America's sprawling 401(k) pension system will turn cash flow negative in 2016, threatening disruption for asset managers and selling of equities, according to analysis by Cerulli Associates, a research house.
The $3.5 trillion system attracted fresh contributions of $300 billion in 2012, with $276 billion either withdrawn as cash by retirees or rolled over into individual retirement accounts (IRAs), Cerulli estimated according to the FT. The IRA market is already larger at about $5.4 trillion.
However, by 2016 it forecasts that inflows will be $364 billion and outflows $366 billion, with the deficit only widening year on year after that as the core of the baby-boomer generation retires contributing to the pensions timebomb.
"This has significant implications for asset managers and other financial services providers," said Bing Waldert, a director at Cerulli. "It is going to be a disappointment for a lot of fund managers that have put a lot of effort into the DC [defined contribution pension fund] market.
The largest managers in the 401(k) market are Fidelity Investments; Canada's Power Financial, which owns Great-West Financial and Putnam Investments; TIAA-CREF; Vanguard; ING of the Netherlands and Prudential Financial of the U.S.
Funds run by such managers are typically among 10 to 20 options available to 401(k) savers, but when money is rolled over into an IRA, they face far stronger competition.
In IRAs you do not only have access to expensive funds run by asset managers, you have access to investments globally. There is more freedom and flexibility as there are insurance-based products, ETFs [exchange traded funds] and individual securities. In recent years, there have seen a large increase in allocations to gold in IRAs as investors seek to diversify into the safe haven asset.
The combined value of the U.S. pensions system is some $9 trillion. The total market valuation of the global bond market is now over $100 trillion. By comparison, the total market value of all the gold in world is estimated to be just over $1 trillion.
The decision to apportion retirement savings into gold and other precious metals is being taken by an increasing number of U.S. citizens who understand that the value of the U.S. dollar is being silently eroded by inflation.
Self-directed pensions, including IRAs, permit a wide range of gold investments to be included. SIPPs in the UK and self directed pensions in Ireland also allow allocations to gold.
Although one should be cautious about investing in any paper gold product as it is very different and more high risk than owning allocated and segregated physical gold. Paper gold includes gold futures, gold futures options, some gold ETFs, certain forms of unallocated gold ownership, pool accounts, contracts for difference (CFDs), spread betting contracts, gold stocks and gold options.
Self-directed retirement schemes with a gold and or precious metals allocation are a prudent retirement planning tool. Considering the continuing financial malaise affecting the U.S. and much of the western world, they will continue to protect and grow pension wealth in the coming years.
Pensions throughout the western world are in peril due to the pension Ponzi scheme. Powerful forces of both the inflation caused by 100 years of the Federal Reserve debasing the dollar and a possible deflationary crisis due to massive levels of debt globally will be a double whammy which will hit traditional investments such as stocks, property and bonds.
Without an allocation to gold, you are not going to have a comfortable retirement ? Putting Gold Bullion In Your Individual Retirement Account (IRA)