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Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Quote:
Originally Posted by cdelena
If you are in position to save the best tact is probably to 1) maximize the employer 401k contribution, 2) maximize a Roth IRA, 3) then evaluate tax defered (IRA) investments vs. taxable investments.
What you invest in may be the more important question... not all 401Ks give you a good selection of investments.
agreed... take the free money first; then fund the future tax free stuff (as it is highly likely future tax burden will be increased)
then strategic planning...
based upon your skill set and objectives. I would want to be sure I was well diversified across asset classes, and had some inflation protection options.
As commented, 401K's can be restrictive in investment options. IRA's are less so, and of course private investment even less. You should have a basket of each. And diversity in each based upon tax and risk implications.
The folks over at bogleheads give some good advice on allocation, but, look beyond equities / markets / securities. Such as investment Real Estate, collectibles, business assets ...
My husband was contributing the maximum (20%) and maxing out his 401K every year until we had 3 kids in college and his employer stopped matching. After the stock market free fall, we now only have 60% of the amount we had in there a year ago. It's depressing.
Its quite simple... you might say... stock prices are so low they are a "steal" and you "can" make lots of money if they recover BUT... and this is the biggest kicker of them all.. many, MANY companies ARE going to go bankrupt... if you invested in a company that goes bankrupt... you get ZERO... of course many mutual funds are diversified BUT you STILL take a HIT.... think about... you put in 16k and you KNOW that some of those companies WILL fail and you end up with a NET loss... that 16k is going to become 12k.... and you KNOW its going to happen.... BUT if you take 16k and put it in a bank, you KNOW it will grow and NOT lose money... yes, stocks are cheap and the risk is way, way, way TOO high.... because almost everything WILL drop as companies go bankrupt... I would still put in my 401k because my employer still does match... and match is free money... I don't pass up on free money....
I come from a pretty frugal family and we always believed in saving until I moved to California. I spoke with some co-workers and they all contribute 6%, which is the max. matching limit set by our employer.
If it were up to me, I would contribute the max of 30% per pay check so I hit the $16k 2009 max. Am I missing something that would preclude people from saving and maximizing their tax benefits? Apart from them having more urgent needs (e.g. buying a car, new family) doesn't it just make sense to save and put away the max. amount of money?
Many 401[k]s are losing money.
The tax 'benefit's for a 401[k] are limited.
Some of us have much better investments, with much better tax benefits [like tax shelters].
Notice that none of us maximizing our 401(k)s have said that this is our ONLY investment or that all our money is tied up in a 401(k). I do have money invested in stuff like government bonds and traditional savings. But I think that, if you can afford it, maximizing pre-tax contributions to an IRA is a very important part of an investment strategy.
Many are using confusing terminology here... A 401K (and Roth, IRA, etc.) is not an investment, it is an account vehicle that facilitates investing with administration that satisfies tax regulations. Investments are the stocks, funds, bonds, etc. that are bought and held within the account. It is those investments that gain or lose. Some 401K's even allow you to buy CDs which are very stable in value.
401Ks do not lose money, just like safe deposit boxes do not lose money, it is the investments within that gain or lose.
401k's may not loose money... but they can be a money loosing proposition as I have found out...
If all the investment choices available to the employee participant are down from 10 years ago and the employer doesn't provide any company match or profit sharing... it does seem appropriate comparing current 401k account statements with past statement to determine net gain or loss.
Similar to saying my Brokerage account is up or down
How bad will the stock market collapse when the Boomers start taking their money out?
Will your deferred taxes be twice as much as your current taxes?
Even if you choose the 'safe' bond funds, what happens to your 401K when states go bankrupt?
Will the government find a way to nationalize 401Ks if things get really bad? All they would need to do is to change the rules to force them into long-term T-bills.
If you lose your job, would you rather have some savings or a big 401K that you can't touch without huge penalties?
At least my 401k has a fixed-interest fund, pretty good rate of return. Company matches the first 8% with 4%. That is a 50% immediate rate of return, guaranteed. I put $200 in the 401k, they immediately put in $100 which is my money. Not sure how you can beat this, at least not legally.
If the employer is not matching and/or they have crap investment choices, at some point it's probably not worth doing.
Anybody who is using more than 92% of their income consistently every month needs to re-think their spending priorities. That may sound harsh, but it's true.
Beyond that your take home does not drop by anything like 8% if you put 8% into a 401k, you would have to ask your own payroll dept., but it's much less than 8% due to tax deferrment.
Sterlinggirl makes a good point that you need other savings beyond a 401k. True that. Still, a 401k is, IMHO, the queen of benefits.
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