I recently received the following email:
I have the option of taking a lump sum payment of approx. $90,000 now or waiting until I retire and receive a monthly payment of $500. I can expect to live at least 20 to 25 years from the time I can start receiving the monthly payment.
If I take the money now, I will be taxed 20% and also get hit with another 10% penalty if I take it now.
On paper it would seem that I would get more money by taking the monthly payments but since I won’t start those payments for another 10 to 15 years, I'm really worried about what my money will be worth 15 to 35 years from now.
I’m thinking about taking the payment and investing in gold and silver but the investment would have to go up 50% just to make up the 30% I’d lose to taxes and penalty.
I could roll it over to an IRA but I’m too close to retirement to take much risk.
Any suggestions?
What a great question! Here is my answer:
I think you are on the right track… I'm not trained, registered, licensed or otherwise "qualified" to give this kind of advice, so all I can say is that if it were MY money, I would definitely take the cash now, while it's still worth something, and hold it in gold, or better yet, in investments that have a good chance of increasing their gold value, until I needed it for retirement.
A quick look at the
Half Life of the Dollar curve will tell you why this is the way to go. Every 4 years, the USD loses half of it's purchasing power. So if you wait 8 years to get your money, you will be getting paid in dollars that have about 25% of the purchasing power of today's dollars. In 12 years, the dollars you're getting will be worth about half of that – they will only buy 1/8th of what dollars can buy today, and so on.
And this assumes that there is no catastrophic "fall off the monetary cliff" where the USD suddenly goes into a confidence nose-dive in which it either self-destructs, like the Zimbabwe dollar, or manages to avoid complete annihilation but becomes a secondary currency like the pound sterling, or a marginal currency like the Argentine Peso. Under these scenarios, things could be much worse than the curve suggests!
With the incredible levels of public and private debt that exist today, I don't think that significantly increasing the purchasing power of the USD is politically possible. To do so would require sending interest rates to the stratosphere – a policy that would bankrupt the US government and destroy the world's financial system. As Doug Casey says, the chances of that are between slim and none, and slim just left town.
Let's run some numbers to see how this plays out. If I take the cash now, pay the taxes and penalties, I get $63,000 of today's dollars, which will buy about 1,100 grams of gold:
| Lump Sum Now: |
$90,000 |
| Less Taxes: |
($18,000) |
| Less Penalty: |
($9,000) |
| Net USD: |
$63,000 |
| Net Gold gr: |
1,126 |
If I wait ten years, and then receive $500 a month for 25 years, I get a total of $156,000 dollars, which will only buy about 130 grams of gold. In other words, a total of about $7,250 in today's purchasing power spread over 25 years. This is the "I'm lucky if I'm eating dog food" retirement plan:
| Year |
Nominal USD |
Gold gr |
Today's USD |
| 2022 |
$6,000 |
20.526 |
$1,149 |
| 2023 |
$6,000 |
17.316 |
$969 |
| 2024 |
$6,000 |
14.601 |
$817 |
| 2025 |
$6,000 |
12.318 |
$689 |
| 2026 |
$6,000 |
10.392 |
$582 |
| 2027 |
$6,000 |
8.766 |
$491 |
| 2028 |
$6,000 |
7.392 |
$414 |
| 2029 |
$6,000 |
6.236 |
$349 |
| 2030 |
$6,000 |
5.261 |
$294 |
| 2031 |
$6,000 |
4.438 |
$248 |
| 2032 |
$6,000 |
3.742 |
$209 |
| 2033 |
$6,000 |
3.157 |
$177 |
| 2034 |
$6,000 |
2.663 |
$149 |
| 2035 |
$6,000 |
2.247 |
$126 |
| 2036 |
$6,000 |
1.895 |
$106 |
| 2037 |
$6,000 |
1.598 |
$89 |
| 2038 |
$6,000 |
1.348 |
$75 |
| 2039 |
$6,000 |
1.137 |
$64 |
| 2040 |
$6,000 |
0.959 |
$54 |
| 2041 |
$6,000 |
0.809 |
$45 |
| 2042 |
$6,000 |
0.683 |
$38 |
| 2043 |
$6,000 |
0.576 |
$32 |
| 2044 |
$6,000 |
0.486 |
$27 |
| 2045 |
$6,000 |
0.410 |
$23 |
| 2046 |
$6,000 |
0.346 |
$19 |
| 2047 |
$6,000 |
0.292 |
$16 |
| Total Benefit: |
$156,000 |
129.594 |
$7,253 |
Now 1,126 grams divided evenly over 25 years isn't a lot to retire on… about $2500 per year in today's buying power. But compare that to what I would get if I leave the money in the system! The first year, about half that much… and every year after that, less and less.
Of course this is all projections, and the real numbers will sometimes be higher and sometimes lower, but I suspect this paints a fairly realistic picture. The true surprises will be wars, natural disasters, flash market crashes, etc. How will the USD and Gold react to these? No one knows for sure, but I would sleep better with a bag of gold coins than I would with a bag full of paper money… or worse: a bag full of promises to pay me paper money!
And if things go really well for the US economy and the USD starts to rise in purchasing power, I could speculate by selling some of my gold and buying some treasury bills or stock index ETFs. I just need to remember that I am playing a bear market rally, and keep a close eye on my trailing stops. When the rally ends, I can sell the treasuries and use the funds to buy gold, ending up with more gold than I started with.
So my suggestion is to take the money now, pay the taxes and penalties, and rather than turning it all into gold and salting it away, invest part of it in something that will grow – in gold value – over the next 10 years, and if possible, generate income for you during the 25 years that follow. Possibilities include starting your own small business, carefully selected real estate deals, and others that I will be writing about in the future.
I hope you find this useful.
Cheers,
Sir Charles
