U.S. Retirement Market Ponzi Fueled By Record Concentration In Stocks By Young Americans

by Steve St. Angelo, SRSrocco:

For the U.S. Retirement Market Ponzi Scheme to continue, there must be a new group of suckers to pay for the individuals who are receiving benefits.  Without a new flow of funds, the Ponzi Scheme comes crashing down.  Such was the case for the individuals who invested in the $65 billion Bernie Madoff Ponzi Scheme that came crashing down in 2008.

Interestingly, the U.S. Securities & Exchange Commission (SEC) that investigated Madoff Securities in 1999, 2000, 2004, 2005, and 2006, found no evidence of fraud or the need for legal action by the commission.  The failure of the SEC to find any wrong-doing by Bernie Madoff should provide Americans with plenty of reassurance and confidence that their 401k’s are the highest quality sound investments in the market.

Regardless, the concentration in equities by young Americans reached a record high since the 2008 financial crisis.  According to the most recent data put out by the Investment Company Insititute (ICI), Americans in their twenties who participated in 401k plans, 75% of the group invested more than 80% of their funds into equities in 2015 versus 48% of the group in 2007:

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In just eight years, Americans in the 20’s age group invested in 401k’s, increased their equity exposure (80+%) from less than a half to three-quarters.  Furthermore, those in the 30’s age group increased their equity concentration from 55% to 70% in the same period.

All this means is that younger Americans participating in the 401k Retirement Market have considerably increased their exposure to stocks while net benefits paid out have now gone into the red.  I wrote about this in my article, Something Big, Bad and Ugly Is Taking Place In The U.S. Retirement Market:

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As we can see in the chart, the Private Defined Contribution (DC) Plans paid out $28.7 billion more than they took in in 2014…. the last year the Investment Company Institute provided data. Simply, Private DC Plans are mostly 401K’s.

Unfortunately, the ICI only has data on 401k net benefit withdrawals up until 2014.  However, young Americans invested in the 401k Market have no idea that their funds are being used to pay off those who are retired.  Moreover, the record concentration of 20-30’s age group into equities hasn’t been enough to support the 401k Retirement Market as more money is going out than is coming in.  That is extremely bad news.

Regrettably, nowhere in the ICI’s new report on the U.S. 401k Market do they include the data showing the net benefit withdrawals in 2014 were more than benefits paid.  Instead, they included the following information in the “Key Findings” area at the beginning of the report:

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This is an alarming trend.  More 4o1k plan participants held equities at the end of 2015 than they did before the financial crisis in 2007.  What is even more troubling is the percentage of young Americans who have “ZERO” exposure to equities in the 401k Market.

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