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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.
This 401[k] provides no tax sheltering. It may provide tax deferment but no sheltering.
Pay 8% of your income into a 401[k] and 25% to income taxes. Leaves you 66% to live off.
I think it better to be tax-sheltered, to increase my take home pay by 25%, allowing me to invest more.
Besides I hate putting money into anything that pays less than 15%
My company offers 8% match 100%, and a roth 401k. I put in 8% they put in 8%. I started with a 401k but have since moved to the roth 401k, do you guys think that is wise? I figure tax rates are probably going to go up, way up, in the future. I am 27 and have a roth IRA, and money in the regular 401k and roth 401k.
Also I was thinking it's good to have a Roth and Regular (tax deferred) retirement option. You take the first $30k per year or so from the Regular retirement and pay minimal taxes (10-15%) and the rest you dip into your Roth account. That way you don't end up paying 25%+ taxes on your retirement money.
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.
This is a pretty unimportant distinction in terminology for anyone except (a) a fussbudget, (b) an academic who teaches this subject, or (c) a lawyer, which is closely related to (a). It's a meaningless distinction. I don't carry my purse around empty; the whole point of it is to have stuff in it. Same with my 401(k). It's an investment vehicle that has stocks & bonds in it. Duh. So when I say "My 401(k) lost money," everyone but YOU seems to understand what I mean.
Oh also wanted to say, can't you take out and money you personally put in to a Roth account without penalty? For example if you have a Roth IRA that you contributed $20,000 to, and it now has $30,000, you can take out $20,000 without any penalty what so ever. Am I correct? Does the same hold true for Roth IRA's? Can any contributions you make (not profits, as if anyone has any left!!) be taken out without penalty?
So in a way a Roth IRA is like a savings account, you can take it if you need it, might as well put the money in there because you are limited what you can put in per year.
This is a pretty unimportant distinction in terminology for anyone except (a) a fussbudget, (b) an academic who teaches this subject, or (c) a lawyer, which is closely related to (a). It's a meaningless distinction. I don't carry my purse around empty; the whole point of it is to have stuff in it. Same with my 401(k). It's an investment vehicle that has stocks & bonds in it. Duh. So when I say "My 401(k) lost money," everyone but YOU seems to understand what I mean.
Huh? No, you did not lose money on a 401K; you lost money on what you bought... if you had invested differently you would not have lost money and still retained the tax deferral advantage of the account.
This is not an unimportant distinction and scaring people off from saving in retirement accounts serves no one.
I am none of those things you accuse me of, but a responsible contributor on this board that hopes to help the community here and avoid confusing comments.
Huh? No, you did not lose money on a 401K; you lost money on what you bought... if you had invested differently you would not have lost money and still retained the tax deferral advantage of the account.
This is not an unimportant distinction and scaring people off from saving in retirement accounts serves no one.
I am none of those things you accuse me of, but a responsible contributor on this board that hopes to help the community here and avoid confusing comments.
You guys are saying the same thing. Relax. Everyone I know says their 401k "lost money". No one says they "lost money on the holdings in the 401k investment vehicle".
Huh? No, you did not lose money on a 401K; you lost money on what you bought... if you had invested differently you would not have lost money and still retained the tax deferral advantage of the account.
The only way I could invest differently is by skipping the 401k all together...
One dollar put into any of the 35 of the 36 investment choices in 1998 is worth less than $1 today...
The only positive choice is the Pemco Bond fund...
The money market option didn't exist until a few months ago and was not and still has not been publicized... it's not even listed on the plan as an option...
With no company match and limited investment choices.... why wouldn't a Tax Deferred IRA with a company like Schwab be a better option for most of us?
With no company match I would look into something else too. The real benefit of a 401(k) is the company matching funds.
Quote:
Originally Posted by sterlinggirl
401Ks are scary....
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?
You should have BOTH, a good savings account and other investments. If you only have a savings account, however, you are losing money every single day and you don't even realize it. Your savings account is earning, what 1% if you are really lucky, yet inflation is at 4% or so--you are losing 3% on every dime you have in your savings account. There are plenty of options out there that are higher earning accounts then a savings account that are still very liquid.
Quote:
Originally Posted by Ultrarunner
The only way I could invest differently is by skipping the 401k all together...
One dollar put into any of the 35 of the 36 investment choices in 1998 is worth less than $1 today...
The only positive choice is the Pemco Bond fund...
The money market option didn't exist until a few months ago and was not and still has not been publicized... it's not even listed on the plan as an option...
It sounds like your company needs a different fund manager for their 401K plan if you haven't seen gains in over 10 years--especially since up until the fall of '08 there were HUGE gains in the market over the past 10 years. You also need to stop looking at the short term ups and downs of your account and realize that a 401k is a LONG term investment. Not all 401k's are losing money, heck, DH's 401K at work is UP about 5% this year--not great but better then being down 40%. DIVERSIFY, DIVERSIFY, DIVERSIFY--which doesn't mean have a lot of different kinds of investments it means spreading your money into a lot of different vehicles inside your investments.
If you have only growth funds, for example, you have taking a huge hit this year but if you have a diversified portfolio and have a good spread across different stock funds, bond funds, real estate funds, etc. you would have minimized your losses or even have seen gains like we did. We got lucky and timed the market right this time around is all.
It sounds like your company needs a different fund manager for their 401K plan if you haven't seen gains in over 10 years--especially since up until the fall of '08 there were HUGE gains in the market over the past 10 years. You also need to stop looking at the short term ups and downs of your account and realize that a 401k is a LONG term investment. Not all 401k's are losing money, heck, DH's 401K at work is UP about 5% this year--not great but better then being down 40%. DIVERSIFY, DIVERSIFY, DIVERSIFY--which doesn't mean have a lot of different kinds of investments it means spreading your money into a lot of different vehicles inside your investments.
If you have only growth funds, for example, you have taking a huge hit this year but if you have a diversified portfolio and have a good spread across different stock funds, bond funds, real estate funds, etc. you would have minimized your losses or even have seen gains like we did. We got lucky and timed the market right this time around is all.
Thanks Golfgal...
The funds have gone up and down... Large Cap Equity Income and International Growth... The average annual return over 10 years as of December 31 2008 is -.71%
I'm guilty of 401k auto pilot investing... Ten years ago, when the company changed hands, the funds went to a new company and I've been contributing every 2 weeks without fail until last month.
It's ironic that I accepted a pay reduction to go from a PerDiem position to Benefited that included 401k, profit sharing and company match. Long time employee's were retiring back in the late 90's with windfall 401k's and Employee Stock.
At the yearly reviews... the mantra is always the same... stay the course!
I stopped my contributions after speaking 90 minutes with the 401k manager... she said I should have been reviewing and reallocating my mix quarterly
No matter what happens... I'm done with having the blame fall at my feet when the company limits my choices and the company no longer profit shares or matches.
Strange... In "Good" times we have the same advisor year after year. In "Bad" times the advisers play musical chairs and everyone get a "New" one.
Looks like the company is set to announce a round of layoffs and/or reductions next week. Depending on what happens, I may be able to close or transfer to an IRA.
I do realize the long term nature of 401k investing. That is the reason for growth and international funds.
This is my fear... what happens if my long term horizon happens to coincide with a Bear Market or worse?
Stocks are the only class of investments where my position has been wiped out... meaning stocks I've bought went to zero. Not a day goes by where there isn't a new story of fraud, graft or corruption in the Headlines...
Lack of confidence in the ability of those in the financial arena would be an understatement. When someone like a Berni Madoff can fly under the radar, year after year shows the problem is systemic...
Stocks are a house of cards, the only reason they are "worth" something is because others are willing to buy them. They aren't even pieces of paper any more. Real estate has always interested me because it's tangible. Stocks on the other hand can be wiped out to zero.
Stock holders aren't "owners", that is a myth. Perhaps if you own 10% of a company you have a say but this doesn't apply to 99.999999999% of the stock holders out there.
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