[Tyler_JC]

Gold will always have value.

Why?

Because it has always had value.

If you must trust anything, trust a shiny yellow metal.

100% gold is not the way to go.

20% foreign bonds (Canadian, Euro)
40% PO-friendly stocks (international or otherwise)
20% bear funds (if you believe the stock market will tank sooner, increase this)
20% gold/silver (silver is far more undervalued than gold)

Or at least the above looks like a good idea.

[Heineken]

I'm a big supporter of gold, don't get me wrong. But I'm not convinced that it's the ticket to survival when we're sitting around starting to get hungry. To whom will you sell your gold? What might you get for it? One thing you might get is a bullet through the chest.

[ab0di]

$this->bbcode_second_pass_quote('Egon_1', 'I') am thinking about cash out my 401K/IRA accounts also.

One thing that came to me: a good bit of the penaties are taxes that would be collected at the end of the year. If you cash out your account(s) at the beginning of the year and re-invest in something that gives good returns, then your gains over the coming year would help offset the penalties you eventually pay. If you invested in oil or other resource futures, you might be able to more than pay off the penalties!

I have not done any analysis, and I have not researched the actual timing of when penalties are paid, but I think the concept is solid IMHO.

[lateStarter]

falser,

I'll keep you posted how my own experiment in this area goes. Just as a test this year, I cashed out some annuities making a pitiful 3% (small amount of money, around 13k USD) and used the money to pay off some credit debt. I elected that the company not withhold anything at the time. When I file my tax return for this year, I am counting on the fact that I will have no income for 2005 other than my withdrawal from the Annuity account to soften the blow. I know your situation is different...

If that turns out to not be so painful, I will start to withdraw funds from my other IRA accounts and use the money to pay myself while I spend my time preparing for bad times.

I almost went back to full-time work, but decided that if I did, I wouldn't have time to make any meaningful preparations. If money starts getting tight, I may look for some part-time work, but I'd really rather spend the time and effort elsewhere.

[jimmydean]

$this->bbcode_second_pass_quote('Heineken', 'I')'m a big supporter of gold, don't get me wrong. But I'm not convinced that it's the ticket to survival when we're sitting around starting to get hungry. To whom will you sell your gold? What might you get for it? One thing you might get is a bullet through the chest.

[strider3700]

I'm curious why anyone puts anything into 401K's or RRSP's(canadian equivalent I think) Other then job matching I fail to see why I should lock my money into something where I get to pay a penalty for doing with it what I want. I can buy stocks, bonds, gold, cows... just fine without needing to get locked in and pay fines for pulling it early.

[jimmydean]

$this->bbcode_second_pass_quote('strider3700', 'I')'m curious why anyone puts anything into 401K's or RRSP's(canadian equivalent I think) Other then job matching I fail to see why I should lock my money into something where I get to pay a penalty for doing with it what I want. I can buy stocks, bonds, gold, cows... just fine without needing to get locked in and pay fines for pulling it early.

[falser]

Personally I think we are a long ways off before we need to think about buying food with gold. Remember Peak Oil does not mean No Oil. I predict an economic crash will probably delay the 'Mad Max' effects of Peak Oil another 10 years and by that time the oilsands will be pumping at full tilt. I think short term I'd prefer having fairly liquid assets, just ones that won't depreciate as much as the US dollar. Buying property isn't really an option at the moment (even without a housing bubble), but maybe 5 years from now if I move back to Canada I'll be thinking about that.

I think Gold stocks may end up being a better option for the next 12 months. I did own some (not as much as I should have) during the recent run-up before cashing out when gold got to $440. I'll buy again if things go back down. Stocks have liquidity, and even higher returns than the physical commodity. And in the amounts I'm working with, dealing with physical gold would be troublesome. But with that said, I still might start buying a few ounces here and there in the meantime.

lateStarter, if you just made your moves now I guess you won't know until April right? I want be done all this by that time. Then I can just sit back and hum to myself as the US economy implodes (and hoping it doesn't spread to Canada).

strider3700, the other benefit is employer contributions. Most companies match your contributions up to 4%, mine also does lump sum yearly bonuses directly to our 401k's. It's free money if you keep it in forever. I thought that was a good idea until I started learning about PO.

[lateStarter]

falser,

Believe me, if I see things are starting to accelerate, I will pull it all out as fast as I can and worry about the penalties later. I would rather spend the money on something useful then see it all evaporate. But at the moment, I am going with the slow slide scenario for the next few years (may include some spikes, but TPTB manage to keep the lid on for a few more years). If any of the possible trigger scenarios kick-in, hopefully I'll be able to pull it out before lock-down. There is still money to be made, but as always, trying to 'time' the market is perilous!

[Heineken]

Here are details on withholding from early withdrawal of 401(k). As you can see, it's pretty disastrous, and I don't recommend it unless you're convinced the sky is falling:

Q. What happens if I withdraw money and do not reinvest it?
While a cash distribution will give you immediate access to your assets, you could lose up to half of your accumulated assets due to investment taxes and early withdrawal penalties. The 20% withholding law automatically applies to cash distributions which are eligible for rollover.

This table demonstrates the consequences of premature cash distributions.


Cash Distribution $50,000
20% required federal income tax withholding – 10,000
Check you’ll receive $40,000
10% early withdrawal penalty – 5,000
Additional 10% federal income tax – 5,000
7% state income tax (varies by state) – 3,500
After tax value of $50,000 distribution $26,500


Note: Assumes an individual is under age 59 1/2, that no exception to the 10% early withdrawal penalty tax applies, and that the 30% federal tax rate applies. State and local taxes are estimated at 7% total. The percentages may vary.

[lateStarter]

Thanks for the numbers, Heineken. Assuming we are still around in 2006, I'll let you know how it turned out in my test case. Hopefully it won't be that bad, because:

1. State I use as US address for 2005 tax year has no state income tax.
2. I have no income for 2005. That should put me in a pretty low tax bracket.

My only income for 2005 will be the 13k I withdrew from the annuity and some interest from other accounts in the US and abroad.

Trying my best to drop below radar...

[BrownDog]

strider, the reason for 401k is that it grows tax deferred. You don't pay taxes until you withdraw it, so it grows faster. And presumably, you'll be in a lower tax bracket then, so you'll ultimately pay lower taxes at that time.

I just reviewed the asset allocation of some of my funds themselves. Many of them had a large component of "discretionary consumer". I don't have high hopes for that as fuel prices rise, so I moved some money to different funds, including some with more energy stocks.

[BrownDog]

In your example, Heineken, you use 30% marginal tax rate, which would assume a lot of other income.

I don't know how 401k withdrawals are affected, but long-term capital gains (held one year or more) are only taxed at 15%. Do you know if this would apply to 401k? If it does, then the tax liability would be the same (i.e. 15%), and the only drawback would be the 10% penalty.

(This is based on US tax code. YMMV)

[Heineken]

Tax-sheltered retirement accounts are different animals, Browndog. I don't think that 15% rate for capital gains has any connection with premature cashout of a 401(k). (Actually, I'm not quite sure what your question is.) I am not a financial expert, although I've had some experience with individual stocks in both IRA and unsheltered accounts.

[Heineken]

$this->bbcode_second_pass_quote('lateStarter', 'T')hanks for the numbers, Heineken. Assuming we are still around in 2006, I'll let you know how it turned out in my test case. Hopefully it won't be that bad, because:

1. State I use as US address for 2005 tax year has no state income tax.
2. I have no income for 2005. That should put me in a pretty low tax bracket.

My only income for 2005 will be the 13k I withdrew from the annuity and some interest from other accounts in the US and abroad.

Trying my best to drop below radar...

[I_Ride_Bicycles]

OK, after years of lurking, I actually felt the need to create an account just to get involved in this thread.

This exact issue has been on my mind a lot recently and I'm pretty surprised to see people on this website in step with the recommendations of the banking industry on the topic of 401(k) contributions.

Here are some questions I'd like people to consider:

How do you benefit from tax-deferred growth if there's no long-term economic growth?

What do you think the tax rate will be when you are able to retrieve your money? Higher than now or lower? 10% higher? (i.e., more than the current withdrawal penalty)

What effect do you think it will have when the Baby Boomers start to withdraw from their accounts? With the market shrinking, won't that further inhibit stock growth even if the economy is growing?

I can see that if you are going to reach age 59 1/2 in the next 5 years (or 10 years if you're an optimist), it might make sense to keep your money in the market. But for those of us who don't retire for 20-30 years, who here really thinks that there will be more money in their account at that time? What do you think the Dow is going to be in 10 years? 20?

Anecdotal story: Back in 2000, a co-worker friend of mine took out a 401k loan to cover a down-payment on a house purchase. While he was protecting his principal and paying himself interest, the market crashed in 2001. I lost a significant chunk of equity and he did not. Just goes to show that timing the market can be very risky and 401k plans in particular are heavily weighted in the market.

Since that time, I've redistributed my account balance to more diverse options (but of course all of them are in the market - there is no gold option offered by my company), I've stopped contributing new money (my employer contributes x% regardless of my contributions), and I'm even considering trying to pull the money (& pay the penalty) to use in a more constructive manner now. You always have to pay the taxes when you cash-out. Even assuming the tax rates are the same today & the future, if the market goes down more than 10% then you might as well have used that money to pay off debt now (thus saving yourself accrued interest) or investing in something like solar panels which will actually pay out dividends year over year.

Maybe if I had no debt and my mortgage was paid off, I'd consider putting money back in the 401k, but I won't need to worry about that for awhile.

[falser]

You make some excellent points I_Ride. Anecdotal stories like yours scare me silly.

20-30 years from now I too don't see the stock market and mutual funds working anything like they do today. You've all heard of Black Monday? Well, what if one day we remember something much worse called "Black 2007-2017"? If I have my money easily liquidized I can at least do something with it before I've lost it all. I can open foreign bank accounts, buy gold, buy property, whatever - I can react to the changing environment, or at least diversify it in a way that I can't with a 401K. I don't want to be one of these poor suckers that rides the stock market all the way to zero.

The main problem with US 401k's is they are so restrictive and generic. I have to choose from about 25 mutual funds in different categories: Large/Mid/Small caps, Bond fonds, International, and Money Market. They're all basket funds, with hundreds of stocks. No ETF's, no sector funds, no international bonds, no foreign currency. Even the international funds are all over the place, stocks from Japan, China, Europe, I don't even know what companies they are invested in, so I just invested in all 3 funds my plan offers.

[JBinKC]

First of all I am in the camp that a 401 K must be treated as the conservative portion of your retirement so I believe the money should be put in the most conservative guaranteed investments. I am a strong believer of this because you are extremely limited on what you can do with it from your limited choices of investments. You should contribute the amount which the company will match and no more. I am not a strong believer in diversification. Warren Buffet didn't get rich from diversifying but rather buying assets at the opportune time.

A self directed IRA or a Roth IRA LLC (to protect you in a bankrupcy) should make up the larger portion of your investment contributions that will incur what the academic scholars "risk" but I rather term as buying on sale.
I have averaged a 25% compounded return since 1986 on my stock investments.


If you believe you have job security my suggestion is to leverage yourself and borrow against the 401K to the max and put the proceeds into a hedge investment like Canadian or Russian bonds or resource stocks or bear funds.

I have posted here before with my stock investments and most of them I have excelled in ie Toreador Resources in the $4-5 range Chapparal Resources in the $1.5 range Tatneft in the $24 range etc.

One company I do really like is a company called Kroes Energy the company's reserves are valued only at roughly $1.5 /bbl very cheap and undiscovered

[shady28]

$this->bbcode_second_pass_quote('falser', 'I')'m starting to get pretty worried about the economic storm that's coming down the pipe, particularly the US dollar decline. I have a fair amount of investments that are locked into retirement accounts. I just recently rebalanced my 401K to 90% international stocks for the short term, but I'm not even sure if this is a prudent thing to do long term. I'm becoming more experienced in the stock market and believe my money is safer in my own hands than in the hands of a retirement company (who obviously wouldn't want me taking my money away from them).

[Heineken]

$this->bbcode_second_pass_quote('I_Ride_Bicycles', 'O')K, after years of lurking, I actually felt the need to create an account just to get involved in this thread.

This exact issue has been on my mind a lot recently and I'm pretty surprised to see people on this website in step with the recommendations of the banking industry on the topic of 401(k) contributions.

Here are some questions I'd like people to consider:

How do you benefit from tax-deferred growth if there's no long-term economic growth?

What do you think the tax rate will be when you are able to retrieve your money? Higher than now or lower? 10% higher? (i.e., more than the current withdrawal penalty)

What effect do you think it will have when the Baby Boomers start to withdraw from their accounts? With the market shrinking, won't that further inhibit stock growth even if the economy is growing?

I can see that if you are going to reach age 59 1/2 in the next 5 years (or 10 years if you're an optimist), it might make sense to keep your money in the market. But for those of us who don't retire for 20-30 years, who here really thinks that there will be more money in their account at that time? What do you think the Dow is going to be in 10 years? 20?

Anecdotal story: Back in 2000, a co-worker friend of mine took out a 401k loan to cover a down-payment on a house purchase. While he was protecting his principal and paying himself interest, the market crashed in 2001. I lost a significant chunk of equity and he did not. Just goes to show that timing the market can be very risky and 401k plans in particular are heavily weighted in the market.

Since that time, I've redistributed my account balance to more diverse options (but of course all of them are in the market - there is no gold option offered by my company), I've stopped contributing new money (my employer contributes x% regardless of my contributions), and I'm even considering trying to pull the money (& pay the penalty) to use in a more constructive manner now. You always have to pay the taxes when you cash-out. Even assuming the tax rates are the same today & the future, if the market goes down more than 10% then you might as well have used that money to pay off debt now (thus saving yourself accrued interest) or investing in something like solar panels which will actually pay out dividends year over year.

Maybe if I had no debt and my mortgage was paid off, I'd consider putting money back in the 401k, but I won't need to worry about that for awhile.