Are 401(k)s worth it these days?

[apples and oranges]

Serious question. Currently I have no investments at all and I need to think about retirement.

[NNN0LHI]

1. Try to get a job with a guaranteed pension

No one knows what shape a 401(k) will be in when it comes time to retire.

As we have recently learned all it takes is one Republican administration and it will all be wiped out.

Don

[ljm2002]

20. You mean, like the auto workers' guaranteed pensions?

And like all the other blue-collar workers' "guaranteed" pensions?

Sorry I do not mean to pick on you. It's just that there don't seem to be any safe havens left.

[exboyfil]

27. I can tell you exactly what the value of the 401(k) would

be (on an inflation adjusted basis) if they allowed 401(k)s to invest directly in Treasury securities. Purchase Treasury Inflation Protected Securities. I could also recommend a balanced portfolio in which you hold your age in Treasuries and the test in equities (possibly a little gold and oil as well). Such a portfolio would have done very well in this latest market crash. Even if you bought all equities at the very start of the market crash, you would only be 15-20% down now (an unlikely investment scenario).

Guaranteed pensions have to invest in something, and, in that way, they are as subject to the market as an individual investor. I am not entirely sure what is going to happen with all the "guaranteed" state pensions currently underwater. They got underwater by using overly optimistic return formulas, and many of them sold their riskiest assets at the worst time based upon public pressure. Many of these state pensions (like private pensions) have reset once or twice (ie the contibutions continue to increase whether funded by the employee or the institution/company) for the same level of benefit. My own company has a two tier pension plan (the oldsters get a much sweeter deal). the reason is not greed on the part of my company, but a recognition that pension plan risk is one that they can't manage very well. In compensation for the lower pension, they match a larger portion of my 401(k) than they do for the oldsters. Of course I would like to have the oldsters plan, but I am not sure my company would be sustainable offering it to my generation (along with them taking something else away since my labor like all other labor competes for wages and benefits).

It is easy to make all sorts of promises about guaranteed pensions, and many of these pensions were used in the past to anchor employees to companies (rapid run up on the pension formula in the last years for example). Unfortunately, those very same features also make you very vulnerable when the cost cutting comes down (to the point that companies get bought and their pensions freeze in place - like what happened to my dad twice). They still pay all their promised benefits, but you never get a chance for that final ramp up (in years of service and final five year salary) that you otherwise would have had. Of course you also have the companies which turn their pensions over to the the Pension Benefit Guaranty Corporation. Take a look at the PBGC website and see which companies are on that list.

Will public pensions be able to recover from their short fall going forward? They have promised benefits that will have to be paid by either increases in their investment portfolios, additional taxing authority, or asking current workers to pay more (get less) on their pensions. As for private companies - well I would be nervous if I worked for a car company (that is unless Uncle Sam comes along with his checkbook).

Also we already have a form of guaranteed pension - it is called Social Security.

401(k)s give individuals an opportunity to have a little of their own money and control. I guess it depends on how much cradle to grave protection you want in your life. Remember anything promised can be taken away.

Conservatives are now hammering on 401(k)s because they have realized that, for the price of some current year tax avoidance, they have subjected most of their nest egg to potentially onerous government intervention. Different things currently under consideration:

1. Liquidate 401(k)s/IRAs and place assets in government securities. Some fruit cakes have made this suggestion without even realizing what that would do to the equity markets etc.

2. A set guaranteed income for all. In part we already have this as Social Security is already taxed above a certain income level. I see going forward that these taxes (both on income coming out of retirement accounts and on Social Security) continuing to increase because that is where the money is. In effect they want to punish the 401(k) savers by significantly reducing the benefits of your savings. It is particularly ironic because most of these workers have also subsidized Social Security (anyone making over about $50K) is subsidizing Social Security based upon current formulas.

I am not saying that 401(k)s in equities is a good idea. My portfolio is currently very light in equities (sold out earlier this year). I am saying that cash or securities in an account means more than a promise (even a state or federal government promise).

[Egalitariat]

31. No such thing as a guaranteed pension unless you work for the US Government

[NNN0LHI]

34. No guarantee the sun will rise tomorrow either

Google "Pension Benefit Guaranty Corporation" if you have a minute.

Then Google "401(k) Benefit Guaranty Corporation" once and see what you get.

Don

[tonysam]

110. 401(k)s are total junk because they are merely a way for companies to screw employees

by making them bear virtually all of the risk.

They're crap, despite propaganda here.

Thank God I got vested in my public employee retirement plan. It won't be that much, some $300 a month if I collect now, but that monthly benefit will last me the rest of my life.

Junk plans like 401(k)s tend not to last that long when one retires; defined benefit plans last as long you live.

There's no comparison at all.

[Common Sense Party]

112. Defined benefit plans last as long as the entities sponsoring the plans want them

to last. Many private AND public employers are getting rid of their DB plans, because there's no way to keep paying those benefits in perpetuity.

I like bearing the risk. It's my retirement; it's my responsibility.

I'm not going to rely on some ex-employer or some government entity to support me in my old age. They're too fickle.

[Statistical]

118. 401K can last a lifetime too.

Ever heard of an annuity. I don't recommend them because you likely can get better lifetime return with conservative portfolio but they are useful for a comparison to defined benefits.

$45K will get a 65 year old an annuity with $300 a month guaranteed income.
$55K will get a 65 year old couple a joint annuity (pays until both die) with $300 a month guaranteed income.

So $45K in an 401K is roughly equal to a $300 per month pension.

With a good company that provides a 100% match up to 5% someone working 30 years and putting aside 10% (5% matched 100%) can amass a lot more than $45K. You can easily save 10x that.

[shanti]

78. state or municipal too

[FSogol]

2. Yes, especially if your company matches a portion of your input.

The sooner you start to save for retirement, the better it will go.

[taught_me_patience]

3. ABSOLUTELY YES

for the simple fact that the money is taken out pre-tax. You basically get a 20-40% return on investment (depending on marginal tax bracket) right off the bat. Employer matches are additional gravy.

[truebrit71]

4. Yes. No doubt about it. especially if the company matches all or part of your contribution..

..

[slackmaster]

5. Yes

It's one of the best deals available, especially if your employer makes matching contributions.

[OutNow]

6. Thinking about retirement

It's always a good idea to think about retirement at any age, but your choices will vary depending on your current age and employment situation.

The younger you are and the more money you can invest every month the more a 401K is a good choice. If your employer provides matching funds you should fund the 401K at least up to the company match.

Then you have to decide what investments you will choose among the offerings of the 401K.

And remember, investment advice is always worth what you pay for it. :0-}

[Warpy]

7. If your company matches you dollar for dollar

it's a great deal, probably the best one you're ever going to get.

However, you do need to keep an eye on it, make sure you're not stuck with company stock that doesn't pay anything.

The name of the game is dividends. Those are what will allow your investments to work for you when you can no longer work.

[TK421]

14. When I worked for Dillards back in 1999 I invested in their 401K

they matched dollar-for-dollar. I was there for maybe a year, and when I decided to move back home to PA they sent me a check for something like $310.00 ( I was actually surprised at the amount...considering the time there went by rather quickly )

[csziggy]

8. If your employer matches your contribution, probably

If not, check out a Roth IRA. But if you have nothing put aside at all, start some sort of savings and build up something you have access to in case of emergency. 401(k) and Roth IRAs will cost you a penalty if you have to use the money before you retire.

The difference is that with a 401(k) your contribution is taken out before taxes and you have to pay taxes on the withdrawals (though you do not pay taxes on the gains as they accumulate), presumably at a lower tax rate. With a Roth IRA, you make your contribution after paying taxes on it, but you are not taxed on the accumulated gains or the withdrawals. So if you can afford to sequester money in an IRA, the Roth will accrue faster than regular savings.

[Statistical]

9. Does you employer match?

If so not taking a match is silly. If your employer has a 5% match and you don't take it you just accepted a voluntary 5% paycut.
If they don't then IRA is better. More control, more options. You can choose your broker. You can choose traditional or Roth. Only "limit" is you are limited to "only" $5000 a year.

Note: 401K or IRA doesn't have to mean stocks. Think of a 401K/IRA as a tax protected bucket. You can do anything you want with the money in the bucket. Put the money into bonds (what is the odds GE for example will miss bond payment) or even less risk put money in T-bills.

For last 15 years I have made my 401K contribution the minimum to get 100% of the companies match the rest goes into my IRA. When I change jobs I rollover 401K into my IRA. I just use 401K to get the "free" match. No sense leaving money on the table.

[CreekDog]

10. what are you giving up to compare the value of a 401k to?

:shrug:

[NeedleCast]

11. Yes

Just make sure you understand what it is and how it generates money. A good percentage of people with 401ks have no idea what they're doing and they pay no attention to what their investements are doing.

[Demobrat]

12. Yes they are.

Contribute at least enough to get the company match. If you're not comfortable in the stock market look at your investment choices carefully and pick a fixed income fund. You won't make a lot (until interest rates go up - then, WOOHOO) but you won't lose your money either. People will tell you you should be more aggressive bla bla bla, and if you want to gamble it's up to you. But you don't have to.

[seabeyond]

13. a&o... i like the answers you got. i want to pull our 401k and put in cd, i am so concerned

with economy and market. but sounds like everyone would yell.... stupid. so seems the place for money to say

yea

[Demobrat]

15. If you're not still working at the company where your 401k is you

can roll it into an IRA somewhere like Fidelity and put it in CDs if you want. And if you are still working there put your money into a fixed income fund. Retirement funds don't have to go into the stock market - although that's not something the mutual fund companies pay to advertise.

[seabeyond]

interesting. thanks. nt

[Statistical]

41. Your 401K plan like has a treasury fund.

If you take money OUT of 401K = taxes & penalties.

IF you sell stock fund in 401K and purchase bond fund = no taxes & penalties.

Simply choose an plan with less risk.

[seabeyond]

46. what are you all feeling right now. they dropped so much more than a year ago, but

over the last year i think we made it all up. do you see pulling some out and sticking it in stock fund or leaving it in the market

thanks

[Statistical]

48. "sticking it in stock fund or leaving it in the market" ??? do you mean bond fund?

I am going to assume you mean bond fund because stock fund is synonymous with "the market".

Regardless of what the market does over next month, year, decade you shouldn't be 100% in stocks. If you are you should change that.

Honestly you should consult a financial adviser but some free advice (likely worth what you are paying for it :) ):

A rule of thumb is 100 minus your age in stocks. So if you are 40 you should be 60% stocks and 40% bonds.
Some advisors are now pushing stocks (equities) more heavily so you might consider 120 minus your age. Once again if 40 that is (120-40) 80% stocks and 20% bonds.

When you are young (under 30) you can take larger risks with your money but as you get older you need to get more conservative and move money into safer returns.

So hypothetically if I was 40 I would be looking for something like this:
60% equities (stocks)
at least 1/3 of this should be foreign. BRIC is good place to look (Brazil, Russia, India, China).

30% bonds
this can be a combination of govt bonds, low risk corporate bonds, and high yield corporate bonds

10% commodities (oil, gold, grains, steel, copper)*

* if you don't have access to commodities/futures then simply go 65/35 equities/bonds.


If all your money is in 401K likely you only have access to mutual funds. However if some/all of it is in an IRA and you can pick individual stocks as you get older start looking for higher dividend yielding stocks (Verizon, Walmart, Duke Energy, Boardwalk Pipelines, etc).

[seabeyond]

58. excellent. thank you

and i understand opinion, and what it is worth, but... i still value what you say.

we are sittin right about what you are saying. good to know. thanks.

[NeedleCast]

59. You need to assess what you're willing to risk and how close you are to retirement

If you have one at work, you might want to speak with your 401(k) manager, usually someone in human resources, that can help you figure out what you're willing to risk and how close you are to retirement (I have no idea how old you are so I'm in no position to give advice on that).

In general though, the older you get (and the closer to retirement you get) the less risk you should be taking. The reason a lot of people close to retirement took a bath when the market crumbled was because they failed to manage their 401(K) plans. It's not something that requires a lot of attention, but it does require SOME attention.

As the above poster pointed out, if you take all (or some) of your money out prematurely, you'll end up paying all the taxes on it (plus a penalty, most likely).

Generally, in your 20s-40s you should be taking some moderate to higher level of risk. Keep the majority of your 401k allocations in the market. You can, of course, take some level of control over that by deciding if you want the majority of that investment money going to generally strong, stable stocks or if you want to take a higher level of risk by investing in mid and small cap stocks. If you want to take somewhat less risk, have the majority of it going to mutual funds which diversify risk (ensuring that if one are of the market tanks, it doesn't hurt you that much). As you get older, you being to move your money towards lower risk bonds and/or treasury funds that carry almost zero risk (but, of course, carry less chance for big gains).

With no disrespect meant to those who got clobbered by the market crash, having the market drop dramatically can actually be a good thing for younger people. The money they're putting in their 401(k) plans now buy more shares at cheaper prices. Assuming the market goes back up, that's a good thing.

[seabeyond]

62. excellent. thanks

i am older and i want to take NO risk. hubby though, more willing to take the risks, lol, rollin eyes. when stocks plummeted, we increased the amount out of checks to as much as we could per plan, because we were able to be without a paycheck, virtually. lol. it was good, getting in so much while the stocks still low. this year, we are back to paying into it at the normal amount. so i hear what you say.

i may need to ask the same thing in a year or two, i dont seem to retain it. but looks like we are on the right path. appreciate it.

i keep a stash in no risk, cd... so regardless, i continually tell my self there will always be something, even though the rate right now is about nothing.

i lived in reno for a handful of years. single, and playing, i am really not much into gambling anymore.

[NeedleCast]

69. Sounds like you've got a good plan

If one of you is on a low risk plan and your spouse is on a moderate risk plan, that's probably a good thing.

The analogy my dad told me when I got a job that offered a 401k was automobiles. You don't have to be an auto mechanic to drive a car but you do have to know how to operate the vehicle and be aware of traffic and safety laws. Basically, you don't have to be an expert in the finance industry to hold a 401k but you do need to have some level of general knowledge about what it is and how to use it. If you have the time and money, I'd highly recommend taking an online class in basic investment at your local community college (I'm sure their advisors can recommened an exact class).

This is probably a good time (if you want to keep risk low) to be moving back into safer waters. The market is probably not going to see any big push in the near future. Probably not going to take any big tumbles for awhile. As stock prices go back up, you get somewhat less "bang for your buck."

[seabeyond]

47. what are you all feeling right now. they dropped so much more than a year ago, but

over the last year i think we made it all up. do you see pulling some out and sticking it in stock fund or leaving it in the market

thanks

[TheWatcher]

125. Please don't tell me you would keep your money in ANYTHING for fear of being called stupid if you

didn't.

[ipaint]

16. Watch this frontline on the subject.

Baby boomers are heading for a shock as they hit retirement: vanishing pensions and inadequate 401(k) savings. What can be done?
Can You Afford to Retire?

http://www.pbs.org/wgbh/pages/frontline/retirement/


From interview with Elizabeth Warren-

"We had two great experiments, I suppose, in this field. One was with defined lifetime pension plan. Where does that experiment stand?


Well, many people think the defined lifetime benefit plan is going the way of the dodo, a cheerful offshoot that lasted for a while but is gone. But ... unlike the dodo, it's not gone because of natural forces. It's gone because Congress wrote a series of laws that killed it off. It's taken 30 years from ... the bankruptcy laws and the ERISA laws, but the combination will get rid of the defined benefit pension plan. It will be gone.



And what about the other experiment, which is the 401(k)? ...

The 401(k) experiment is coming into its own now. More and more, employees will be asked to cover it all themselves. That can be the good news in a rising stock market. That can be the good news if you don't get really sick when you get old. That can be the good news if you don't live very long after you retire. But all of those risks on each individual worker.

The way I look at is ... that all the little boats out in the harbor were linked to each other, and if one sprung a really bad leak, the rest of them kind of held it up. That was what defined benefit pension plans were like. Now ... all those little boats have been cut loose from each other. If one sinks here and one sinks over there, ... they just sink. If you happen to be on a boat that floats, you'll do fine, but if you're not, you drown."


http://www.pbs.org/wgbh/pages/frontline/retirement/interviews/warren.html


If you can manage your investments like the professionals than you'll probably be fine, if you can't this program explains what happens to the majority of folks who are in that particular sinking boat.
Also keep in mind that although 55% of americans have a 401k, only a very small percentage are on their way to having enough to retire on, the vast majority have $6000.00 or less saved.

[Warpy]

17. Most boomers are going to have to supplement that social security

with as much part time work as they can get in order to finish paying the house off. Once that's done, they'll be able to cut working hours back to just enough to pay for luxuries once in a while.

I've run the numbers on early social security for myself. While it wouldn't afford much of a living, it would afford survival all by itself. Savings would be dedicated to unforeseen medical expenses.

[ipaint]

21. One third of baby boomers don't own a house. They will need rent money. nt

[Warpy]

39. No kidding, and that means they'll have to work until they drop

and are carted away to die.

The way this country has treated working people over the last 40 years is absolutely horrible.

[SheilaT]

18. The thing is, you have to do

something about saving for retirement. It's almost impossible to find a job with a defined pension benefit anymore, and I'm seriously concerned that somewhere down the road all the state and local government employees who'd been promised decent pensions are going to discover that those will disappear, in no small part because many of them are seriously underfunded, and declining tax revenues may make paying them impossible.

Social Security, despite a lot of rhetoric to the contrary, will always be there. But it was never intended to be the only source of retirement income, and the original retirement age of 65 was selected precisely because most people didn't live that long back when it was started.

A 401k, if you have decent investment choices and especially if you have an employer match, is a pretty good way to go. A Roth IRA is another good one, as the money goes in post tax, but is not supposed to be taxed when it comes out.

Start saving early, if you possibly can. Live within your means.

[TEXASYANKEE]

19. 401k + Roth IRA

Put in enough to get the company match, and everything else into a Roth IRA (up to $5000). For what it's worth, I can recommend Vanguard for the IRA.

[cbdo2007]

22. Two answers: If company match - Yes. If not, do this instead...

Go to Sharebuilder and get an account with them that will put your money in automatically a few times a month.

Then, have it take out of your account like $250 every other week and put automatically into an Index fund that tracks the Russell 2000. You'll be good to go!

If your company matches, definitely put in as much as you can as this gives you a 50% gain right off the top. Then put it in something with a medium amount of gain for as long as you can.

[taught_me_patience]

42. Why do that? A 401k is pre-tax. n/t

[Statistical]

45. For retirement you need to be tax-protected.

Paying taxes on you capital gains, interest, dividends each you will utterly destroy your return.

My "rule of thumb"
if you can contribute $5000 a year without any help from govt open a Roth IRA.
Roth = no tax deduction when you put money in but not taxes when you take money out.

If you can't contribute $5000 a year a Traditional IRA is likely better. Why? Because you will get tax deduction and thus larger refund (which you can use to contribute more).
Traditional = tax deduction when you put money in but pay taxes when you take money out.

Either way you have tax-protection while the money is in.

[Skink]

23. If you hold it for awhile it's a good place for a low cost loan for say a downpayment on a car.

when you pay back the loan it goes right back to the 401k account with minimal amount of interest being paid.

[liberal_at_heart]

38. We are building up our emergency fund so we don't have to do that again but yes

we have taken out a loan against our 401(k) to buy a car. We bought the car outright so we wouldn't have additional debt, and over the course of a year we paid the loan back in full. It is better to have some cash in a savings account for those types of situations though.

[TroglodyteScholar]

24. Y. E. S.

:hi:

[Subdivisions]

25. Wasn't the Obama Administration considering coverting 401(k)s into annuities?

http://www.bloomberg.com/apps/news?pid=20603037&sid=aHFCE999fWR0

http://www.businessweek.com/investor/content/jan2010/pi2010018_130737.htm

I wonder what the progress of that is.

[pampango]

26. Definitely, at least up to the amount the company matches, but don't invest in same company's stock.

If you do, your job and your investment eggs are all in the same basket. That basket goes bad and you not only lose your job but your life savings, as well.

[liberal_at_heart]

36. I think that is something most people don't realize.

We always convert the majority of the company stock into other investments.

[One_Life_To_Give]

65. Depends upon the company's plan

Both plans that I have been involved with had multiple options on how you could invest the funds. Currently my employers plan is managed by a Mutual Fund company. So the range of investment options is quite large.

[quaker bill]

28. No

One must save for retirement. However a 401K is a fatted carcas floating on the tide in wait for the sharks to consume it.

The problem with the 401K is that it is stuck in the market. You cannot withdraw it without penalty. Smart traders come in and out of the market at various times depending on risk. In a instrument like a 401K, you will get short sold to death. This is why very few people have much in these accounts, because they earn jack squat over the long haul. I choose to pay the taxes and invest on my own. Of course, I have a defined benefit pension as well, and chose my job for this reason above many others.

[NeedleCast]

29. A 401k does not require your money to be "in the market"

You should really educate yourself about the other areas that money can be invested in in a 401k before offering advice on the subject.

[Statistical]

40. You are woefully misinformed.

A 401K is simply a tax exempt bucket.

If you take something OUT of the bucket there is tax implications but that doesn't mean you are "in the market".

You could put all of your 401K in index fund - in market.
Then sell that and purchase corporate bonds
then sell that and split it 50% in treasuries and 50% in REITS
then keep that are start directing new money towards emerging market
then sell everything and put it all into money market/cash.

All of that is inside the 401K bucket = no tax consequence, no requirement to be "in the market".

Some 401K plans even allow "self directed accounts" where you have direct access individual stocks/bonds via a broker.

[dionysus]

90. psst. money market and bond funds.

[Common Sense Party]

92. Nonsense.

[A HERETIC I AM]

103. ^5

Cogent, as usual.

[Egalitariat]

30. If you follow the general risk allocation guidelines and continue investing

in good times and bad without panicing or getting greedy, 401Ks are a good component of your retirement plan. Mine is doing fine, and is worth more today than it ever has been. Diversify your investments, avoid greed and adjust your debt/equity allocation as you get older.

[B Calm]

32. 401K's are being used to milk and harvest money from the working class and

to funnel your money into investment funds internationally.

As far as Global industries are concerned, there are cheaper and more plentiful natural resources elsewhere to exploit, cheaper labor and younger developing consumer markets outside the US that present more attractive investment opportunities. Industry would prefer not to make any further investments into the US, thus capital flight is inevitable!

[NNN0LHI]

35. Works pretty darned good too doesn't it?

By the looks of this thread.

Don

[B Calm]

85. sure does. . .

[underpants]

37. Yep- it was a great way to get "dumb money" into the system

"dumb money" is what Wall Street calls our money

[liberal_at_heart]

33. My husband and I are the first on either sides of our families to invest

My husband and I are having to help financially support his two parents and one of my parents. We are hoping not to do that to our children so yes we are investing in a 401(k). Lucky for us we still have 30 yrs before we need to retire but also know that this kind of financial disaster could happen in the future too. When we get close to retirement age we will move most our of riskier investments into safer ones. I guess I can't say we were the first to invest. My MIL's father did have an IRA and she is inheriting that money. In fact she is suppose to receive that money today. It will help a great deal.

[Statistical]

51. A good rule of thumb is for stock to make up no more than 100 minus your age.

So:
20 yrs old = 80% stocks
30 yrs old = 70% stocks
60 yrs old = 40% stocks
70 yrs old = 30% stocks

The goal is to not have a single point where you shift money to "safe" investments. Imagine someone in 2008 nearing retirement who decided they will shift to "Safe" investments in late 2009. Ooops they lost 40% of their value before they made the switch.

The goal instead is more like a sliding scale where each you you look at your allocation and age and sell some stocks to buy some bonds slowly year by year reducing your risk exposure.

[liberal_at_heart]

61. There's a big gap between 30 and 60

That is what I meant by shifting. We are in our early 30's now so we probably won't be shifting to safer investments untill our 50's. I can handle some risk right now so I'm not worried about it. Although there is a lot of volitility if you are young this is the time to make some money because stocks are at such a discount, but bonds due cushion the blow of the volitility. They definitly have their place in a portfolio.

[Statistical]

63. Well I was lazy didn't fill in all the ages.

The rule of thumb is simply 100 minus your age. Can be readjusted at any point.

35 = 100- 35 = 65% stocks.
55 = 100 - 55 = 45% stocks.
etc.

Still it is just a rule of thumb. Everyone's level of risk is different. A good financial adviser can help with determining level of risk.

Most people think they can handle more risk but things like the crash then shock them.
Lots of people were 80%, 90%, 100% stocks at 55-60 years old at the time of the crash.
Even the simple 100 rule could have saved them a ton of hard saved money by identifying that they were taking way too much risk.

[liberal_at_heart]

68. I'm a little more risky in my taxable stock account.

Our 401(k) is in a target date fund. It is well balanced. We make sure to check with our financial advisor on a reagular basis. In fact we just had a meeting with her to discuss how to grow and protect my MIL's inherited IRA. But I do have a taxable stock market account that I just like to play around with and I take a little more risk with that portfolio. I made a killing last year but I think that things are slowing down a bit so it may be time to stick a little more in bonds.

[whistler162]

43. If you don't want to invest in one of the stock/bond funds...

most 401k's have a money market account that pays a set interest rate. 401K if your company does one and is through a reputable, not your company, company. Also check out IRA's.

[RB TexLa]

44. The best day to start investing is yesterday, the second best day is today.

The best amount to start with is what you can afford today. If your company offers any matching funds you certainly want to take advantage of it. Of course different plans have different investment options but all are going to have a range of investments from conservative to aggressive and you should be able to shift investments as your tolerance for risk changes.

[WeDidIt]

49. If you get any kind of a match, you're an absolute fool to not participate

The easiest way to increase your overall compensation package is to participate in a 401K program where the employer matches some or all of your contributions.

My employer automatically gives me a 1% contribution and then will match another 5%. That's 6% in additional compensation!

[Dawgs]

50. My wife and I made $50,000 since highest point when Bush was president.

Not the lowest point during 2009, but right before the crash.

So, for us, absolutely.

[Odin2005]

52. 401Ks are a scam to delivier your money into the gaping maw of the Investor Class parasites.

While at the same time creating an excuse to eliminate pensions. The Rich Boys hype up the market, sucker people in, and then sell out leaving the little guys holding the bag.

[Statistical]

54. You are aware you can just invest in corp bonds or govt bond or even cash (money market) in a 401K

401K is a bucket. A bucket that hold money and gets matches from your employer and is tax free while money remains inside the bucket.
Since most of us have no pensions and likely never will 401K is a necessary tool to avoid being a Walmart greeter at age 75.

[DireStrike]

84. I wouldn't call it a "tool."

More like a ticket for a lottery with great odds but small payout, compared to the real lottery.

[dionysus]

93. you really should have a clue of what you're talking about before you...

ah screw it.

:spray:

[Common Sense Party]

94. You are woefully ill-informed and paranoid.

[marmar]

53. Never again for me.

[melm00se]

55. they most certainly

are, especially if you employer matches in any manner shape of form.

(I am using representative #'s here, they are NOT what I actually have but it makes for a good comparison).

If I invested the same amount I invest now but put it only in an IRA (no employer match) I would have $100K.

The same amount invested in a 401K with my employer's match the balance would be ~$145K.

You DO NOT want to walk away from that money.

even assuming an average rate of return of 5%, $1 invested today would accrue to be worth $4.32 in 30 years. If you factor in the employer match and the above calculation that $1.45 and same rate of return invested this year would yield ~$6.27.

If you really want an eyeopener:

$1 invested every year for 30 years with a 5% rate of return works out to be ~$70 (for a $30 total investment) and the $1.45 invested every year (same rate of return) works out to be $101.45 (for the same $30 out of your pocket + your bosses $13.50 total investment)

[SocialistLez]

56. They have never been worth it. I'd much rather have a pension. NT

[Statistical]

57. I would much rather have a Cadillac than a Chevy

however if I can't have a Cadillac it doesn't mean the Chevy isn't worth it.

[Mudoria]

60. My company matches up to 6%

To me that's a hell of a deal. A 401k is a good deal if you're wise about putting your money in good investments.

[liberal_at_heart]

64. That's free money. I don't know why anyone would turn it down.

Like many on here have said, you can always put it in safe investments such as bonds or a money market account if stocks scares you.

[TwilightGardener]

66. I think it depends on how much employers match contributions. Our 401k

has NO employer match--it's all whatever we can dump in, and market forces. It's not going to be a big factor in our retirement unless we start putting shitloads more money into it.

[Statistical]

67. With no match putting your money in IRA is likely a better deal.

You get a lot more control of your money and it isn't coupled to your employers (usually) sub-par plans.

With an IRA for example you can choose any broker and if you are dissatisfied you can move your money (direct transfer) to another broker without taxes or penalties.

[TwilightGardener]

71. We might look into that, thanks.

[taught_me_patience]

73. IRA is good but limited

401k's have much higher contribution limits which allow you to save faster. Also, IRA's have income limits so not everybody can participate.

[Statistical]

75. True but for most people starting out the $5000 annual limit isn't much of a limit.

Especially for a married couple that is $10,000 combined.
You are right though that for high net worth individuals IRA may not be best choice.

Still one can begin with IRA and then if they routinely max contributions look at "topping up" with 401K.

IMHO best route is:
a) minimum into 401K to reach max
b) max out IRA
c) look into non-retirement savings/investments
d) if still want to save more max out 401K.

[taught_me_patience]

82. I agree with your post completely (for most people).

Point #1 should read: minimum into 401k to reach max "employer match".

[apples and oranges]

81. Thanks. My employer doesn't match contributions

so I guess it's time to research the IRA option.

[donco6]

70. I think so, yes.

But my tax situation may be quite different from yours. There can be better investments out there.

[lonestarnot]

72. NO! Put it in a coffee can in the plot in the back yard.

[conscious evolution]

74. Sure.That is if you support greed,

destruction of the enviroment,unchecked power through buying/bribing/overthrowing democraticly elected goverments,destruction of the middle class and supporting the oppulent lifestyles of the predator class.

[TwilightGardener]

76. Oh lordy.

[Statistical]

77. You are aware there are green funds right? Socially responsible funds?

http://www.socialfunds.com/funds/chart.cgi?sfChartId=Social+Issues

Of course you could have your 401K be 100% invested in federal treasury bonds.
With self directed account you could support individual municipal bond projects.

[conscious evolution]

83. So where will you buy these funds?

From the local SevenEleven?
No matter how green or friendly such a fund is you still have to buy it from a wall shit bloodsucker.

[NeedleCast]

79. You understand that you can have a 401k and NOT contribute a dime to corporations

Right?

...

[dionysus]

91. just when i thought i'd heard the craziest, most uniformed thing ever on DU...

:rofl:

[conscious evolution]

102. Talking to yourself,huh?

Do you answer yourself?

[dionysus]

104. hey... it's hillarious watching people rail against things they know nothing about.

[Common Sense Party]

96. .

:tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat:
:tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat:
:tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat:
:tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat:
:tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat::tinfoilhat:

[tammywammy]

80. Yes, especially if your company matches. n/t

[B Calm]

86. Then you sit back and watch the DOW drop over 600 points in two days. . .

[Common Sense Party]

87. And that will have precisely WHAT effect on your nest egg 20 years from now?

My only complaint is my next contribution doesn't go in until the 14th of the month. I'd like to get some of these nice SALE prices.

[dionysus]

95. i just realized that everyone against 401ks on this thread doesn't have a friggin clue how they work

:shrug:

[Common Sense Party]

97. Welcome to my world. n/t

[A HERETIC I AM]

105. LOL.

Really. I actually LOL'd

[Common Sense Party]

109. Hey, bud. How are you?

I was about to PM you and let you know about this entertaining thread.

[A HERETIC I AM]

113. LOL again...I'm good. Broke my foot, though.

I have a LesFranc fracture and dislocation of my first metatarsal on my left foot.

Other than that, things are peachy!

Of course, based on today's "Stock Market Watch" thread, we are all doomed.


Oh.....wait....

That's EVERY DAY'S SMW thread.


Sorry.

[Common Sense Party]

116. Ouch! How'd that happen?

To your foot, I mean.



(I'd love to see what some of these Chicken Littles would have done on 10/22/87. They think THIS is volatility?)

[A HERETIC I AM]

117. How'd it happen?

I was stepped on by a buffalo while I was wrestling an alligator that was attacking a Hawaiian Tropic pageant contestant.







Beats the hell out of "I tripped".


I tripped! Stepped on a piece of wood I didn't see in the dark at 6:30 AM while walking across the yard at work.

Luckily it happened at work. If it didn't, I would have been screwed. As it is, I am still screwed, but the screw comes out in about 5 weeks.

[Common Sense Party]

121. Yeah, I'd definitely go with the first explanation.

Sorry to hear that. Are you on crutches for 5 more weeks, then?

[A HERETIC I AM]

123. Yup.

Call me "Poke"

Or "Quadruped"

[MzNov]

88. I checked my balance today online

in spite of the sharp drop today, I didn't lose much. But then, I don't have much--just for 2 years. I was nervous but I feel OK now.

Here's hoping no more spikes like that for a while.

[Common Sense Party]

98. How long until you retire?

[MzNov]

100. 10 years or so

not soon enough!!!

[Common Sense Party]

107. Two things then, if I may:

1). You didn't "lose" anything. You'll only lose when you sell out of your funds when they're down. If you bought 100 shares in Mutual Fund XYZ when the share price was $10, and the market subsequently drops and now the new price for those shares is $7, how much money have you actually LOST? None--unless you sell your XYZ shares. If you sell them all, you lose $300 ($3/share loss x 100 shares). If you hang onto them because all market declines are temporary, eventually the share price will go back up to $10/share, and eventually $11, then $12, and who knows what it will be worth 10 years from now?

2) If you have 10 years to go, you WANT lots of volatility. You WANT drops in the market. You keep putting money in every paycheck--you WANT those share prices to drop, so you can buy MORE shares. The more shares you accumulate between now and retirement, the happier you will be in the long run. BUT, the big caveat is: don't be too aggressive in the last 5 years or so before retirement. Start slowing down and get more conservative with your investments--more bonds and cash, less stock.

[MzNov]

128. I appreciate your advice.

many thanks.

:hi:

[tammywammy]

126. I'm 29 years old

I don't worry about the day to day growth of the DOW when I'm 30+ years away from retirement. I can tell you now, this won't be the only recession I go through until I retire.

[dionysus]

127. the dow drops, then you're buying shares for a low value. when they rebound you make a killing.

you really don't have any idea whatsoever how this works, do you?

:rofl:

[dionysus]

89. sure. you don't have to pick stocks, you can choose bonds and money market funds.

[Common Sense Party]

99. Very true. But people should be aware: Bond funds DO go down at times.

They got hammered in 2008 (but not nearly as much as stocks).

And when inflation rears its ugly head again, your bond funds will drop.

But what goes down eventually comes back up.

[dionysus]

101. my favorite time was in 2002 when stocks were getting hammered, but i had an intl bond fund that

made 25% :)

[bemildred]

106. You can lose your ass in bonds, happens all the time.

You can lose your ass in equities, you can lose your ass in pretty much anything. That's the deal.

[Common Sense Party]

108. There is no such thing as a risk-free investment.

But with mutual funds--which is how mist people own their stocks and bonds in their 401(k)'s--the only way to really "lose one's ass" is to sell when your stuff is down.

Far too many Americans sell when they should be buying, and buy when they should be selling. And then they bitch about how their 401(k) doesn't work.

[bemildred]

111. Indeed.

Buy low and sell high is the only rule there is. But that is distinctly not "buy and hold". If you don't want to play that game, you need to be in cash, and even that can be a "bad investment".

[A HERETIC I AM]

114. "Ahem" Ten Year Treasury.

The "Benchmark" risk free rate of return.

[Statistical]

115. There is minimal (but not zero) principle risk however even treasuries have risk.

You can get destroyed (especially on a longer term Treasuries) by inflation.

Say you purchase a T-bill with 9 years till maturity. Pay face value of 120 and it is yielding 4%.

Now inflation is currently low say 1%. So your wealth is increasing by 3% annually. Wealth in real terms is only measure of prosperity. Money in nominal terms is simply an illusion.

Now say we get an inflation spike of something horribly like 9.5% (like in 80s). To crack down on inflation the govt raises cost of money and new T-bonds are issued at 11.5%.

The face value of your T-bond will fall by nearly 60%. So you can sell and take a 60% loss. Ouch.

Now you may say I won't sell. If I hold it till maturity govt pays me full value so I can't lose.

Well in nominal terms that is right however inflation is now 9.5% and your bond is yielding 5%. In real terms you are losing 4.5% annually. 9 years at negative 4.5% return is long time to be holding a bond.

Principal loss isn't thr only way to lose money. Just remember that when trading treasuries especially longer term ones.

[A HERETIC I AM]

119. With all due respect, none of what you wrote means diddly squat.

The Ten Year US Treasury security is the internationally recognized benchmark for a risk free return, full stop.

If you bought one at this quote, you are going to get the specified yield until the bond matures. THAT'S what matters, NOT whether or not the bond gets traded higher or lower tomorrow or what inflation does in 9 years.

Sure, the price of the bond can and will fluctuate over time, but that does not matter if you hold it until it matures, and that is where the risk free part comes in. You WILL get your interest payments on time and in full and you WILL get the bond redeemed at par at maturity. Every bond trader on the planet knows this.

BTW, No ten year note has a "face value of 120"

Face value or "Par" is ALWAYS $1000.00.

Always.

The price of a bond moves and its yield moves, but not its Par.

[Common Sense Party]

122. As an advisor, though, I have a responsibility to make sure clients know

ALL the risks. And yes, I agree that with the full faith and credit, etc., etc., a Treasury is about as "safe" as you can get, if principal risk is the only risk you're looking at.

Inflation risk or purchasing power risk is a very real threat to many retirees. And a T-bill or a money market is not going to help much when it comes to that risk.

A retiree that has, say, only $250K saved up at age 65 and has all of it in Treasuries, and has a likely life expectancy of 20 years has, in my opinion, a very risky portfolio (and more so if inflation spikes up to 7 or 8%).

That's what I mean when I say there is no such thing as a risk-free investment.

[A HERETIC I AM]

124. Fair enough and agreed. n/t

[AnArmyVeteran]

120. If part of your 401k was sold today for a penny, bye bye money!

Whatever happened today wasn't a glitch (imo). A lot of money transferred hands. Some people got very rich and some had their money virtually stolen... I wonder if tomorrow the market gurus will void all trades yesterday relating to the pertinent trades so people don't get screwed. Or will that be too sensible and fair? Not two words used on Wall Street.