Joined: Aug 03, 2006 Posts: 2652 Location: Memphis Dojo
Posted: Fri Apr 11, 2008 4:09 pm Post subject: Re: So how does your 401k statement look?
joeltrout wrote:
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.
Joined: Sep 14, 2004 Posts: 5256 Location: Rural Virginia
Posted: Fri Apr 11, 2008 4:23 pm Post subject: Re: So how does your 401k statement look?
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. _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
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.
joeltrout _________________ ENERGY is the basis of our industrial civilization and sustains our standard of living. It is the foundation stone of our national wealth. A nation starved of energy.....will be a nation of starving people.
Joined: Sep 14, 2004 Posts: 5256 Location: Rural Virginia
Posted: Fri Apr 11, 2008 4:32 pm Post subject: Re: So how does your 401k statement look?
BigTex wrote:
Tyler_JC wrote:
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.
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? _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
Joined: Sep 19, 2007 Posts: 675 Location: Land of the Tongva tribe
Posted: Fri Apr 11, 2008 5:06 pm Post subject: Re: So how does your 401k statement look?
vision-master wrote:
Buy land.
I agree with buying land.
Thankfully I have been able to do both, buy land and contribute to 401k.
joeltrout _________________ ENERGY is the basis of our industrial civilization and sustains our standard of living. It is the foundation stone of our national wealth. A nation starved of energy.....will be a nation of starving people.
Joined: Aug 03, 2006 Posts: 2652 Location: Memphis Dojo
Posted: Fri Apr 11, 2008 5:29 pm Post subject: Re: So how does your 401k statement look?
Heineken wrote:
So 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. _________________
Joined: Sep 14, 2004 Posts: 5256 Location: Rural Virginia
Posted: Fri Apr 11, 2008 7:59 pm Post subject: Re: So how does your 401k statement look?
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. _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
Joined: May 18, 2006 Posts: 2425 Location: Minneapolis, MN
Posted: Fri Apr 11, 2008 8:12 pm Post subject: Re: So how does your 401k statement look?
Heineken wrote:
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.
Joined: Mar 12, 2007 Posts: 684 Location: As close as I can get to the beginning of the pipe.
Posted: Fri Apr 11, 2008 8:26 pm Post subject: Re: So how does your 401k statement look?
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. _________________ "For my part, whatever anguish of spirit it may cost, I am willing to know the whole truth; to know the worst and provide for it." --Patrick Henry
Joined: Sep 14, 2004 Posts: 5256 Location: Rural Virginia
Posted: Fri Apr 11, 2008 8:30 pm Post subject: Re: So how does your 401k statement look?
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. _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
Posted: Fri Apr 11, 2008 8:31 pm Post subject: Re: So how does your 401k statement look?
My (outside the US) equivalent of a 401k is -0.5%. My cash deposits are doing a lot better and are currently guaranteed by the printing press of government.
Sadly I am stuck with the provider I have and the menu they offer is pathetic. Gilts and cash are the only sensible options in there. The rest is all AAA soup and various passive stock market trackers, which needless to say I am out of.
Anyone intelligent reading the prospectuses should be struck by the realisation that this meagre offering is what you get for signing on the dotted line and forgetting about it for years. You get what you pay for in life, and when the plan assumes you pay the manager a fraction of a percent per year and forget about it, you are getting the value to match. I could do better. We will see whether these games have a future in a few years though. _________________ I don't know if I'd hang around the town square if I were you, the angry mob might be looking for someone to tar and feather. Of course, they could only glue and feather you because tar is a petroleum derivative.
- Tyler_JC
Joined: Sep 19, 2007 Posts: 675 Location: Land of the Tongva tribe
Posted: Mon Apr 14, 2008 10:23 am Post subject: Re: So how does your 401k statement look?
Heineken wrote:
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.
One thing you might check is your expense ratios and fees that you are being charged through your current company. Through my company 401k I pay more than double the fees that I pay at my Vanguard Roth IRA account.
I know some funds charge 2+% whereas Vanguard expense ratios are much, much lower. Losing 2% over several years really starts to add up. It could be the difference when trying to compete with inflation.
joeltrout _________________ ENERGY is the basis of our industrial civilization and sustains our standard of living. It is the foundation stone of our national wealth. A nation starved of energy.....will be a nation of starving people.
Joined: Sep 14, 2004 Posts: 5256 Location: Rural Virginia
Posted: Mon Apr 14, 2008 11:43 am Post subject: Re: So how does your 401k statement look?
My 401k is with Vanguard too, Joel.
Oh I had the very very best benefits when I worked, for a pharmacy organization. Pharmacists don't shirk when it comes to paying themselves. Not only did I have the 401k, I had an old-style pension (the sort that the employee doesn't have to contribute a dime to). On top of those two entitities, I had a gold-plated annuity started during a previous job, which I continued to fund myself. Then I was hoping for some Social Security. I called my approach to retirement a quadruple whammy.
My main concern, stated ad nauseum by me here, is whether the 401k money will be worth anything when I'm 59 1/2. Hyperinflation, you know. _________________ "Actually, humans died out long ago."
---Abused, abandoned hunting dog
"Things have entered a stage where the only change that is possible is for things to get worse."
---Me and my brother
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