Trust In Government Run Retirement Accounts?

[TripleB]

Most internet forums would think I am crazy for even mentioning this, for anyone who knows Harry Browne's philosophy will see this as a worthy topic.

Can we trust the federal government to administer the TSP? I had a large chunk of money in a specific US State's "Retirement Fund" for government workers. I did not have a pension plan, but instead had a defined contribution plan. When I resigned my position, I had the ability to rollover the funds into a privately held IRA. I did so, because of my fear that if the state continued to be in financial hardship, they may suspend or restrict the ability to withdraw from the fund in order to meet current obligations of retirees receiving pension checks.

The theory being that a 40 year old employee with money in the fund doesn't "need' to access it, even though we could via a rollover, SEPP, hardship withdrawal, or simply paying an IRS penalty, however "for the good of the State" they need to restrict access in order to pay the current retirees.

Of course the two funds were supposed to be segregated, but in times of crisis when the government unions are striking because their retirees aren't getting paid, I can envision the State doing this.

Let's extend this to the Federal Government. The TSP is run by the government. If times got bad, could the government suspend/restrict access to TSP for people below 59.5? I find that to be unlikely, but it's worth discussing.

My bigger concern is an imminent collapse of the US. Some say that's impossible, others say it's highly likely. I personally believe it's eventually going to happen, but probably not for a really long time.

Suppose this imminent collapse were to occur. People with financial means would likely attempt to flee the country. Other first world nations would likely accept immigration from US Citizens provided we met a threshold of financial ability. In other words, people with money can "buy" their way into another country. If the USD collapses, this would take the form of using gold coins or ETFs holding gold.

To cut to the chase, in this event, I believe it's more likely I can call up Vanguard and have them do an early withdrawal of a substantially sized IRA. Vanguard will do this currently, and simply submit a 1099 to the IRS informing them of our early withdrawal. In theory, one could make a substantial early withdrawal today, flee the country, and the IRS would be forced to try to track down the person for penalties and income tax. In the event of a US Collapse, this option seems favorable. It's possible the US government will attempt to lock-down and restrict access to retirement accounts at private financial institutions, however if large banks know the government is on the verge of collapse, they may ignore these empty mandates, and it's possible large banks would simply be "bailed out" by foreign investors who will instruct the CEO to ignore government orders as the collapse occurs. In any event, it's far more likely the government has the ability to restrict government run accounts, than private accounts, although of course both are possible.

However, if the TSP controls a substantial portion of money, I could see that the government may have greater influence over it's own entities (the TSP) and force withholding of penalties/taxes prior to distributions. That would be illegal today, but I'm referring to an imminent collapse of the government. In fact, in that event, it seems possible the government may even temporarily steal from the TSP in order to pay obligations to China, for example. Everyone says the US Government could simply print more money, but what if doing so would violate an agreement with China. For example, China tells the US, if you print more money, we won't lend you $100B next month when you try to issue more bonds. Or China slowly requires all bonds to be in the form of TIPS, and printing more money leads to owing more obligation.

Harry Browne was very distrustful of all governments, and considering some of us are using government-run accounts, it seems a worthwhile topic of discussion.

[murphy_p_t]

TripleB,
Sounds like you have taken a prudent step, considering that pyramid schemes eventually end in tears.

I seem to recall someone promoting self-directed IRAs for investing in foreign assets (real estate), maybe to market to folks with the same concerns you have.

[FarmerD]

I certainly don't trust the government with my money.  That's why when I retired from the military, I transferred all TSP funds to my Vanguard IRA.  It only took 4 letters (TSP bureaucrat dunderheads don't even accept phone calls to answer questions) where I pleaded, cajoled, threatened, and filed the same paperwork 3 times over a 4 month period to actually get the TSP dumbells to transfer the money.  Compare that customer service with Vanguard's customer service.  TSP showed the same old bureaucrat I-don't give-a-flip kind of attitude towards me. 

During the debt crises a few months ago, there was talk Geitner would "borrow" government worker retirement funds to fund short term government expense in case of a shutdown.  I've read other countries experiencing debt problems have taken a portion of worker IRAs, transferred the money to the equivalent of the Social Security fund, gave the workers a peice of paper saying they'll get back the money when they turn 65 (trust us!) then promply spent the money however they darn well felt to spend it.  That's scary.

The precedent has been set.  Somehow I don''t think governemnts in the future will be content to confiscate a part of retirement moneys - they'll go for the whole amount.  By moving out of the TSP to the IRA, you've moved your money one step further away from the government and one step closer to you.

[Storm]

TripleB,
Sounds like you have taken a prudent step, considering that pyramid schemes eventually end in tears.

I seem to recall someone promoting self-directed IRAs for investing in foreign assets (real estate), maybe to market to folks with the same concerns you have.

Self directed IRAs are generally a bad idea because you need to trust a custodian - I would not be willing to sign over control of my IRA to anyone.