“I am actually giving serious thought to suspending my 401K contributions, because I think the government is getting damned serious about exercising the Theresa Ghilarducci option and seizing it.”
I’m comfortably retired today because I always contributed the maximum pre-tax money allowed to my 401K plan.
I do think the government could perform such a seizure if they could figure out how to do it without crashing the economy, but they haven’t yet figured out how to do that.
The problem with such a seizure, is that unless it was all secretly pre-planned in massive detail such that on one late Friday afternoon the dictator President announced freezing all IRAs, 401(b)s, 403(b)s and all other plans, then otherwise the normal process of legislative authorization and its lengthy debate would give plenty of time for everyone to sell out of their retirement accounts, biting the bullet of paying the maximum tax rate incurred from emptying the accounts in a single year. Such a scenario in which everyone attempted to exit at the same time would crash the financial systems and the economy and do it in such a way recovery would be nearly impossible.
Even the above mentioned freeze would itself crash the economy. After all, the government itself couldn’t exactly sell off those trillions overnight in order to convert them to government bonds without crashing the economy either. Heck, they couldn’t even do that over the course of several years. Not to mention the chaos in the markets due to the massive uncertainty such a seizure would cause, meaning the seized assets would become suddenly worthless. And finally, such a seizure would leave millions destitute and lead to massive numbers of lawsuits, adding more chaos and uncertainty.
So the paranoid scenario of sudden retirement account seizure by the government has a probability that approaches zero.
Keep contributing and keep your eyes open and ears to the ground and bail out at if need before any seizure hits the fan.
The outright seizure scenario is indeed very unlikely. However, I would not put it past the Feds to use the magnitude of 401(k) and IRA balances as a means-test on social security and Medicare benefits. Of course, they would probably craft this as as a hidden income tax that would escape notice by most taxpayers. That is, it would probably only affect those with balances in the upper quintile, which is where the money is.
According to the Census Bureau’s Survey of Consumer Finances, average 401(k)/IRA balances four retired households, age 65-84, in 2013 were as follows:
Lowest $206
Second $11,376
Third $17,392
Fourth $69,225
Highest $400,647
As the US fiscal situation worsens, I really don’t think that politicians, academic advisors, and bureaucrats will have much aversion to stealing the accumulated wealth of the top quartile ... in the name of fairness and equality, of course.