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Friday, October 21, 2022

Shark Tank and 401(k)s/IRAs

There's a disturbing aspect of Shark Tank, which is generally a great show (but may have Jumped the . . . ahem . . . Shark* when it did it's live show (oh my, about as bad an hour of television, particularly from a good/great show as you'll ever see)).  The aspect in question involves - you guessed it - retirement savings.  I'm talking about the prideful statements from some participants that they've wiped out their 401(k) and IRA savings in order to fund their respective shoot-the-moon ventures.  And then we have to watch the Sharks sit there and droolingly applaud the participants' purportedly wonderful commitment to entrepeneurship.

OMG get a grip.  This reminds me of all of the entertainers who, having indeed hit the lottery on their one-in-a-million dreams, then go and encourage their fans to do take similar risks.  "Yeah, go and quit your job; go and ditch your families; go and mutilate your bodies - follow your dreams, just like me!"   Yeah (with acknowledgment to Jon Levitz), THAT's the ticket.  Except here's the thing: you, oh successful entertainer, were either talented or lucky enough to get where you got.  The odds are that any particular adoring fan is not so much so.

So, coming back to Shark Tank, we have a bunch of super-rich people, who are talented or lucky enough to have gotten there, encouraging random potentially untalented and unlucky people to wipe out their tax-subsidized retirement savings in order to take a chance on the next Scrub Daddy.  And, maybe worse, some of these people indeed succeed, so the seductive aspect of the encouragement to wipe out tax-advantaged savings in a way that is irreplaceable (at least, as to the tax consequences) ratchets up still more.  Sorta like where you're at risk for being addicted to gambling, and then you're neighbor wins a million at the slot machine.

This spectacle is, in a word (or two or three), a disgusting one.  Look, the federal government devotes trillions of dollars in tax subsidies (through tax deferral) to encourage people to save for retirement and to encourage employers to help them do so.  Why?  Because this is important stuff.  If retirement assets are not available to people as they retire they could, at a time where no other employment is available, literally starve.  This potential eventuality would not only be a human tragedy,  but could leave these people as wards of the state, which is a result that the government surely doesn't want.

So that's why it's so hard to withdraw these assets prematurely without penalty.  The idea is that this money is there for retirement, not for some other (even if valid) propose.  The rules are tight.  Hey, the government isn't devoting trillions of dollars in subsidies to get you to build up generic savings.  The idea is to protect your retirement assets.  There are exceptions for real hardships, because at some point penalty-free access really is appropriate.  But, as general matter, this is dangerous stuff.

I remember back when the sub-prime crisis hit and people were hurting in the extreme.  McCain and Obama were running for President, and both, yes both, we're decrying the cruelty of a system that made it hard for people to get to their own (imagine, their own) savings to help them through.  The basic tack was to dump on a retirement system that was inexplicably allowing people to suffer notwithstanding the existence of supposedly available resources.  So when the election was over, the rules would obviously be reformed to open up access, right?  I mean, both political parties were all over this (how often do you see THAT?), and so it's a no-brainer, right?  

And then Obama wins, and, I suspect, policy people (one in particular) in the new administration, said, "Whoa, Nellie.  You can't do this.  This money has to remain in people's accounts for their retirement.  Duh."  And so what happened?  Essentially nothing.  Thank goodness.  We've just seen the play out again with the COVID crisis.  But in COVIDLand the situation became incredibly politicized and they did eventually wind up allowing early penalty-free access.  However, even in this case, if you look at the way the exceptions were ultimately drawn, they were much more narrow, temporary and all-but-unusable than looked like might have been the case when  politicians early on climbed up on their soapboxes and started decrying the supposed cruelty of the retirement system.  

Essentially, you're killing someone with kindness.  Sure you're helping them through hard times now, but maybe they could've struggled through and make it.  However, if they lean on early withdrawals of retirement assets, then, when later in life, when they have no chance to replenish their funds, and when they look around to figure out how they're going to eat and otherwise live, there's nothing there.  Gee, where'd it all go?  Oh, about 25 years ago you decided to use it on other stuff; good luck with the rest of your life.

So you go, Shark Tank people.  You go and encourage someone to rip through retirement savings in order to market the next Hula Hoop or Scrub Daddy or whatever.  Just don't take time away from your estate to notice that the person, after failing, might well be homeless (or whatever) later in life, with no financial means of support.  Yeah.  Sure.  Right.  THAT's the ticket.

* Thank you, John Heim.

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