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Saturday, July 10, 2010

A 401K is becoming a tool for survival...!!!

If we toss together a huge salad made up of retiring boomers and people pulling 401K's to survive.. and then chop up some real ugly economic news such as no jobs, more housing foreclosures, falling retail sales, states going bankrupt, pension plans getting reworked, and commercial real estate beginning it's plunge to zero.. the pressure on the equity market creates forces that I don't believe it can weather.

Not only are aging baby boomers taking money out of the market to retire on, we are seeing wave after wave of unemployed looking at their 401K's from their old job and thinking "hey, I'm just about squeaking by here on unemployment, and I have 40 grand laying in a silly 401K. Maybe I ought to just pay the tax and penalty and take it". As more and more people run out of their "extended" benefits, and have NO income we'll see more people elect to raid that 401K. Now, where's that 401K typically invested? Bonds? Nope. They're in stocks.

We just learned that in the week of July 1 we saw 11 billion dollars come out of stock funds. Some of that was simply nervous investors wanting to pull back if the market sours more. But some of that is indeed "broke people" looking for income any where they can get it. If they can't refi their house and take a cash out refi, if they have no job, and they just ran out of unemployment bennies, how long is Mom and Dad going to float them if indeed Mom and Dad are still around? Not long. Now that 401K looks more like a tool for survival in the present versus some retirement plan in the future.

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