Economic Collapse: 5 Strategies for Protecting Your 401(k) Savings

ruinsJudging from my email, more and more of you are becoming interested in protecting your wealth — and I’m happy to see it. Last week, one of my loyal readers, Jen from Virginia, asked:

Should I focus on contributing as much to my 401(k) retirement plan as possible, or allocate some of it to buy precious metals, and if so, how much?

Unfortunately, there is no one-size-fits-all answer; how you allocate your retirement savings is entirely up to you and nobody else.

That being said, I no longer contribute any money to my 401(k) plan. That’s right; not a penny.

It’s a decision that didn’t come lightly.

After faithfully contributing to my 401(k) retirement plan for many years, I finally found the courage in 2011 to limit my 401(k) contributions to only take advantage of the full company match and use the residual cash to purchase wealth insurance in the form of physical gold and silver.

Eventually, I concluded that the risk of a US dollar collapse was significantly greater than the added benefit I was getting from my company’s 401(k) match, so I stopped contributing entirely. Since then, all of my nest egg contributions have gone towards the purchase of precious metals.

Is that radical? Absolutely.

Frankly, in a properly-functioning financial world, I would never make such a move. However, times have changed. The Fed’s reckless monetary policies — persistent near-zero interest rates and quantitative easing — have distorted the financial system so badly that conventional wisdom regarding strategic management of personal finances has been turned on its head.

If I thought the risk of a US dollar collapse occurring before I reached retirement age was only, say, 50% or less — then I would still be contributing to my 401(k) plan to at least catch the company match. However, that’s not the case anymore; I believe the probability a dollar collapse before the end of this decade is now closer to 95%.

Again, that’s my assessment. You must draw your own conclusions.

Buying Wealth Insurance

So, how much physical gold and silver is required to protect the hard-earned wealth that’s locked-up in your 401(k) retirement plan?

In his new book The Death of Money, author James Rickards notes that:

A useful way to think about (precious metal’s) insurance function is that a 500% return on 20% of a portfolio provides a 100% portfolio hedge.

I know what you’re thinking: What the heck does that mean?

If James is correct — and I believe he is — it means that you can fully protect the wealth that’s currently locked in your 401(k) plan by keeping precious metals in your possession equivalent to 20% of your total nest egg. Here’s a slightly over-simplified example:

Let’s say you have a $50,000 nest egg: $40,000 in your 401(k) and $10,000 in physical gold and/or silver. In this case, $10,000 in precious metals represents 20% of your total savings.

Now let’s say the dollar collapses and its value essentially falls to zero. If that happens, worst-case, the $40,000 in your 401(k) would be:

$40,000 x 0 = $0

Rickards (and many others) estimate that if the dollar tanks, the value of precious metals in your possession will increase five times (500%). I think that’s extremely conservative — but let’s stick with the conventional wisdom of five times. If that’s true, then the $10,000 held in precious metals would now be worth:

$10,000 x 5 = $50,000

Do you see what happened? Although your 401(k) was completely wiped out, the post-collapse value of your physical gold (and/or silver) soared to $50,000! In other words, the dollar became worthless, but the purchasing power of your nest egg remained unchanged — and that is how a portfolio protected with precious metals acts as wealth insurance.

Protection Strategies

If you’re considering a little wealth insurance to protect the retirement nest egg you’ve currently got locked up in your 401(k), there are multiple options to consider, depending upon your tolerance for early withdrawal penalties and your confidence in the on-going viability US dollar. Assuming your goal is to achieve a 20% portfolio allocation in precious metals, here are five potential ways to get there:

1. If you’re certain collapse is imminent, you could pull 20% from your 401(k) immediately, take the tax and penalty hit for early withdrawal, and then buy precious metals with the remaining proceeds. Then again, if you were that certain of collapse, you’d probably want to pull all your money out of your 401(k) and just replace it with physical precious metals.

2. If you believe a collapse is probable, but not imminent, you could temporarily stop your 401(k) contributions until you acquire enough precious metals to make up 20% of your portfolio. Then, resume allocating 80% of your savings to the 401(k) and 20% to physical precious metals.

3. If you believe a collapse is possible, but more than several years away, you could contribute only enough to your 401(k) to get the company match — and use additional funds to buy precious metals a bit more gradually, until 20% of your nest egg consists of precious metals.

4. If you think collapse is a long shot, but still want insurance — just in case — you could continue maximizing your 401(k) contributions and only purchase precious metals whenever you find a little extra spending money.

5. You could borrow from your 401(k) and use the proceeds to buy physical precious metals — if possible, equivalent to 20% of your total retirement nest egg. Yes, if you lose your job you’d have to pay back the loan within a short time frame in order to avoid withdrawal penalties and taxes. However, since the proceeds are only being used to exchange fiat dollars for real money, paying back the loan shouldn’t be difficult.

Of course, you could also pass on wealth insurance altogether — essentially betting on a strong US dollar, healthy world financial system, and the ability of the powers-that-be to continue holding things together far into the future. But that’s for you to decide.

How will you know which path is the right one for you? The only sure way to tell is by observing how well you sleep at night after making your decision.

As for me … I sleep like a baby.

Photo Credit: Athena Lao


  1. 1

    joe pfautz says

    Are you still pimping metals? how did the drop from 1900 to 1300 make you feel? when the market lost 30% hung in and it came back stronger. Love your insight but figure you for a negative thinker gold,food ect.

    • 2

      Len Penzo says

      You need to adjust your thinking, Joe. I don’t know about you, but I like to buy things on sale when the prices are as low as possible. I hope the price of gold and silver continue to drop until the system collapses.

      Remember, precious metals aren’t an investment — they’re insurance. If you are buying gold as insurance, wouldn’t you want to pay the lowest price possible?

      The price drop from $1900 to $1300 has been a gift to all of us buyers who understand the real role of gold and silver — more so for those who have yet to buy any wealth insurance. However, I understand that mindset is difficult to grasp for most folks.

      No matter what price gold is selling at, the number of ounces in my possession remain the same. When you understand why that’s important, then you’ll be further along than most folks.

      (By the way, I wasn’t always a negative thinker. Until 2010 or so, I still believed in the system — so much so that I used whatever extra cash I could scrape up to pay down half of my home mortgage from 1997 – 2010. And why not? That is the right thing to do in a properly functioning financial system that rewards savers and punishes debtors. But I’ve done my homework and I know what’s coming, unlike most folks here in the US. I wish it weren’t so, but it is. You can call it negative thinking — I say I’m just being pragmatic. And responsible.)

  2. 3


    I’m sorry but I would have to disagree with you on this. First of all you are counting on a complete collapse of the dollar, which even if it happens I don’t believe it will be worth zero. Second, you are not investing in the dollar or the U.S.A. you are investing in companies. Companies that will still generate returns for its investors, be it in Dollar, Euro, Pesos, gold, silver, etc.

    When you invest in a company, you own part of a business that produces goods and services and which in turn generates a profit – if it’s a good business.

    Gold isn’t a productive asset. Its value fluctuates wildly based on speculations and people who are gambling on the collapse of governments and/or its currency.

    I’m not saying that the dollar will never collapse, all I’m saying is that thinking the dollar is the only currency in the world or the only thing that matters is a very narrow way of looking at how the world works.

    • 4

      Len Penzo says

      Fair enough, Aldo. I knew this piece would see a lot of resistance. That being said, it doesn’t advocate a 100% allocation to precious metals — rather, only 20%.

      I bet you don’t consider it gambling if I buy a home owner’s insurance policy. If so, then why would you consider people who buy precious metals to be gambling?

      If you want to avoid wealth insurance altogether, keep in mind that not all stocks are created equally. If the dollar collapses, stocks of companies that deal in tangible assets (e.g. Union Pacific railroad, Exxon, ConAgra, etc.) will come out better than stocks that don’t — especially financial company stocks like VISA, Bank of America, etc.

      As for gold’s value “fluctuating” — that is wrong. It is the price of the dollar that fluctuates relative to gold. An ounce of gold buys essentially the same amount of oil today that it did in 1964. It also buys about the same amount of wheat that it did 2000 years ago. You can’t say that for any fiat currency.

      True, gold isn’t a productive asset. It’s wealth insurance.

      And the dollar is the only currency that matters, absent the gold standard. It is the world’s reserve currency — although not for much longer. When it finally fails, it will drag down all of the world’s other currencies (with the possible exception of the euro, for reasons I won’t get into here) because it is the standard that all other currencies are currently valued against.

      Only then will gold’s true purchasing power become apparent to everyone.

      Thanks for the excellent comments!

      • 5

        Ben says

        Thank you for pointing out that the _value_ of gold is not changing, merely the price of the dollar relative to to gold. That is a key concept that I have only recently started to understand.

        I have only been in the workforce for one year now as a mechanical engineer at a defense contractor. Seeing as I don’t have a lot of cash built up yet and hardly anything to call a nest egg, but understanding that the collapse of the dollar is literally inevitable at this point, I have started dumping my income into tangible assets that will come in handy during a collapse. This is how I insure my wealth as opposed to buying precious metals. At what point does buying precious metal make more sense than other tangible assets?

        • 6

          Len Penzo says

          That’s a smart question, Ben, but one you’ll need to answer for yourself. In my case, I made sure I had enough food and water to cover my family of four for six months before I started buying precious metals. I also made sure I had store of sanitary and other living supplies, as well as firearms and ammunition on hand too.

  3. 7


    Stupid question – how do you actually buy gold/silver? Do you store it?

    Aside from some minor coin collections, I’ve never thought of it. I suppose I will inherit my stepfather’s coin collection some day too.

    • 8

      Len Penzo says

      Marcia: You can buy gold and silver online or from local coin shops. I trust APMEX, but there are plenty of other sites that sell online too.

  4. 9


    Len–let’s say you’re living in the post-dollar collapse world. Do you anticipate using a few shavings from your bullion to buy groceries ? I’ve never understood clearly the mechanics of using precious metals to pay living expenses post-calamity. How do you envision the economy post-dollar collapse?

    • 10

      Len Penzo says

      Kurt, I shared my thoughts on what a post-collapse world would look like here:

      Bottom line: I believe there will be no zombie apocalypse. Unless the powers-that-be completely mismanage the situation, there is no reason for the world to end as we know it — although life will be more difficult and society will become a bit more dangerous because the standard of living for America’s middle- and lower-classes is going to drop a couple of significant notches.

      I know. People living during the height of the Roman Empire never thought it would fall either. :-)

    • 12

      Rezdent says

      The way I see it, if he’s wrong he still has 20% metals, which probably won’t be valued at zero either.

    • 14

      Len Penzo says

      Well … Because gold and silver is wealth insurance, I’ll argue that the question is irrelevant. People who buy car and home owner’s insurance aren’t “wrong” if they go through the year without ever making a claim.

      But I’ll be a good sport and play along … As Rezdent noted, if the dollar doesn’t blow up, then I’ve still got my gold and silver. No harm, no foul — in the mean time I bought a lot of peace of mind!

      Now I’ll turn the question back to you: What if I’m right — and you have no wealth insurance? 😉

      • 15

        Mike says

        Who says I don’t have wealth insurance? But I’ll play along, as this is just a thought puzzle.

        What do you suppose is the endgame?

        Total Societal Collapse?

        Years of massive hyperinflation?

        In the event of a US only event, I suppose that foreign securities and/or currency would be a hedge.

        In the event of a World event, I’m concerned that the level of damage to the economic engine would cause such massive shortages that having money/gold/commodities would be irrelevant. Better to have land and guns and water and be friendly with the people at thunderdome.

        • 16

          Len Penzo says

          I believe we’re officially in the end game now, Mike. Our debt-based money system, which requires an ever-growing amount of debt to remain viable, is in its final death throes; the proof is in the math.

          I don’t think this will be an end of the world scenario. I do believe 99% of all Americans will be caught completely off guard when the dollar finally loses the bulk of its purchasing power and their standard of living drops significantly. (I guess in that case, it will be the end of the world for most of those folks, because their life is going to become much more difficult. That’s not to say it won’t be difficult for those who have prepared … it will just be less difficult.)

          If the-powers-that-be wait until they are checkmated, then I suspect we’ll have temporary supply chain disruptions until things settle down. During that time, I believe most business will be conducted locally. World — and even national trade — will stop for awhile. US states may issue temporary scrip until a new currency is in place that has the trust of the people. I even see the possibility of some US states seceding if the federal government continues to try and rule with an iron fist.

          On the other hand, if TPTB see the writing on the wall and “resign” before being checkmated, then we may be able to live with a smooth transition. In that case, the TPTB would probably declare a bank holiday on a Friday afternoon after the markets close. When the banks reopen, either the dollar will be greatly devalued, or a new currency will be in place.

          In either case, Americans’ current standard of living will be greatly reduced — so enjoy what’s left of these dwindling salad days while you still can.

          Anyway. those are my thoughts. It’s sad that we’re even having this discussion today — but here we are. We’ve kicked the can down the road about as far as we can. The piper’s tune is almost finished and we’ve got a bill to pay.

    • 19

      Len Penzo says

      Some place where nobody will find them. Lucky for us, we live in a very big world with lots of really good hiding places. Remember that recent stash of $10 million in gold coins that a couple found in Northern California a few months ago? It was buried undiscovered for more than 100 years before they finally stumbled upon the partially unearthed stash.

  5. 20


    I’ll admit that a few months ago I would have said what you are writing is hokum, but then I read Michael Lewis’ book “The big short, inside the doomsday machine.” It is about the collapse of the sub-prime mortgage financial market. How the entire financial system allowed that terribly calamity to happen, and essentially didn’t care. The fed certainly dropped the ball in that situation and it could happen again. Protecting your wealth isn’t a bad thing, and the value of the dollar just doesn’t feel tangible. It isn’t really backed by anything.

  6. 21

    Jared says

    Playing devil’s advocate:

    In the post-dollar world, who’s to say gold and silver would be valued? What if people started paying for goods and services with seeds, something that is renewable?

    • 22

      Len Penzo says

      I guess anything is possible, Jared. But I believe gold and silver’s status for more than 5000 years of human history as the premier stores of wealth ensures that they will always be coveted.

    • 24

      Len Penzo says

      You’re not alone, Stefanie. Outside of food, housing and oil prices, most people do not pay attention to the machinations and health of the world’s financial system and overall macro-economy.

  7. 25


    Len, I agree with you on the precious metals idea. But we’ve been working to pay off our mortgage ASAP so we at least have a roof over our heads if (when) inflation, etc. hits. Should we should continue to do that or should we divert some of our extra mtg. payments to more precious metals? THANKS!

    • 26

      Len Penzo says

      Lauren: Your question is an excellent one, but to answer it properly, I need to address it in a blog post. I promise to do that within the next two weeks.

      I used to be a HUGE proponent of paying the mortgage down early. In fact, it was one of the first topics I ever discussed on my blog:

      By late spring of 2009, I finally started wavering on the wisdom of that philosophy, and I wrote about that too:

      For now, I will just say that, as I noted in this post, by 2010 my about-face became official: I was certain that paying off my home loan was no longer in my best interest — after more than 10 years of faithfully making extra mortgage principle payments.

      Again, you need to make your own decision.

      I promise I’ll discuss the present and possible future ramifications of my decision to stop paying down my mortgage early (both pro and con), and take a historical look at how existing mortgages were handled in other nations that suffered from a currency collapse in the coming article.

      • 27


        Thanks in advance for a new post on this! I’ve read the other posts, and they don’t address my situation; 7 yr. ARM at 2.75% gives us low enough pmts. that we can double principal pmts., paying home off by the end of the 7 yrs. (when the rates rise.) I look forward to reading your new posts!

  8. 28


    I totally agree with you. It’s sad how the system is going down. People are having to scrape and either do two or three jobs. Kids aren’t being raised by their parents anymore as both of them have to work just to survive.

    In 1930s Gold was at about $32 and Ounce and you could buy a lot for $32, including 2 piece Mens Suit, 1 month of Groceries and more.

    In today’s day, you cannot buy a men’s suit for $32 and barely any groceries for that matter. But! the value of Gold isn’t $32 for 1 ounce in 2014. It’s $1,172.64 which CAN buy you that suit and groceries…

    Some food for thought. If you can’t buy 1 ounce of gold, buy 1 gram and start making that your savings account. It doesn’t matter where you start, but start somewhere. I’m happy to help where to get the lowest cost gold around.

    Thanks for the great article!

  9. 29

    Jarod says

    I am a middle aged male, but have very little in my retirement because I never really see myself retiring in today’s America. I have around $7500 in my 401k. Should I pay the penalty, which would give me about $4500 afterwards and put this money toward gold and silver. Once the reset has occurred I should be looking much better for my later years. I’m thinking the reset has to happen within the next five years. This would put me in my early to mid 40s after its over.

    • 30

      Len Penzo says

      Jarod: Only you can decide what is best for you. If you are certain that there will be a reset within the next five years that will devalue the cash in your 401k plan by 40% or more (based upon the numbers you gave me), then the 401k withdrawal penalty and taxes you pay now would be worth it.

      Another option: Consider rolling over the funds in your 401k to a precious metals IRA (but only one that allows you to keep the physical metal in your possession; all other precious metals IRAs carry the same counterparty risks as other paper-based instruments). You can read more about that here:

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