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Start worrying about the penalty for LATE withdrawal more than the penalty for early withdrawal

Posted by John T. Reed on

We have a certificate of deposit I would like to get rid of because it is dollar-denominated. There is a penalty for early withdrawal. People are extremely conscious of such penalties. Another is the one for withdrawing from an IRA or 401(k).
Let me inform you of the PENALTY FOR LATE WITHDRAWAL. If we get hyperinflation, your dollar-denominated certificate of deposit or dollar-denominated retirement account will become worthless or worth too little to matter. So the penalty for LATE withdrawal is 100%.
The penalty for early withdrawal is guaranteed, as is the amount you get if you wait until maturity. But that relates solely to the amount of principal and interest you receive. What I am talking about is the PURCHASING POWER of what you receive. If it is zero, the solemn guarantee does nothing but mock your naivete.
Your CD or pension account guarantee says NOTHING about the purchasing power of that money. There are some cost of living adjustment clauses like in U.S. Treasury Inflation Protection Securities (TIPS). Those clauses are worthless. If you doubt that. Read the fine print that tells how and when they calculate your adjustment and see what you get and when you get it using some very high inflation rate. I have described the inflation-adjustment clause in TIPs as being like an abortion clinic with a ten-month waiting list.

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