Retire Rich

July 16, 2007

Dept. of Labor to Assist China in Setting up 401(k)s

Recently, the National Bureau of Economic Research issued a report debunking the theory that as the 77 million Baby Boomers begin to turn 65 in 2011 and cash out of their stock and bond holdings, the markets will spiral into a bear market. The bureau's argument is that 401(k) assets currently represent only a small fraction of people's retirement portfolios, and as 401(k)s continue to grow markedly in coming years, the influx of new investments will buoy the markets.

Evidently, the Department of Labor isn't buying that theory. In fact, it's taking the extraordinary step of committing to help China to set up defined contribution plans modeled after those in the U.S., as a first step in laying the groundwork to attract Chinese investors to U.S. markets to counter the massive sell-off of Boomers' assets in coming years.

Jeremy Siegel, famed economist and Wharton professor, has warned that the $6.5 trillion that Boomers hold in stocks and bonds could fall 40% in value if buyers don't step up to the plate, which is why he and many other economists are urging the government and investment firms to pursue investors from nations outside of the U.S.

If China's government eases its capital markets to allow citizens to invest abroad, the Chinese could be one of the biggest purchasing blocks of U.S. stocks and bonds. The world's fastest-growing large economy, China is now trying to build a 401(k)-like pension system.

"The savings and buying power of the developing countries is absolutely critical to our own welfare in the future," Siegel recently told The Sacramento Bee. "When all the Baby Boomers try to sell their assets, there are not going to be enough workers in the developed world alone to absorb them. The demand that would be coming from Asia and other developing countries will be critical to support the prices of these financial assets."

China's Boomer population will be retiring after the Boomers in the U.S. By 2040, about 30% of China's population will be 60 or older, whereas in the U.S., the first wave of 61-year-old Boomers is beginning to take early retirement.

Many in China are optimistic that the nation will successfully build out its capital market, now in its infancy, offer defined contribution plans to its citizens and permit investors to place their money overseas. Fund companies that aren't already planning to look to China should take the Department of Labor's lead.

(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

http://www.mmexecutive.com http://www.sourcemedia.com

Recent Posts

Tear a Page From the AARP/Today Show Playbook

America has yet to witness the tremendous societal transformation retiring Boomers will have, as the oldest is a mere 64 and the youngest, 46. But we are beginning to see signs of the tsunami-sized impact this army of 77 million will have on the workplace, the economy, healthcare and even the arts and entertainment. AARP has just formed a timely, unbelievably beneficial partnership with NBC's "Today Show." Beginning tomorrow, March 9, the No. 1 morning news program that reaches 5.9 million viewers a day, is bringing back former Emmy Award-winning host Jane Pauley to produce and report a monthly segment called, "Your Life Calling."

It's About Time for an About-Face for Funds

It's about time mutual fund product developers thought out of the Morningstar investment-style box to give portfolio managers the ability to do an about-face.

One of the most critical discussions to come out of the financial crisis has been the questioning of the rigid investment mandates of mutual funds and the soundness of 60-year-old modern portfolio theory-since correlations between investment classes are obviously becoming more intricately woven in the global economy of the 21st century and the markets are prone to increasingly higher volatility and risk.

Extreme Makeover: 401(k) Edition

Investors are about to test drive 401(k) plans with a 21st Century whole new look and feel. The Department of Labor is promising streamlined rules for 401(k) advice that plan sponsors may actually use. The government is looking into the possibility of offering annuities or other lifetime income options in defined contribution plans.

C- Grade is Nothing To Crow About for 401(k)s

The mutual fund industry should proudly celebrate Americans' 73% approval rating for 401(k)s, according to an Investment Company Institute report, "Enduring Confidence in the 401(k) System." In our book, a 73% rating equals a C- grade that, in fact, should be a wake-up call for the industry to do a far better job of equipping Americans to adequately prepare for a decent and healthy life in their old age.

Index of Posts

0 Comments

Be the first to comment on this post using the section below.

Add Your Comments...

Already Registered?

If you have already registered to Money Management Executive, please use the form below to login. When completed you will immeditely be directed to post a comment.

Not Registered?

You must be registered to post a comment. Click here to register.