401(k) reality check

[markusk]

Interesting article from the LA Times:
401(k) reality check -- latimes.com

Even more infuriating are the "experts" advising people how to invest the money they plan to retire on. On several occasions, I have seen articles in which financial planners or academics discuss the optimum amount of money retirees should take out of their 401(k)s in their twilight years. Usually, that number is pegged at 4%. But one article in the New York Times suggested that this figure might be overly cautious. Based on a reasonably plausible projected rate of return, retirees might be able to take out as much as 6% and not have their nest egg run out before they buy the farm.

Presumably, this forecasting technique was developed by Rip Van Winkle, working in conjunction with Pollyanna and Dr. Pangloss. The idea that anyone could make solid, meaningful estimates of the amount retirees will be able to withdraw from their 401(k)s a few years down the road is top-shelf lunacy. If you started calculating how much you could withdraw from your 401(k) back in 1999, based on the "traditional" average annual return of 7% to 9% on stocks, you would be dining on Alpo today. Unless you were adept at ducking in and out of the market, or a master short-seller, or canny enough to buy Apple at six bucks, you haven't earned a nickel in the stock market since the millennium dawned. Even if you took the sage advice of the wizened pros and diversified across a wide spectrum of investments -- stocks, bonds, real estate, cash -- you still got annihilated

I'm still contributing the max to my 401K but ....sometimes it DOES feel like one big ponze scheme. It only works if everyone buys into it.

[Broken Arrow]

Well, 401(k)s are not inherently ponzi schemes, though I suppose it doesn't mean someone can't figure out a way to turn it into one.

It's typically best to roll your 401(k) out to your own IRAs once you leave your employer. That way, you don't have to worry about the money not being yours to control.

Finally, yeah, it's best to plan for a lower withdraw rate. Having too much retirement nest egg has never stopped anyone from being able to retire, but having too little has.

[jIM_Ohio]

don't buy the article premise. Not at all.

401ks are not ponzi schemes in my book, because the money YOU contribute is yours, and held by a custodian. When you leave employer, you get to keep 100% of you money and transfer it.

The only issues with 401ks needing "everyone" to buy into it is for highly compensated employees. If you are an hourly worker, the HCE exceptions will not apply to you, and you are not dependant on any other employee contributing to the 401k.

Mutual funds are an investing device which do depend on others, but for a mutual fund to even exist, it has 1,000-100,000 people already invested in it before it is offered to general public to remove that risk (IMO).

[AtlantaLife&Health]

401K's are risky. Be careful. Don't take risk you can't afford to take. Ask many Senior who have seen their porfolios tank in value. 401K's shouldn't be your only source of retirement planning.

[disneysteve]

Originally Posted by AtlantaLife&Health

401K's are risky.

Sorry but I find this to be a meaningless statement. A 401k or an IRA or Roth is just a type of account. It isn't safe or risky. What determines the level of risk within a 401k is how you invest the money that you contribute to the account. You can choose very safe investments. You can choose moderate ones or you can choose more risky ones or some combination of all of that. You should invest based on your time horizon, risk tolerance and retirement goals.

Whether or not a 401k should be your only source of retirement planning depends a lot on your situation. Folks with higher incomes, over 100K at least, will need other investments because of the contribution limit for 401k plans. Lower income workers may be able to do just fine with a 401k and Social Security.

[shultice24]

Originally Posted by disneysteve

Sorry but I find this to be a meaningless statement.

It definitely is, although I'm guessing AtlantaLife&Health said this because he/she prefers annuities or life insurance instead?

[disneysteve]

Originally Posted by shultice24

It definitely is, although I'm guessing AtlantaLife&Health said this because he/she prefers annuities or life insurance instead?

Yep. An insurance salesman pushing life insurance as an investment.

[shultice24]

Originally Posted by AtlantaLife&Health

401K's are risky.

401k's aren't inherently risky (read Steve's post), though they are threats to insurance salespeople because investors don't have to pay needless commissions to take advantage of them.