The Retirement Dilemma In The United States

Here is a recent snapshot of 401k balances in U.S. by age group:

These totals follow 33 years of rising bond prices and 5 spectacular years of stock market gains (most portfolios are concentrated within U.S. stock and bond funds).

I don't want to sound like an alarmist, but there are probably a lot of very worried people out there right? No one could reasonably expect  to support themselves for 20 years or more in retirement on $126,900 in 401k savings.

Remember when you enter retirement you must begin to sell your 401k in order to pay for your living expenses. When you sell you incur the income taxes you did not paying going into the program. 

Here is the bigger problem: What if a baby boomer is financially astute enough to understand the U.S. stock and bond markets are both close to the climax of historical bubbles with tremendous principle losses around the corner?

Here is the alternative return they could receive by exiting the markets and depositing $100,000 in a bank CD (cash). From a $5,240 return in 2006 they now receive $390 annually. Enough to pay their car payments for a month.

This is the dilemma facing retirees today, dubbed financial repression. Do you walk out on the plank to try and reach for yield, understanding that the board could snap at any moment? Or do you patiently sit in cash while inflation eats away at your life savings?

The Fed's QE program is a wealth transfer mechanism. About $400 billion every year that banks would have to pay out to American savers in interest is kept in their pockets with interest rates held at 0%.