I’ve Been Thinking; You had better start swimming or you’ll sink like a stone for the times they are changin
Rhinoceros Financial Facts Baby Boomers Are About to Negatively Effect the Stock Market
I call these “Rhinoceros Financial Facts” because they are like a rhinoceros in the kitchen; once it has your attention it becomes imposable to ignore.
Bob Dylan sang, “You had better start swimming or you’ll sink like a stone for the times they are changin.” There have been dramatic swings in the economy and politics that indicate it’s time to wake up from your long restful nap and pay attention to some facts.
Picture this: you’re standing in the middle of a railroad track and a train is coming. You’re trying to make a decision-should you step off to the right or step off to the left. Either one of these decisions will have a good result. The decision that has a bad result is no decision. So some decision is needed. Let me give you some facts that will help you decide if you want to step to the right, the left or end it all with no decision. SPLAT!
The stock market has never gone through what it is about to go through. When IRAs and 401ks first started in 1974 the average person had never invested in the stock market. If we wanted to make our money grow we simply put it in something few people have today called a savings account which paid a fixed interest. Before 1974 if you wanted to put money in a mutual fund you had to have $5,000 to start. When the mutual fund managers realized that 300,000 auto workers wanted to invest $100 per month they decided to change the minimum investment rule. From then on mutual funds became the conventional way we saved money.
There were about 10,000 new baby boomers a day putting money into the market. These huge and constant contributions to American industry triggered the explosion in our economy. It’s easy to see what fueled our record setting growth in the 80s and 90s. The baby boomers caused investing in the market to become the “conventional wisdom” that each succeeding generation would follow.
The market has never seen a reduction of investments like it will suffer for the next 18 years. There are 10,000 baby boomers having their 65th birthday every day. At around 65 people stop putting money in their 401k and IRA and start taking money out to live on in retirement. They take money out faster than they put it in. They have to pull out enough to live on and pay the deferred income taxes on it. This reduction in contribution and increase in distributions will act like a tidal wave that gets bigger and bigger every day for the next 18 years. Can you imagine what this will do to every stock in the stock market as every single day 7 days a week 10,000 more baby boomers turn 65? This will not let up for 18 years! As mutual funds are forced to sell shares in companies the share prices will begin to drop. As the share prices begin to drop the value of every 401k and IRA that is invested in the market will lose value. Since the baby boomers are pulling out more and more of their savings to live on, they are also eating into their principal; thus, their earnings drop.
If you think that sounds bad you ain’t seen nothin yet. When the IRAs and 401ks were first proposed the IRS was concerned that people would not take their money out of the qualified plan. You are not taxed on the money in a qualified plan until you take a distribution (take it out) then it is taxed as ordinary income. So the IRS wrote a rule that by age 70 1/2 you must start taking money out of your qualified plan. At first they wanted to call this rule Mandatory Distribution but even the high-level managers at the IRS thought that is just not strong enough language so they suggested “Required Mandatory Distribution” and imposed a 50% tax if people failed to withdraw their money. Do not think that the government will change the law even if they could. The government has already spent all of the tax money that this will generate. In 3 years this 10,000 a day wave will be added to the already huge tidal wave.
You think that’s bad? I said it before and I’ll say it again; you ain’t seen nothin yet. The government had raised the limit on inheritance taxes to $5,000,000. If your parents died and left you a farm that they had already paid all the taxes the IRS would tax it at an inheritance rate of 50% if it was worth more than $5,000,000. The current regime is going to drop that $5,000,000 limit to $1,000,000 so if the farm is worth $4,000,000 you will have to come up with $1,500,000 in taxes. Even if the baby boomers still have a big estate when they die the government is going to seize almost half of it.
I have the solution to this problem. The safest place to put your money is in something that pays a guaranteed fixed interest rate that averages over 13%. This investment is not tied to the stock market or any insurance company. This investment makes money just like a bank; in other words it is backed with collateral and pays a fixed payment for a fixed term. It makes the same amount if the stock market is down or up, if gold is down or up or even if a Greek works 3 days a week or 4. It’s called a mortgage note. American Note Warehouse sells only small mortgage notes (from $10,000 to $40,000). To learn how mortgage notes can save you from the coming tidal wave simply go to www.AmericanNoteWarehouse.com.
Stay tuned for more Rhinoceros Financial Facts.