Inflation Outcomes for 401k and IRA Savers

Making real money for your retirement...

Do you own a 401(k) retirement account? Do you own an Individual Retirement Account (IRA)? asks Brian Maher at The Daily Reckoning.

Gobs of Americans own either or both – oftentimes both.

Let us assume you are among them. How well have these retirement accounts done you these past 2½ years?

How much have they expanded your wealth?

Here we refer not to nominal wealth but to "real wealth". That is, nominal wealth subtracted by the inflation rate.

We need not remind you that inflation has enjoyed a lovely spree in recent times. A man's portfolio may deliver him $1 million across 2½ years. Yet what if the Dollar in which he trades loses 50% across the same span?

In inflation-adjusted terms – in real terms – he has taken in $500,000.

$500,000 is handsome. Yet it is not $1 million. It constitutes a 50% sawing.

Again we ask: How has your portfolio performed...in real terms...these past 2½ years?

Your choices are these:

1. Your real retirement account has increased 50%. You wallow gorgeously in clover.
2. Your real retirement account has increased 25%.
3. You have stood in place – your gain is zero. Whatever nominal gains you have acquired, inflation has claimed.
4. You have actually lost 25% in real terms.
5. You have lost an impossible 50% in real terms.

Have you made your selection?

Option D is the answer.

Your portfolio has absorbed a real 25% gouging these past 2.5 years.

Your $100,000 is really $75,000, your $500,000 is really $375,000, your $1000,000 is really $750,000.

How do you like it?

Let us assume you are nearing retirement. You believe – naively perhaps – that $1 million will see you through to the grave.

To your everlasting delight your financial statement reports that you are the owner of $1 million. You have attained your target.

Yet in real terms you have not attained your target. In real terms you are not the owner of $1 million. You are instead the owner of $750,000.

And do your retirement dreams go upon the shelf. Inflation has claimed them.

How many additional years must you toil to attain your real $1 million target?

You can scarcely bear to consider it...and plunge into a despairing slough. You are undone.

A certain E.J. Antoni is a public finance economist at the conservative-oriented Heritage Foundation. From whom:

"Bidenomics has reduced the real value of the average 401(k) by a quarter in the last 2½ years.

"The study, published with the Committee to Unleash Prosperity, examined individual retirement accounts (IRAs) and pension plans and found shocking losses under the Biden administration, enough to delay many Americans' retirement plans for years...

"Stratospheric inflation, brought on by government spending, borrowing and printing too much money, has...eroded the value of 401(k) plans by $16,200 on average, for a real (inflation-adjusted) loss of around $33,200, or 24.8%."

Here this Antoni fellow trains his cannons upon the White House – rather, its principal occupant:

"If Biden had simply allowed one-time COVID spending to expire, the federal deficit would've disappeared amid soaring tax receipts while inflation remained low.

"Instead, Biden led the way in championing more wasteful spending and multitrillion-Dollar deficits became institutionalized. The impact has been devastating.

"Between lost purchasing power from inflation and higher borrowing costs from interest rate hikes, the typical American family has lost the equivalent of $7,300 in annual income under Biden.

"Families have racked up a record $1.1 trillion in credit card debt while savings have plummeted. Sadly, a record number of Americans are also using hardship withdrawals to tap their retirement savings because they can no longer afford necessities like rent and groceries."

Even those who are getting by have seen their savings crushed. Again: How do you like it?

Yet all is not grim. The unemployment rate – for example – dangles at a lovely 3.9%. Americans are massively employed.

Is it because they are happily employed? Or is it because many Americans have chased secondary employment to keep body and soul together?

Here is a run of recent headlines:

"More Americans Are Working Two Jobs to Make Ends Meet"...

"More Americans Have Two Jobs or More, a Sign of Inflation's Burden"...

"Survey: 39% Have a Side Hustle, and 44% Believe They'll Always Need One."

Thus we rechristen the administration's Inflation Reduction Act...the Unemployment Reduction Act.

That is because the Inflation "Reduction" Act kindled so much inflation it forced millions into secondary employment.

Do you disbelieve in the efficacy of government programs? Well, friend, here is one example of success – success beyond measure.

We refer you once again to the 3.9% unemployment rate.

Thus the president can take to the campaign trail and holler that he is a veritable jobs factory.

"Look at all the jobs I've created!"

Greater genius we have rarely – if ever – glimpsed. A dozen Einsteins chained together could scarcely conceive of it. We hazard more of it will one day reduce the unemployment rate to zero.

And so today we issue a thunderous demand.

A thunderous demand, that is, that the Inflation Reduction Act be renewed in perpetuity, each and every year, world without end.

Must Americans work two jobs, three jobs, four jobs to attain zero unemployment?

Perhaps they may. Yet it makes no difference. Zero unemployment is zero unemployment. And zero unemployment is economic nirvana, an economic El Dorado.

Thus today we issue our impassioned plea...to Federal Reserve Chairman Jerome Powell...to Treasury Secretary Janet Yellen...to Joseph Biden himself...

Deliver us greater inflation – the nation's salvation requires it!