Besides the consequences of there being more Baby Boomer retirees than workers to fiscally deal with the insolvent social security program, a new monetary crisis is about to hit the markets in just three days time. That is because on July 1, the oldest of the Baby Boomer generation will turn 70 1/2, and thus forced to start selling off their 401K, IRA, and mutual fund assets to fulfill their obligations to Uncle Sam and the taxman.
Currently there are between $14-15 trillion in non-pension, personal retirement accounts which are held on Wall Street in the forms of stocks, bonds, annuities, reits, and other security assets. And by law once someone reaches the age of 70.5, they must begin selling off those securities at the rate of 3.65% each year, with a decade later it expanding to 5.35% after age 80, and 11% per annum after age 90.
Since the first of the Baby Boomers will be hitting the age of 70.5 on July 1, selloffs in the market will commence over the next 11 years as those on the lowest end of the generational scale will each move into this age requirement at an accelerated pace year by year.
Uncle Sam has been waiting a long time for this big tax payoff. It starts this year, as the oldest baby boomers hit age 70½ on July 1 and begin taking money out of their tax-advantaged savings accounts as required by law—and paying the income tax that has been deferred, in some cases for decades.
Boomers were the first generation to build their retirement plans around traditional IRAs, 401(k) plans and other tax-deferred savings vehicles. These were introduced in the mid 1970s and came into broad circulation in the 1980s, as part of the seismic shift to employer-sponsored defined contribution plans from defined benefit plans.
Traditional IRAs and 401(k) plans now hold more than $14 trillion. Even if that money comes out at the relatively low marginal income tax rate of 15%, this figure represents more than $2 trillion for the federal government. Of course, it will come out over many years. And the windfall actually began to take shape 11 years ago, when these same leading edge boomers turned 59½ and became eligible to begin tapping their tax-deferred accounts. – Yahoo Finance
What this means for the markets is an escalating loss of value as retirees will be looking to find buyers for their securities at a time when the youngest generation (Millennials) are staying out of the markets at historic levels. This will inevitably cause prices of their assets to fall, and create a deflationary environment much worse than what we have had since the Fed began printing money and buying assets beginning in 2011.
The United States monetary system has been robbing Peter for decades to one day eventually have to pay Paul, and those days are now arriving upon us. And whether it is less revenue to fund social security, fewer buyers from those actually working to purchase their own 401K and mutual fund investments, and of course, the incredibly underfunded Federal and State pension funds, the taxman will be the only winner, and it appears that even Wall Street has not even foreseen what is about to come upon them.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com,Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.