. Hauptmann claimed he was holding the money for a friend who went to Germany,died there, while owing him and life in in Weimar republic hyperinflation left him wary of turning in gold.
      On the other hand, the idea of homosexual marriage was for decades considered ridiculous (I watched "Babes in Toyland" on Christmas).

Bateaux

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Re: US Gov. Retirement asset confiscation?
« Reply #16 on: December 28, 2015, 04:48:23 PM »
It wasn't the government but a private company who legally confiscated my pension.   The company I work for was sold and bought by another corporation.  The pension I worked toward for 20 years was eliminated and replaced with a much lesser cash value.  I'll receive less than half of what I was expecting to receive now.  I fear corporations far more that the government now.

Indexer

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Re: US Gov. Retirement asset confiscation?
« Reply #17 on: December 28, 2015, 07:57:48 PM »
It takes a whole lot more than the stroke of a pen.

You need a majority in the house, the senate, and a president to sign off on it.

Raiding every 401k in the country. I'm trying REALLY hard to think of a more unpopular possible vote. 10 year prison sentences for speeding tickets?  Average americans have 401ks. Republicans and democrats. The wealthy and the middle class, and even some of the poor. The banks/investment firms would really hate this, and if we learned anything from 2008 it is that they have really influential lobbyists.

Fixing social security, even as unpopular as that is, would be easier to pass through our government than raiding 401ks.

And as noted the US government can print money and borrow money from the Fed. Inflation because of the money printing is more likely than raiding 401k.

JR

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Re: US Gov. Retirement asset confiscation?
« Reply #18 on: December 29, 2015, 08:02:39 AM »
I've been allocating a great majority of my investments into my employer sponsored 401k for the obvious tax benefits - I plan on being in a lower bracket post-FI than we are currently in.

Recently I have been concerned about potential confiscation of retirement funds/mandatory conversion to treasury notes, etc. It may seem like a theory for the tinfoil hat club but it has happened in several European countries before, and with the unsustainable debt spiral we are currently in, the retirement accounts seem like a prime target for a fat greedy government with a spending problem. All it takes for the game to completely change is the stroke of a pen on some bureaucrat's desk.

Has anyone factored this possibility into their asset allocation strategy? I'd love to hear others' thoughts on it.

Is the US really in an unsustainable debt spiral? The estimated net worth of the Federal government (which is "the people") including all natural resources is nearly $1 quadrillion. Offshore oil reserves alone were estimated at $128 trillion (probably before the drop in oil prices though). This is what people always forget about when talking about our national debt. Context matters, would it matter if an individual was $18 million in debt if they were worth $1 billion?
« Last Edit: December 29, 2015, 08:04:21 AM by JR »

ncornilsen

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Re: US Gov. Retirement asset confiscation?
« Reply #19 on: December 29, 2015, 08:15:37 AM »
It wasn't the government but a private company who legally confiscated my pension.   The company I work for was sold and bought by another corporation.  The pension I worked toward for 20 years was eliminated and replaced with a much lesser cash value.  I'll receive less than half of what I was expecting to receive now.  I fear corporations far more that the government now.

They probably did you a favor. Pensions can drag a company under, and how much do you think the federal pension insurance would have paid you? pennies on the dollar.

pensions are a thing of the past, I'll never count on one. (even though I have one through work.)

JZinCO

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Re: US Gov. Retirement asset confiscation?
« Reply #20 on: December 29, 2015, 08:27:05 AM »
I believe that our government is more like Cyprus's than many people think, but the scenario this happens in is absolutely catastrophic and it's unlikely that this would be my top concern in the conditions when it would happen.

The key difference is we control our currency, they don't. Thus we have other options to deal with debt they didn't, which would make seizure pointless.

It would also make our assets rapidly lose value, so you need to be invested to prepare for that scenario, if you think it's plausible, but seizure seems very implausible.
Perhaps seizure is more far-fetched, but I can envision a scenario where the government forces a 401k conversion to T-bills, essentially "nationalizing" the private retirement system. Of course, it would be for the good of the victims, to get their money out of the hands of the greedy Wall Street bankers. I'm sure they would provide you a generous "safe" yield of .5% or even 1% annually.
I can also envision a scenario where ideological radicals get a hold of nuclear weapons and plant a dirty bomb in a major US city. I think it is a very real concern but I have good reason to believe that the forces of non proliferation are effective.

Consider the old economic framework of expectation value ( EV= P*C where EV is expectation value, P is probability and C is cost). If EV of an event is higher than your trigger value, you have to mitigate. For most people, EV from radical changes to their retirement is miniscule because we have good reason to believe that the fed gov will maintain our current system.
As pointed out, even if EV is high, what're you going to do about it? Stash your gold in my residence, a nuclear fallout bunker ?

Tyler

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Re: US Gov. Retirement asset confiscation?
« Reply #21 on: December 29, 2015, 10:21:40 AM »
The issue has definitely come up among policy wonks, so I don't completely dismiss the fear.  They know it's toxic, though, and tend to discuss it in terms of either "economic fairness" or "protecting people from bad investments".  Put it in the right terms, and more voters will support it than you probably want to believe.

That said, many other things will happen before that -- such as making it even more difficult than it already is to invest overseas, phasing out the preferential tax treatment on various retirement accounts, or perhaps even proposing new alternatives.  So the real issue is what other options you'll have.  We simply don't know right now, so while gaming out what you might do in such a situation is fine, losing sleep over it probably isn't the best use of your time. 

TheNick

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Re: US Gov. Retirement asset confiscation?
« Reply #22 on: December 29, 2015, 10:47:07 AM »
I'm not concerned about my money being confiscated as much as I am that tax rates are going to be higher in the future.  Maybe wealth confiscation is a bit far fetched but they can certainly change the rules at any time, and I doubt they'd be to the benefit of those with a million plus sitting in retirement accounts.

None of the candidates running for office even seem to have a legitimate plan for balancing the budget either...we have Trump that wants to cut taxes by 9 trillion over the next decade and Sanders that wants to increase spending by 17 trillion over the next decade...neither one of those is possible without the debt increasing, which can't go on forever, or massive increase in taxes which you'd have to be nuts to think won't trickle down to the middle class.

I'm also in a state with income tax at the moment, and I don't plan on this being the case forever...so if my 401k now means no state tax and I can pull it out in an income tax free state down the road from now...that's definitely a huge win.  Even if I RE and plan to let the money in my 401k compound a few more years rather than immediate SEPP and an emergency happens...that 10% penalty doesn't seem too bad when I'm sitting in a 6% state income tax bracket now anyhow.

Long story short I don't think you'll ever regret having money in retirement accounts, but I do think people who end up with "too much" in them will end up regretting it as I'm extremely doubtful tax rates will be the same or lower 20 years down the road from now.

ShoulderThingThatGoesUp

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Re: US Gov. Retirement asset confiscation?
« Reply #23 on: December 29, 2015, 10:51:22 AM »
I believe that our government is more like Cyprus's than many people think, but the scenario this happens in is absolutely catastrophic and it's unlikely that this would be my top concern in the conditions when it would happen.

The key difference is we control our currency, they don't. Thus we have other options to deal with debt they didn't, which would make seizure pointless.

It would also make our assets rapidly lose value, so you need to be invested to prepare for that scenario, if you think it's plausible, but seizure seems very implausible.

There are certainly lots of differences - a hostile irredentist proto-theocracy doesn't occupy a third of our territory, for example - I'm just not blase about the national debt and I think that if it were phrased the right way the action would have considerable support among enough of the population to take place. Didn't the Cypriot government frame it as just taking from rich Russian mobsters?

If Donald Trump came out in favor of it as a swipe against the banks and said it would pay for a border wall and wiping out the Islamic State, 1/3 of the people we make fun of on the Wall of Shame and Comedy would say "YEAH!"

(Chrome doesn't think irredentist is a word. It is.)

JLee

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Re: US Gov. Retirement asset confiscation?
« Reply #24 on: December 29, 2015, 10:54:11 AM »
I'm not concerned about my money being confiscated as much as I am that tax rates are going to be higher in the future.  Maybe wealth confiscation is a bit far fetched but they can certainly change the rules at any time, and I doubt they'd be to the benefit of those with a million plus sitting in retirement accounts.

None of the candidates running for office even seem to have a legitimate plan for balancing the budget either...we have Trump that wants to cut taxes by 9 trillion over the next decade and Sanders that wants to increase spending by 17 trillion over the next decade...neither one of those is possible without the debt increasing, which can't go on forever, or massive increase in taxes which you'd have to be nuts to think won't trickle down to the middle class.

I'm also in a state with income tax at the moment, and I don't plan on this being the case forever...so if my 401k now means no state tax and I can pull it out in an income tax free state down the road from now...that's definitely a huge win.  Even if I RE and plan to let the money in my 401k compound a few more years rather than immediate SEPP and an emergency happens...that 10% penalty doesn't seem too bad when I'm sitting in a 6% state income tax bracket now anyhow.

Long story short I don't think you'll ever regret having money in retirement accounts, but I do think people who end up with "too much" in them will end up regretting it as I'm extremely doubtful tax rates will be the same or lower 20 years down the road from now.

What's the alternative, to have extra money in taxable accounts and pay tax on it down the road anyway?

soupcxan

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Re: US Gov. Retirement asset confiscation?
« Reply #25 on: December 29, 2015, 11:08:28 AM »
It wasn't the government but a private company who legally confiscated my pension.   The company I work for was sold and bought by another corporation.  The pension I worked toward for 20 years was eliminated and replaced with a much lesser cash value.  I'll receive less than half of what I was expecting to receive now.  I fear corporations far more that the government now.

That doesn't make any sense - corporations can't reduce the pension benefit you already earned.

LAGuy

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Re: US Gov. Retirement asset confiscation?
« Reply #26 on: December 29, 2015, 11:36:34 AM »
It wasn't the government but a private company who legally confiscated my pension.   The company I work for was sold and bought by another corporation.  The pension I worked toward for 20 years was eliminated and replaced with a much lesser cash value.  I'll receive less than half of what I was expecting to receive now.  I fear corporations far more that the government now.

That doesn't make any sense - corporations can't reduce the pension benefit you already earned.

Why not? He said they were bought by another company. I'm sure it was all "negotiated" ahead of time. "Bankruptcy and the Federal Pension Guarantee or this slightly better, renegotiated package? Your call employees."

OkieStache

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Re: US Gov. Retirement asset confiscation?
« Reply #27 on: December 29, 2015, 11:46:52 AM »
Sounds like they changed from a defined benefit plan to a cash balance plan.  Perfectly legal.  In bankruptcy, pension benefits can go to zero.  Private companies have a LOT of leeway in deciding if, and what kind, they offer pensions and to change the plans.

thd7t

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Re: US Gov. Retirement asset confiscation?
« Reply #28 on: December 29, 2015, 12:42:02 PM »
I'm not concerned about my money being confiscated as much as I am that tax rates are going to be higher in the future.  Maybe wealth confiscation is a bit far fetched but they can certainly change the rules at any time, and I doubt they'd be to the benefit of those with a million plus sitting in retirement accounts.

None of the candidates running for office even seem to have a legitimate plan for balancing the budget either...we have Trump that wants to cut taxes by 9 trillion over the next decade and Sanders that wants to increase spending by 17 trillion over the next decade...neither one of those is possible without the debt increasing, which can't go on forever, or massive increase in taxes which you'd have to be nuts to think won't trickle down to the middle class.

I'm also in a state with income tax at the moment, and I don't plan on this being the case forever...so if my 401k now means no state tax and I can pull it out in an income tax free state down the road from now...that's definitely a huge win.  Even if I RE and plan to let the money in my 401k compound a few more years rather than immediate SEPP and an emergency happens...that 10% penalty doesn't seem too bad when I'm sitting in a 6% state income tax bracket now anyhow.

Long story short I don't think you'll ever regret having money in retirement accounts, but I do think people who end up with "too much" in them will end up regretting it as I'm extremely doubtful tax rates will be the same or lower 20 years down the road from now.
Regardless of the fact that discussing Trump and Sanders as "the options" is hilarious, as neither has a snowball's chance of getting elected, discussing their "policies" is pointless, because neither would have the remotest chance of getting their agenda through if (by some miracle) he got elected.  Right now, no candidate is spending time rounding out a budget, because this isn't the time for that.

adamwoods137

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Re: US Gov. Retirement asset confiscation?
« Reply #29 on: December 29, 2015, 02:11:24 PM »
I believe that our government is more like Cyprus's than many people think, but the scenario this happens in is absolutely catastrophic and it's unlikely that this would be my top concern in the conditions when it would happen.

The key difference is we control our currency, they don't. Thus we have other options to deal with debt they didn't, which would make seizure pointless.

It would also make our assets rapidly lose value, so you need to be invested to prepare for that scenario, if you think it's plausible, but seizure seems very implausible.
Perhaps seizure is more far-fetched, but I can envision a scenario where the government forces a 401k conversion to T-bills, essentially "nationalizing" the private retirement system. Of course, it would be for the good of the victims, to get their money out of the hands of the greedy Wall Street bankers. I'm sure they would provide you a generous "safe" yield of .5% or even 1% annually.
I can also envision a scenario where ideological radicals get a hold of nuclear weapons and plant a dirty bomb in a major US city. I think it is a very real concern but I have good reason to believe that the forces of non proliferation are effective.

Consider the old economic framework of expectation value ( EV= P*C where EV is expectation value, P is probability and C is cost). If EV of an event is higher than your trigger value, you have to mitigate. For most people, EV from radical changes to their retirement is miniscule because we have good reason to believe that the fed gov will maintain our current system.
As pointed out, even if EV is high, what're you going to do about it? Stash your gold in my residence, a nuclear fallout bunker ?

This is the only post that made any sense so far.  It's wrong to say that the probability of such an event is zero.  It also makes me scratch my head when people act as though it is so small that its not worth worrying about.  The average age of nation-states is something like 150 years.  The chance of a major disruption in the way the United states behaves over the next 50 years obviously isn't 100%, but it probably isn't much less than 10% either. 

A lifespan living off of a 401(k) can be a very long time.  The 401(k) system probably won't change much in the next 10 years, but you'd be crazy to think it'll be around in 500.  Does it have an equal chance of going away every year?  Probably not, but pretending that it's a less than 1% chance over the next 50 years probably doesn't make sense either.

In my view the most likely scenario (~20-30% over the next 30 years) is that 401(k)s with over a million dollars in them get hit with some kind of soak-the-rich tax.  I don't think its the most likely scenario, but do we really think that the populist rhetoric that's dominated this election season is going to die a quiet death?

I don't have any ready solutions, but it's probably a problem that bears thinking about once you get into a high-net-worth situation.

adamwoods137

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Re: US Gov. Retirement asset confiscation?
« Reply #30 on: December 29, 2015, 02:15:38 PM »
I'm not concerned about my money being confiscated as much as I am that tax rates are going to be higher in the future.  Maybe wealth confiscation is a bit far fetched but they can certainly change the rules at any time, and I doubt they'd be to the benefit of those with a million plus sitting in retirement accounts.

None of the candidates running for office even seem to have a legitimate plan for balancing the budget either...we have Trump that wants to cut taxes by 9 trillion over the next decade and Sanders that wants to increase spending by 17 trillion over the next decade...neither one of those is possible without the debt increasing, which can't go on forever, or massive increase in taxes which you'd have to be nuts to think won't trickle down to the middle class.

I'm also in a state with income tax at the moment, and I don't plan on this being the case forever...so if my 401k now means no state tax and I can pull it out in an income tax free state down the road from now...that's definitely a huge win.  Even if I RE and plan to let the money in my 401k compound a few more years rather than immediate SEPP and an emergency happens...that 10% penalty doesn't seem too bad when I'm sitting in a 6% state income tax bracket now anyhow.

Long story short I don't think you'll ever regret having money in retirement accounts, but I do think people who end up with "too much" in them will end up regretting it as I'm extremely doubtful tax rates will be the same or lower 20 years down the road from now.
Regardless of the fact that discussing Trump and Sanders as "the options" is hilarious, as neither has a snowball's chance of getting elected, discussing their "policies" is pointless, because neither would have the remotest chance of getting their agenda through if (by some miracle) he got elected.  Right now, no candidate is spending time rounding out a budget, because this isn't the time for that.

According to the numbers I've seen Donald Trump has roughly an 17% chance of becoming the president, Sanders is sitting at 12%. A snowballs chance 1 in 4 is not.  (Source: PredictIt).

matchewed

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Re: US Gov. Retirement asset confiscation?
« Reply #31 on: December 29, 2015, 02:17:07 PM »
I believe that our government is more like Cyprus's than many people think, but the scenario this happens in is absolutely catastrophic and it's unlikely that this would be my top concern in the conditions when it would happen.

The key difference is we control our currency, they don't. Thus we have other options to deal with debt they didn't, which would make seizure pointless.

It would also make our assets rapidly lose value, so you need to be invested to prepare for that scenario, if you think it's plausible, but seizure seems very implausible.
Perhaps seizure is more far-fetched, but I can envision a scenario where the government forces a 401k conversion to T-bills, essentially "nationalizing" the private retirement system. Of course, it would be for the good of the victims, to get their money out of the hands of the greedy Wall Street bankers. I'm sure they would provide you a generous "safe" yield of .5% or even 1% annually.
I can also envision a scenario where ideological radicals get a hold of nuclear weapons and plant a dirty bomb in a major US city. I think it is a very real concern but I have good reason to believe that the forces of non proliferation are effective.

Consider the old economic framework of expectation value ( EV= P*C where EV is expectation value, P is probability and C is cost). If EV of an event is higher than your trigger value, you have to mitigate. For most people, EV from radical changes to their retirement is miniscule because we have good reason to believe that the fed gov will maintain our current system.
As pointed out, even if EV is high, what're you going to do about it? Stash your gold in my residence, a nuclear fallout bunker ?

This is the only post that made any sense so far.  It's wrong to say that the probability of such an event is zero.  It also makes me scratch my head when people act as though it is so small that its not worth worrying about.  The average age of nation-states is something like 150 years.  The chance of a major disruption in the way the United states behaves over the next 50 years obviously isn't 100%, but it probably isn't much less than 10% either. 

A lifespan living off of a 401(k) can be a very long time.  The 401(k) system probably won't change much in the next 10 years, but you'd be crazy to think it'll be around in 500.  Does it have an equal chance of going away every year?  Probably not, but pretending that it's a less than 1% chance over the next 50 years probably doesn't make sense either.

In my view the most likely scenario (~20-30% over the next 30 years) is that 401(k)s with over a million dollars in them get hit with some kind of soak-the-rich tax.  I don't think its the most likely scenario, but do we really think that the populist rhetoric that's dominated this election season is going to die a quiet death?

I don't have any ready solutions, but it's probably a problem that bears thinking about once you get into a high-net-worth situation.

But you're going to be dead in 500 years. All we can act on is what we know now. There is little to no probability that this will happen now. The odds of you being hit by a runaway car is greater than 0. Do you cower under your bed all day when you realize this?

Furthermore there are way more many things that the government will and can do other than this one thing.

arebelspy

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US Gov. Retirement asset confiscation?
« Reply #32 on: December 29, 2015, 03:02:42 PM »
But you're going to be dead in 500 years. All we can act on is what we know now. There is little to no probability that this will happen now. The odds of you being hit by a runaway car is greater than 0. Do you cower under your bed all day when you realize this?

That was a big motivation for FIRE for me--more cowering time.
« Last Edit: December 29, 2015, 05:31:08 PM by arebelspy »
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JZinCO

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Re: US Gov. Retirement asset confiscation?
« Reply #33 on: December 29, 2015, 03:34:56 PM »
I believe that our government is more like Cyprus's than many people think, but the scenario this happens in is absolutely catastrophic and it's unlikely that this would be my top concern in the conditions when it would happen.

The key difference is we control our currency, they don't. Thus we have other options to deal with debt they didn't, which would make seizure pointless.

It would also make our assets rapidly lose value, so you need to be invested to prepare for that scenario, if you think it's plausible, but seizure seems very implausible.
Perhaps seizure is more far-fetched, but I can envision a scenario where the government forces a 401k conversion to T-bills, essentially "nationalizing" the private retirement system. Of course, it would be for the good of the victims, to get their money out of the hands of the greedy Wall Street bankers. I'm sure they would provide you a generous "safe" yield of .5% or even 1% annually.
I can also envision a scenario where ideological radicals get a hold of nuclear weapons and plant a dirty bomb in a major US city. I think it is a very real concern but I have good reason to believe that the forces of non proliferation are effective.

Consider the old economic framework of expectation value ( EV= P*C where EV is expectation value, P is probability and C is cost). If EV of an event is higher than your trigger value, you have to mitigate. For most people, EV from radical changes to their retirement is miniscule because we have good reason to believe that the fed gov will maintain our current system.
As pointed out, even if EV is high, what're you going to do about it? Stash your gold in my residence, a nuclear fallout bunker ?

This is the only post that made any sense so far.  It's wrong to say that the probability of such an event is zero.  It also makes me scratch my head when people act as though it is so small that its not worth worrying about.  The average age of nation-states is something like 150 years.  The chance of a major disruption in the way the United states behaves over the next 50 years obviously isn't 100%, but it probably isn't much less than 10% either. 

A lifespan living off of a 401(k) can be a very long time.  The 401(k) system probably won't change much in the next 10 years, but you'd be crazy to think it'll be around in 500.  Does it have an equal chance of going away every year?  Probably not, but pretending that it's a less than 1% chance over the next 50 years probably doesn't make sense either.

In my view the most likely scenario (~20-30% over the next 30 years) is that 401(k)s with over a million dollars in them get hit with some kind of soak-the-rich tax.  I don't think its the most likely scenario, but do we really think that the populist rhetoric that's dominated this election season is going to die a quiet death?

I don't have any ready solutions, but it's probably a problem that bears thinking about once you get into a high-net-worth situation.

But you're going to be dead in 500 years. All we can act on is what we know now. There is little to no probability that this will happen now. The odds of you being hit by a runaway car is greater than 0. Do you cower under your bed all day when you realize this?

Furthermore there are way more many things that the government will and can do other than this one thing.
Thanks Adam Woods. I think the approach I laid out is useful and we all use internalize the theory for everyday decision making.
I don't play the lottery because:
If the chance of winning is 1:175 million (pulled this from the interwebs) and the payoff (C) is $1,000,000 than I expect to win $0.005 each time I play a lottery. If a ticket costs $1, than each scratch comes at an expected loss of $0.995.

Adam, as has been written about black swans in finance, we collectively forget to hedge against events that are rare in nature (and usually unpredictable); you definitely have a point there. Likewise, the probability of losing our retirement accounts due to changes in federal policy are in the realm of possible. However, I think I side more with matchewed in that it's probably very, very unlikely. So unlikely in fact that, in the OP scenario, the value gained in safeguarding against a very rare event is small in comparison to a loss in value from opportunity cost. So as there is no guarantee, the risk-reward optimized strategy is in fact to continue to sock away in retirement accts

edit: Ugh I didn't need to write a lecture. Shoulda just +1's the first response :)
« Last Edit: December 29, 2015, 03:36:58 PM by JZinCO »

TheNick

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Re: US Gov. Retirement asset confiscation?
« Reply #34 on: December 29, 2015, 05:26:57 PM »
What's the alternative, to have extra money in taxable accounts and pay tax on it down the road anyway?

Nah, the alternative is to just pay my 25-28% on it today because when I'm pulling it out it may very well be taxed at 40-50%.  Don't get me wrong, I contribute to retirement accounts but I plan on throttling it down when I get closer to where I want to be, I want to make sure I don't end up with so much in retirement accounts I have to pull it out at a high tax bracket when I could just have post tax investments earning me dividends getting taxed at capital gains rates, which I'm also rolling the dice will stay significantly lower than income tax rates.

Regardless of the fact that discussing Trump and Sanders as "the options" is hilarious, as neither has a snowball's chance of getting elected, discussing their "policies" is pointless, because neither would have the remotest chance of getting their agenda through if (by some miracle) he got elected.  Right now, no candidate is spending time rounding out a budget, because this isn't the time for that.

Pick any of the candidates you want and look at their basic proposals, none of them are anywhere near budget balancing....you really don't need a line item budget to tell you that.  Unless we can somehow slash spending by 30% or raise taxes massively to offset spending increases it seems like the debt is going to be continued to get added too for at least the next presidents term.  I'm going to hate to see what tax rates are like when running up the debt no longer is a sustainable option and we have to balance the budget and start paying it down.

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Re: US Gov. Retirement asset confiscation?
« Reply #35 on: December 30, 2015, 08:42:43 AM »
What's the alternative, to have extra money in taxable accounts and pay tax on it down the road anyway?

Nah, the alternative is to just pay my 25-28% on it today because when I'm pulling it out it may very well be taxed at 40-50%.  Don't get me wrong, I contribute to retirement accounts but I plan on throttling it down when I get closer to where I want to be, I want to make sure I don't end up with so much in retirement accounts I have to pull it out at a high tax bracket when I could just have post tax investments earning me dividends getting taxed at capital gains rates, which I'm also rolling the dice will stay significantly lower than income tax rates.

Regardless of the fact that discussing Trump and Sanders as "the options" is hilarious, as neither has a snowball's chance of getting elected, discussing their "policies" is pointless, because neither would have the remotest chance of getting their agenda through if (by some miracle) he got elected.  Right now, no candidate is spending time rounding out a budget, because this isn't the time for that.

Pick any of the candidates you want and look at their basic proposals, none of them are anywhere near budget balancing....you really don't need a line item budget to tell you that.  Unless we can somehow slash spending by 30% or raise taxes massively to offset spending increases it seems like the debt is going to be continued to get added too for at least the next presidents term.  I'm going to hate to see what tax rates are like when running up the debt no longer is a sustainable option and we have to balance the budget and start paying it down.
If we're talking about 50% tax rates as a serious possibility, then we have to consider the possibility that capital gains will be taxed by a desperate government as ordinary income. :P

TheNick

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Re: US Gov. Retirement asset confiscation?
« Reply #36 on: December 30, 2015, 09:44:56 AM »
If we're talking about 50% tax rates as a serious possibility, then we have to consider the possibility that capital gains will be taxed by a desperate government as ordinary income. :P

It could happen...but at least I'd still be in a lower bracket because I'm mostly just paying taxes on dividends, not trying to pull bundles of money out of retirement accounts + dividends.  I also wouldn't place it past the government to legislate a luxury tax on everything over 500,000 or some other random value in your IRA/401k...like a 2% a year tax on 500,001+ because you have a cadillac retirement with 5x the 401k size of the average person.  Or what if they do away with SEPP as an attempt to get people to pull larger amounts out over a smaller period of time so they pay more taxes...there are going to be a lot of angry mustachians who have to wait longer to retire or take a tax hit.

There is just too much that could be changed and I'd rather hedge my bets a bit that when the current borrowing/spending routine changes, the rules for retirement accounts aren't going to be the same for people with high balances.

maizeman

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Re: US Gov. Retirement asset confiscation?
« Reply #37 on: December 30, 2015, 12:26:40 PM »
This is the only post that made any sense so far.  It's wrong to say that the probability of such an event is zero.  It also makes me scratch my head when people act as though it is so small that its not worth worrying about.  The average age of nation-states is something like 150 years.  The chance of a major disruption in the way the United states behaves over the next 50 years obviously isn't 100%, but it probably isn't much less than 10% either. 

Average age is probably not the best statistic to use when trying to estimate how long a system of government is likely to last.

Without access to an actual dataset, I would guess that a graph of how long systems of government survive would look something like an exponential decay curve. In other words there will be lots of low values (governments that last a generation or less) with a long tail of high values (~1400 years for the roman empire, england is currently at 800 years if you consider the whole Oliver Cromwell issue a civil war rather than two successive revolutions). In a very simple exponential decay model, if every government has a 1% chance of revolution and/or foreign invasion each year, a brand new government has a 50% chance of lasting at least 70 years*, and if government is already 500 years old it has a 50% of lasting ANOTHER 70 years. I suspect it's actually even better than that in that some governments are going to be inherently less stable than others, which would mean the risk of revolution/foreign invasion actually goes down over time.

Anyway, it's probably not enough to estimate how likely our current system government in the USA is to still be around in 50 years, we also have to break out the outcomes where nothing no preparations we could make would be of any help (e.g. a major nuclear exchange with China or Russia), and those that would be slow enough we'd have a chance to react as it happens (e.g. Greece before capital controls).

*This is just solving for .99^X = .50

Telecaster

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Re: US Gov. Retirement asset confiscation?
« Reply #38 on: December 30, 2015, 06:40:27 PM »
FWIW, when IRAs were first created, the law included an excise tax on  large accounts (over $1MM or something, I can't remember).   The IRA was created to help lower income people save for retirement, and was specifically designed to not be a tax dodge for wealthy people.   Hence the excise tax.   That's also why there was a $2000 contribution limit. 

So it is conceivable they could bring the excise tax back, although I find that unlikely. 

Undecided

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Re: US Gov. Retirement asset confiscation?
« Reply #39 on: December 31, 2015, 07:15:46 AM »
FWIW, when IRAs were first created, the law included an excise tax on  large accounts (over $1MM or something, I can't remember).   The IRA was created to help lower income people save for retirement, and was specifically designed to not be a tax dodge for wealthy people.   Hence the excise tax.   That's also why there was a $2000 contribution limit. 

So it is conceivable they could bring the excise tax back, although I find that unlikely.

I think even that was a tax only upon the death of the account owner, so even bringing that back wouldnt rise to meet the OP's fear.

Tabaxus

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Re: US Gov. Retirement asset confiscation?
« Reply #40 on: December 31, 2015, 08:13:06 AM »
If we get into truly confiscatory policies like taking everyone's retirement accounts and converting to bonds, things are going to be such a mess that your accounts probably tanked in value before that happened anyway.

I completely agree that tax rates are almost certain to be higher in the future than they are now--as a general matter, not just on the rich/relatively well off.  I would not be remotely shocked to see excise taxes return, for some of the "deal" to be pulled out from under the rug of Roth accounts (i.e., if you have X of assets, you get taxed on the withdrawal), and for means testing on social security that will basically reduce it to zero for anyone with any respectable level of assets.

But it's not possible to plan for these things (other than to bake into planning an assumption that you will not get social security, which is how I conduct my life), so why bother?  You can try to get everything into a roth as you possibly can, but it would be a pretty easy--and, as a policy matter, somewhat defensible--move to slap an excise tax on roths that revokes some or all of the bargain you thought you were getting.  Are you going to put everything in gold?  In truly confiscatory times, who is to say you'd even be able to monetize that?  A bunker with rations?  I mean, ok, if you want to live like that (and even then the government could outlaw those, too).

This is a long way of saying:  chill.  The heck.  Out.

JR

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Re: US Gov. Retirement asset confiscation?
« Reply #41 on: December 31, 2015, 10:37:13 AM »
It still comes back to the question of why a government that owns hundreds of trillions in natural resources would want to confiscate people's retirement assets. The United States is not Greece or Cyprus.

TheNick

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Re: US Gov. Retirement asset confiscation?
« Reply #42 on: December 31, 2015, 11:42:44 AM »
I completely agree that tax rates are almost certain to be higher in the future than they are now--as a general matter, not just on the rich/relatively well off.  I would not be remotely shocked to see excise taxes return, for some of the "deal" to be pulled out from under the rug of Roth accounts (i.e., if you have X of assets, you get taxed on the withdrawal), and for means testing on social security that will basically reduce it to zero for anyone with any respectable level of assets.

This is the common sense approach I'm taking as well.  I'm not all tinfoil hat paranoid about it, but at the same time I'm not just charging ahead blindly assuming today's tax rates and rules are the same that they will be 20-30 years down the road from now.

Basically, it takes about a million dollars to put you in the top 10% in terms of net worth.  If I have enough assets in retirement accounts alone to qualify me for the top 10% in terms of net worth, I don't see how that isn't voluntarily putting a target on my back for when politicians are looking for ways to tax more.  Considering how many people have little to nothing set aside for retirement...I doubt it would take much to gain traction when politicians start saying "look that guy has 2 million in retirement accounts...he doesn't need that much when he should be retiring at 67 and dieing at 77...let's tax his pants off!"  You'll simply be too appealing of a target to people with 100k in their retirement accounts who aren't sure they'll ever be able to retire.

I don't think retirement accounts will ever be a bad deal...I just think they probably won't be as good a deal in the future as they are today for people carrying a large balance in them.

Scandium

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Re: US Gov. Retirement asset confiscation?
« Reply #43 on: January 04, 2016, 09:21:05 AM »
...it has happened in several European countries before,

Links?
Cyprus has been mentioned, but didn't they just tax bank accounts, mostly held by russian oligarchs? Did they raid local citizen's retirement? And what other examples are there?

ps: aren't there laws/constitutional issues against retro-active laws? I.e. changing rules for Roth contributions that have already been made under one legal regime. Recently been reading about Roman republic and even they forbid such laws as they were used for extreme shadyness.
« Last Edit: January 04, 2016, 09:23:48 AM by Scandium »

NoStacheOhio

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Re: US Gov. Retirement asset confiscation?
« Reply #44 on: January 04, 2016, 10:04:45 AM »
ps: aren't there laws/constitutional issues against retro-active laws? I.e. changing rules for Roth contributions that have already been made under one legal regime. Recently been reading about Roman republic and even they forbid such laws as they were used for extreme shadyness.

Changing rules for withdrawals, contributions, etc. wouldn't affect things that happened in the past. We aren't talking about calculating back taxes on withdrawals that happened in the past. They've already changed the forward-looking rules since IRAs were created.

Cathy

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Re: US Gov. Retirement asset confiscation?
« Reply #45 on: January 04, 2016, 10:13:38 AM »
ps: aren't there laws/constitutional issues against retro-active laws?

In the United States, not all retroactive laws are unconstitutional, although some are. See, e.g., Erika K. Lunder et al, Constitutionality of Retroactive Tax Legislation, Congressional Research Service, Report No R42791 (Oct 25, 2012). The article includes the following summary:

          It is clear there is no absolute constitutional bar to retroactive tax legislation. Nonetheless, it is possible, albeit rare, for retroactive tax legislation that increases a taxpayer’s tax liability to violate the Constitution.
« Last Edit: January 04, 2016, 10:16:18 AM by Cathy »

Crushtheturtle

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Re: US Gov. Retirement asset confiscation?
« Reply #46 on: January 04, 2016, 10:49:24 AM »
In this thread: people who don't know how markets work.

The Govt won't seize the cash in your retirement account. Because there is no cash in your retirement account. There are stocks and bonds in your retirement account. The govt would have to find buyers for your assets to exchange for cash. In this scenario, no one would be buying. You may all relax.


arebelspy

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Re: US Gov. Retirement asset confiscation?
« Reply #47 on: January 04, 2016, 12:01:31 PM »
In this thread: people who don't know how markets work.

The Govt won't seize the cash in your retirement account. Because there is no cash in your retirement account. There are stocks and bonds in your retirement account. The govt would have to find buyers for your assets to exchange for cash. In this scenario, no one would be buying. You may all relax.

I know several people who have all cash in their 401k, cause they're scared of the markets.  So your point is not absolute.

But it is valid for those 401ks that hold securities.

There are numerous reasons this won't happen besides that though.
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BTDretire

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Re: US Gov. Retirement asset confiscation?
« Reply #48 on: January 04, 2016, 12:21:28 PM »
But that's putting the cart before the horse.   You keep saying there is an unsustainable debt spiral, but is there?    The deficit expressed a percentage of GDP has decreased every year for the last six years, down to about 2.8% of GDP last year.   While a lot of money, that's not particularly high by historical standards and the trend is that the debt is becoming easier to manage, not harder.   If we were to return to roughly Bill Clinton-era levels of taxation, that deficit would be mostly wiped out.

In short, the debt is a problem but a manageable one for the foreseeable future.
  You jumped from deficit to debt without much explaination.
The Deficit is what we spend compared to the taxes received, each year.
The Debt is all money owed by the US government.
  The debt problem.
Jan 2009 $10.6 Trillion ($10.6T from 1776 to 2008)
Jan 2016 $18.8 Trillion ($8.2 T from 2008 to 2015)
That's an increase of $8.2 Trillion in 7 years.
A 77% increase.
The last time the debt increased $8.2 Trillion it took 21 years.
Debt has increased over 10% a year, GDP
has only grown 2% since 2008.

We are using about 8% of our taxes to pay interest on the Federal debt.
  If interest rates rise 2%, we would be spending almost 20% of our tax base to pay interest on the debt.

I'm not as optimistic as you about how managable the debt is.
It's still increasing, interest rates are on the rise, inflation* is low
and the economy is in slow growth.

* meaning we aren't inflating our way out of the debt.




Telecaster

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Re: US Gov. Retirement asset confiscation?
« Reply #49 on: January 04, 2016, 11:08:55 PM »

We are using about 8% of our taxes to pay interest on the Federal debt.
  If interest rates rise 2%, we would be spending almost 20% of our tax base to pay interest on the debt.


What happens to the value of the bonds when interest rates rise?