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THE 401k Thread (merged)

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Re: So how does your 401k statement look?

Unread postby vision-master » Fri 11 Apr 2008, 15:41:11

$this->bbcode_second_pass_quote('joeltrout', '')$this->bbcode_second_pass_quote('Tyler_JC', ' ')I'm young and I can afford to look at the long term.



I am 25....so I second that. Social Security will probably be obsolete when I qualify so I am putting the maximum amount into my 401k and the maximum amount into my Roth IRA.

The great thing about the Roth IRA is I can pull out the principle penalty free if I need to in the future and then any interest stays until I qualify to take it out.

I think it is STUPID to pull money out of retirement accounts before you qualify and pay the huge taxes just because the current markets scare you.

joeltrout


$this->bbcode_second_pass_quote('', '4')5% Of Workers Leaving Job Cash Out 401K

--------------------------------------------------------------------------------

Some findings from a Hewitt Associates survey of 200,000 individuals participating in 401K plans found the following:

- 45% of those leaving their job opted to cash out their 401K plan

- Only 23% rolled their money over into an IRA or other retirement plan while 32% left the money in the 401K plan of their soon to be former employer.

- Nearly three-fourths (72.5%) of employees with less than $10,000 in their 401K plan opted to cash out.
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Re: So how does your 401k statement look?

Unread postby meekoil » Fri 11 Apr 2008, 15:54:07

Up .93% . It's all just in a money market fund.
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Re: So how does your 401k statement look?

Unread postby Tyler_JC » Fri 11 Apr 2008, 16:33:31

Vision-master, what are you saying with your post?

That the people cashing our their retirement plans are making the smart decision?

I'd say they are making a stupid decision. If you don't believe that Social Security is going to be able to continue making full payments from now until forever, I'd say that you have a personal responsibility to provide for as much of your own retirement funding as possible.

That is, unless you want to work until you die which is what will happen if you don't save a dime...which is what happens when you sit around waiting for the world to collapse.
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Re: So how does your 401k statement look?

Unread postby BigTex » Fri 11 Apr 2008, 16:57:09

$this->bbcode_second_pass_quote('Tyler_JC', 'V')ision-master, what are you saying with your post?

That the people cashing our their retirement plans are making the smart decision?

I'd say they are making a stupid decision. If you don't believe that Social Security is going to be able to continue making full payments from now until forever, I'd say that you have a personal responsibility to provide for as much of your own retirement funding as possible.

That is, unless you want to work until you die which is what will happen if you don't save a dime...which is what happens when you sit around waiting for the world to collapse.


Look, I am an expert when it comes to retirement plans, that's how I make my nickel, and I can tell anyone who wants to listen that 401(k) plans are going to be a complete disaster when the Boomers start to retire.

The two largest problems are these:

1. amateur investors chase returns, ensuring sub-par returns at a given level of risk almost all of the time.

2. people don't view their 401(k) plans as "retirement" plans, they view them as "savings" plans, as in "I have the money there if I need it." Something ALWAYS seems to come up before retirement for which people NEED the money.

The tragedy of the slow extinction of the traditional defined benefit pension plan won't be fully felt until they are all gone.

Other 401(k) problems, in no particular order:

1. When the market tanks, 401(k) balances drop, but it is during these periods that people most need their money because what is hurting the overall market may also be hurting them individually (unemployment, etc.). By overloading on stocks, you are creating a situation that guarantees that if you ever REALLY need the money, you are likely to be locking in losses when you take a distribution, not to mention the penalties and taxes you may trigger with an early distribution.

2. 401(k) plan fund offerings are usually poor. Often no energy, precious metals, targeted foreign funds, long term bond funds (typically just intermediate term) or foreign currency funds (how great would it be to have, rather than a U.S. dollar money market, a currency basket money market type fund?).

3. If you read the history of 401(k) plan designs, it's clear it was never even intended to provide for a full retirement payment, it was just intended to supplement a traditional pension plan.

4. Lump sums are simply not safe in many peoples' hands. By making distributions in the form of a lump sum, you are placing a person in a position of greater risk than the benefits frequently justify. It would be better to pay all 401(k) accounts out at retirement over some period of time, not necessarily life, but no shorter than, say, five years.

5. 401(k) loans are convenient but stupid if that is your "retirement" money. Companies with pensions don't let you borrow from the present value of your pension benefit, why should it be different with a 401(k) plan? One more hole in the bottom of the bucket.

6. The biggest problem of all is the decision to provide 401(k) plans rather than traditional pension plans represents an enormous shifting of risk from the employer to the employee. Thus, I have to "worry" about my 401(k) investments, while under a pension plan, it is the employer who "worries" over whether the pension plan trust has an acceptable investment return, but your benefit is defined without regard to anything that happens in the market.

A lot of these issues are not on anyone's radar, but they will be as the flaws in the 401(k) plan design become clearer and clearer as wave after wave of Boomers find that they don't have enough money to retire.
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Re: So how does your 401k statement look?

Unread postby Tyler_JC » Fri 11 Apr 2008, 17:12:34

I agree wholeheartedly, BigTex.

That's why I think it's insane to empty out your 401K every time you switch jobs. It means that you'll never have a real retirement savings plan.

Lots of people make a lot of very dumb financial decisions and it is costing them dearly.

The best way to invest is to buy when everyone else is selling and sell when everyone else is giving you investment advice. :)

Of course, it's never that simple in the real world but I think we are approaching the point where the markets will be undervalued.

Peak Oil or not, does anyone expect GE to stop making a boatload of money selling energy efficient appliances, wind turbines, and power plant generators?

Yet the stock fell nearly 14% today because its financial services division is feeling the pinch from the credit crunch. GE will survive and its stock will go back up. Now might be one of those golden opportunities to buy at a discount.
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Re: So how does your 401k statement look?

Unread postby joeltrout » Fri 11 Apr 2008, 17:15:08

BigTex you know more about this than I ever will but I want to explain my understanding. Please correct if wrong.

I think 401k plans are going to hurt more people than help. In the past it seems most companies provided pension plans which are run by professional fund managers and employees are automatically enrolled.

Now it seems fewer and fewer companies offer pension plans and the only way to save for retirement using a company plan is either with a 401k or Roth 401k. But most employees have to make the decision to enroll into the 401k and how much they want to contribute, and where to put the money. It gives the employees all the responsibility. And I do not have faith in majority of people handling their finanical future.

However, my company offers a pension plan and I am contributing the maximum to my 401k. I view my 401k as a supplement to my pension and if I leave the company I can roll it over into an IRA.

Contributing $15,500.00 a year until I am 65 yrs old will add up quite a bit since that is literally 40 years away. I don't see how this could be bad unless the markets literally got wiped out.

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Re: So how does your 401k statement look?

Unread postby BigTex » Fri 11 Apr 2008, 17:41:59

$this->bbcode_second_pass_quote('joeltrout', 'B')igTex you know more about this than I ever will but I want to explain my understanding. Please correct if wrong.

I think 401k plans are going to hurt more people than help. In the past it seems most companies provided pension plans which are run by professional fund managers and employees are automatically enrolled.

Now it seems fewer and fewer companies offer pension plans and the only way to save for retirement using a company plan is either with a 401k or Roth 401k. But most employees have to make the decision to enroll into the 401k and how much they want to contribute, and where to put the money. It gives the employees all the responsibility. And I do not have faith in majority of people handling their finanical future.

However, my company offers a pension plan and I am contributing the maximum to my 401k. I view my 401k as a supplement to my pension and if I leave the company I can roll it over into an IRA.

Contributing $15,500.00 a year until I am 65 yrs old will add up quite a bit since that is literally 40 years away. I don't see how this could be bad unless the markets literally got wiped out.

joeltrout


A recent trend is to provide automatic enrollment in the 401(k) plan and the default investment election is some kind of balanced fund. This is better than nothing, but is really just lipstick on a pig.

For the highly paid sophisticated employee, the 401(k) plan is a great tool with which to create wealth. For the average employee just trying to make ends meet it is not a good tool at all.

A good retirement program should provide the same retirement benefits to similarly situated employees as part of a total compensation package. What we have today is a process where only the lucky or very skilled investor/employees will have a good retirement income, and the rest will be in a bad spot. There isn't much fairness in that, as I see it. Your retirement income ought to be a function of your years of service and your compensation, NOT whether you happen to be a sophisticated investor.

We will come around to that, but we're a ways off right now.

What I think we will see on a large scale in the future will be a cash balance plan type program where the employer contributes a certain amount to an account on your behalf and that amount earns interest at a pre-determined rate (e.g., 7.5%), which creates a bookkeeping account balance. To the extent that the actual performance of the funds (which the employer directs) is more or less than the assumed level of return, the employer may have to put in more or less in future years.

At retirement time, you can elect an annuity or a lump sum based upon the value of the bookkeeping account balance.

It's predictable, it's insulated from market fluctuations, it doesn't require individual employees to be sophisticated investors, it is transparent, it allows an employee to project what his benefit will be with great certainty, and it is more or less fully funded at all times. That's a good program there.
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Re: So how does your 401k statement look?

Unread postby joeltrout » Fri 11 Apr 2008, 17:51:46

I believe most people spend more time planning their summer vacation then they do planning their retirement. Its all about priorities. Many say retirement is so far away why plan now? I will worry about it later. Then they hit 50+ and reality hits them in the face.

If people would just read a general investing book of some type once a year then they would have far greater understanding of finances. I buy Money magazine for some of my friends. It is a great overview of basic financial responsibility for people whether they are 65 years old or 23 year olds.

All it takes is discipline and a little knowledge. But most have neither and don't care.

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Re: So how does your 401k statement look?

Unread postby BigTex » Fri 11 Apr 2008, 18:09:29

$this->bbcode_second_pass_quote('joeltrout', 'I') believe most people spend more time planning their summer vacation then they do planning their retirement. Its all about priorities. Many say retirement is so far away why plan now? I will worry about it later. Then they hit 50+ and reality hits them in the face.

If people would just read a general investing book of some type once a year then they would have far greater understanding of finances. I buy Money magazine for some of my friends. It is a great overview of basic financial responsibility for people whether they are 65 years old or 23 year olds.

All it takes is discipline and a little knowledge. But most have neither and don't care.

joeltrout


One of the finest money management, wealth creation, and investment books I ever read was "Your Money or Your Life" by Joe Dominguez and Vicki Robin.

It provides a holistic approach to the "problem" of money, how to get it, how to keep it, how to invest it, how to be free of worry about it. Just a really fine book that covers topics WAY outside what most books like this attempt to do.

One thing they do, and I totally missed it the first time I read it, is spend a lot of time talking about the impact mindless consumption has on the environment and on the sustainability of our way of life.

You won't agree with all of their recommendations, but it's a good book, and the product of a lot of thinking and trial and error. They sort of focus on both the supply and demand side of money and try to show you the way to manipulate both ends to get you to a place where you can be happy.

http://www.yourmoneyoryourlife.org/
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Re: So how does your 401k statement look?

Unread postby Heineken » Fri 11 Apr 2008, 18:23:58

I read that book long ago, and it's one of the main reasons I was able to retire at age 50.

I didn't follow all the specific recommendations. Just the basic, broad principles---live below your means and save the difference.
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Re: So how does your 401k statement look?

Unread postby joeltrout » Fri 11 Apr 2008, 18:25:19

$this->bbcode_second_pass_quote('BigTex', '
')
http://www.yourmoneyoryourlife.org/


I think I will check it out.

Here is my take on money.

Most, not all, but most people can live off of 70% of their income. The problem is their standard of living is 110% of their income. Thus the reason for personal savings rate being so low and sometimes negative recently.

My minimum philsophy is live off of 70% of my income. Tithe 10% to church. Give 10% to charities. Save 10% for future. Most of the time I am able to live off of less than 70% of my income sometimes a little as 50% of my income.

Most people will say that is easy for people who make a lot of money. But it is actually an equal playing field due to the factor of the standard of living increases with higher salary.

If people make more then they buy more. If people make less then they buy less but more than they really need.

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Re: So how does your 401k statement look?

Unread postby Heineken » Fri 11 Apr 2008, 18:32:46

$this->bbcode_second_pass_quote('BigTex', '')$this->bbcode_second_pass_quote('Tyler_JC', 'V')ision-master, what are you saying with your post?

That the people cashing our their retirement plans are making the smart decision?

I'd say they are making a stupid decision. If you don't believe that Social Security is going to be able to continue making full payments from now until forever, I'd say that you have a personal responsibility to provide for as much of your own retirement funding as possible.

That is, unless you want to work until you die which is what will happen if you don't save a dime...which is what happens when you sit around waiting for the world to collapse.


Look, I am an expert when it comes to retirement plans, that's how I make my nickel, and I can tell anyone who wants to listen that 401(k) plans are going to be a complete disaster when the Boomers start to retire.

The two largest problems are these:

1. amateur investors chase returns, ensuring sub-par returns at a given level of risk almost all of the time.

2. people don't view their 401(k) plans as "retirement" plans, they view them as "savings" plans, as in "I have the money there if I need it." Something ALWAYS seems to come up before retirement for which people NEED the money.

The tragedy of the slow extinction of the traditional defined benefit pension plan won't be fully felt until they are all gone.

Other 401(k) problems, in no particular order:

1. When the market tanks, 401(k) balances drop, but it is during these periods that people most need their money because what is hurting the overall market may also be hurting them individually (unemployment, etc.). By overloading on stocks, you are creating a situation that guarantees that if you ever REALLY need the money, you are likely to be locking in losses when you take a distribution, not to mention the penalties and taxes you may trigger with an early distribution.

2. 401(k) plan fund offerings are usually poor. Often no energy, precious metals, targeted foreign funds, long term bond funds (typically just intermediate term) or foreign currency funds (how great would it be to have, rather than a U.S. dollar money market, a currency basket money market type fund?).

3. If you read the history of 401(k) plan designs, it's clear it was never even intended to provide for a full retirement payment, it was just intended to supplement a traditional pension plan.

4. Lump sums are simply not safe in many peoples' hands. By making distributions in the form of a lump sum, you are placing a person in a position of greater risk than the benefits frequently justify. It would be better to pay all 401(k) accounts out at retirement over some period of time, not necessarily life, but no shorter than, say, five years.

5. 401(k) loans are convenient but stupid if that is your "retirement" money. Companies with pensions don't let you borrow from the present value of your pension benefit, why should it be different with a 401(k) plan? One more hole in the bottom of the bucket.

6. The biggest problem of all is the decision to provide 401(k) plans rather than traditional pension plans represents an enormous shifting of risk from the employer to the employee. Thus, I have to "worry" about my 401(k) investments, while under a pension plan, it is the employer who "worries" over whether the pension plan trust has an acceptable investment return, but your benefit is defined without regard to anything that happens in the market.

A lot of these issues are not on anyone's radar, but they will be as the flaws in the 401(k) plan design become clearer and clearer as wave after wave of Boomers find that they don't have enough money to retire.


Just don't put your 401k money in stocks or bonds, and the big risk goes away. I've always had mine in a major "guaranteed" (interest earning) account. The balance always goes in only one direction (up) and is always compounding. My employer matched 6% of my salary for the 15 years I worked for it, so with interest it was increasing by about 11% per annum without my having even to lift a finger. My contribution increased that to about 19%. On top of that you then have to add compounding, which is the real magic.

So what's the problem with that?
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Re: So how does your 401k statement look?

Unread postby vision-master » Fri 11 Apr 2008, 19:03:12

Throw em 401k's out the door. Buy land.
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Re: So how does your 401k statement look?

Unread postby joeltrout » Fri 11 Apr 2008, 19:06:30

$this->bbcode_second_pass_quote('vision-master', 'B')uy land.


I agree with buying land.

Thankfully I have been able to do both, buy land and contribute to 401k.

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Re: So how does your 401k statement look?

Unread postby BigTex » Fri 11 Apr 2008, 19:29:54

$this->bbcode_second_pass_quote('Heineken', 'S')o what's the problem with that?


When you have a good brain like yours at work, you will do fine no matter what.

It's the unsophisticated investors chasing returns and taking 401(k) plan loans to buy bass boats that make me dislike the 401(k) plan as a retirement vehicle.

People shouldn't have the option of using their retirement money like that and shouldn't be permitted to make stupid investment decisions.

A well-designed retirement plan shouldn't require employees to have to make ANY decisions that could dramatically impact the amount of retirement income they will receive.

Just my opinion, though.

Employers would do well, too, to provide a more diverse offering of funds. I don't mean more stock funds, I mean more funds that will allow employees to invest in less risky classes of assets, or create REAL diversification.

A good lineup would be the usual large, medium and small cap stock funds, several international funds targeting different regions around the world, a precious metals and mining companies fund (with a 10-20% cap on the amount you can contribute), a natural resources-related fund, a real estate investment trust fund, a couple of foreign currency money market-type funds (probably the euro and one other currency) and a long term bond fund (20 years or more).

A lineup like that would give participants the opportunity to achieve real diversification.

Many 401(k) plans offer a "brokerage window" in which you can use your funds to buy basically anything on the open market. That's a good tool, but only in the hands of experienced investors.

Heineken, does your plan have a borkerage window? Wait, you don't work there any more, right? Why haven't you rolled that money into an IRA? If you did you could invest in almost anything, including gold bullion if you wanted.

If you take a 401(k) loan make sure you understand how it works. You are paying the interest on the loan to yourself, but the interest goes into the plan as after-tax dollars, but the interest is taxed again when you take a distribution, so it's good that you're paying yourself interest, but it's bad that the interest dollars you are paying will be taxed twice.

One move that CAN be quite slick is to take a large 401(k) loan if you feel the market is near a top. This cashes you out at the high, allows you to put more money into the plan in the form of interest (which can be a good and bad thing, as noted above) and you have the cash in hand to use on other things that may be more pressing. But it's still probably not as good as just leaving the money in the plan in the first place.
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Re: So how does your 401k statement look?

Unread postby Heineken » Fri 11 Apr 2008, 21:59:33

Tex, I agree absolutely that the choices within most 401k plans are sadly limited. That was certainly true of my own employer's plan, although it did offer some more choices over time.

I haven't rolled the money into an IRA because I don't need to assume the risk of trading. My strategy is simply to hang on for seven more years, earn the 4-5% annual rate and the compounded earnings, and cash out when I'm 59 1/2.

Bear in mind that I'm already very diversified and have pension and annuity income and substantial real assets.

So, I just let it sit there, perhaps slightly outstripping inflation.

I do think about cashing out now, though, given my extremely bleak view of our fiscal future.
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Re: So how does your 401k statement look?

Unread postby vision-master » Fri 11 Apr 2008, 22:12:07

$this->bbcode_second_pass_quote('Heineken', 'T')ex, I agree absolutely that the choices within most 401k plans are sadly limited. That was certainly true of my own employer's plan, although it did offer some more choices over time.

I haven't rolled the money into an IRA because I don't need to assume the risk of trading. My strategy is simply to hang on for seven more years, earn the 4-5% annual rate and the compounded earnings, and cash out when I'm 59 1/2.

Bear in mind that I'm already very diversified and have pension and annuity income and substantial real assets.

So, I just let it sit there, perhaps slightly outstripping inflation.

I do think about cashing out now, though, given my extremely bleak view of our fiscal future.


But! You have no medical insurance.
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Re: So how does your 401k statement look?

Unread postby Heineken » Fri 11 Apr 2008, 22:16:52

You are so right, Vision Master.

And people argue with me about being a doomer??

A day at a time is how I get through. I'm constantly aware that, at any moment, it can all be snatched away. Death is so close I can taste it.

It doesn't taste so bad.
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Re: So how does your 401k statement look?

Unread postby Iaato » Fri 11 Apr 2008, 22:26:53

We're all terminal in the end. Some of us are dying faster than others. We'll all get there eventually. It's a process; enjoy the evening.
“Paper money eventually returns to its intrinsic value ---- zero.” --Voltaire
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Re: So how does your 401k statement look?

Unread postby Heineken » Fri 11 Apr 2008, 22:30:49

The thing I most fear is injury. Some dumb injury that could have been avoided, the result of a momentary lapse of attention. I'm very active and this exposes me to plenty of risk.

I guess my 401k could help me fix a couple of injuries, esp. if I traveled to Mexico (or Canada?) to get the repairs done.
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