Non traditional investing. Should I?

[TexasHusker]

If you are offered a 401K program that has a company match amount, you would be silly not to contribute enough to at least get the full match amount. That is free money, and all of this money is pre-tax. If you get ZERO return on the investments, you are still way ahead.

Unless you are psychic or have a crystal ball, nobody knows what the government will do in the future. Maybe they will seize all of our property and clean out all of our bank accounts? We can only play by the rules we are aware of.

It's not silly to turn down the 401K contribution. It might appear to be "free" money, but that's just on a monthly statement - you don't have access to any of that until you turn 59.5. Unless you pay substantial penalties plus taxes.

And you are usually limited to a very narrow list of investment options - typically mutual funds with paltry annual returns. That's not my idea of free money. In fact, it may keep you in the poor house.

[Jluke]

Recently I am starting to become skeptical of the 401k system.

Last month, I decreased my contribution to the employer match. It will impact me at tax time, but figure this is a small problem to have.

The one thing that stood out was an article where someone brought up the old phrase "Where are the customers' yachts?"

maybe I'm overthinking it, but I just have my doubts.

Do people really believe in the 401k system?

What if I want financial independence before 59.5? 401k won't allow that.

[sv2007]

...
What if I want financial independence before 59.5? 401k won't allow that.

Unless your income is too little relative to cover your life style, I don't see why anybody wouldn't utilize these tax deferred accounts.

For 401k, you are not only saving on immediate income tax (i.e. you get to put in a larger amount AND save on tax paid) you are also able to avoid tax on gains in the account (i.e. you reinvest at a higher rate).

BTW, I'm much younger than 59 and retired. I live off my taxable investment income (no need to dip into retirement accounts or principal as e are running a surplus). Our expenses are higher post-retirement, but that's already been planned.

Even during retirement, we work just enough to contribute max into our IRA because of the tax benefits. We may have some problems later with tax when forced to withdraw (there is a chance that we'll be paying more tax during retirement than working, which sucks), but it's better than the other way around.

I'll come up with something to illustrate with numbers; I think it can be more convincing than just talk.

[TexasHusker]

Recently I am starting to become skeptical of the 401k system.

Last month, I decreased my contribution to the employer match. It will impact me at tax time, but figure this is a small problem to have.

The one thing that stood out was an article where someone brought up the old phrase "Where are the customers' yachts?"

maybe I'm overthinking it, but I just have my doubts.

Do people really believe in the 401k system?

What if I want financial independence before 59.5? 401k won't allow that.

I'm not a fan of government-endorsed, and employer-sponsored, savings plans. IRAs, 401Ks, and similar.

These are plans for the masses, and only a fraction of participants will achieve financial independence through participation. And they certainly won't be owning any yacht.

There are a variety of reasons for this.

The only way you accrue any sort of small fortune through one of these plans is through tremendous contributions and sacrifice throughout your working life - UNLESS you start very early when you can least afford it, AND achieve annual returns of 10 percent or more ON AVERAGE until you reach 59.5.

Of course, that return is next to impossible with the types of investments generally offered in these plans. And even if it was achievable, you certainly would begin moving to capital preservation mode at age 50 or so, so that your nest egg isn't obliterated by the next crash or bear market. The last 10 years of your career, you're not going to be earning much above 4-5 percent, because you won't be able to sleep at night.

Unless you are incredibly self disciplined, make SIGNIFICANT financial sacrifices for decades, and have some LUCK, the 401K is going to be a disappointment for most. And you're going to owe ORDINARY INCOME TAX on every dime you take out when you retire. If you can retire.

My philosophy is to pay my income taxes NOW, when I know precisely what they are, and move on down the road with my money. I am not content to hand it over to some stranger to manage for 30 years, hoping that they know that the heck they are doing. Employer match or not, no thank you.

[corn18]

I'm not a fan of government-endorsed, and employer-sponsored, savings plans. IRAs, 401Ks, and similar.

These are plans for the masses, and only a fraction of participants will achieve financial independence through participation. And they certainly won't be owning any yacht.

Stop by the bogleheads.org forum and make this statement. There are a lot of people on there that are a lot wealthier than you are who got there doing exactly what you assert cannot be done. And maybe have dinner with Warren Buffet. He may actually own a yacht company.

[Sabine]

Sounds very interesting

[Fishindude77]

It's not silly to turn down the 401K contribution. It might appear to be "free" money, but that's just on a monthly statement - you don't have access to any of that until you turn 59.5. Unless you pay substantial penalties plus taxes.

401K's are for retirement savings. They are not a place to put money you want to withdraw to screw around with buy speculative real estate, invest, etc. It's the best thing going for many people and creates kind of a "forced savings" plan. Many wouldn't have anything other than social security at retirement if they didn't participate in their 401K.

Do I think a 401K is the quickest, best way to get wealthy ... NO. Self employment is the fastest way to true wealth, but that's a whole different discussion.

[TexasHusker]

Stop by the bogleheads.org forum and make this statement. There are a lot of people on there that are a lot wealthier than you are who got there doing exactly what you assert cannot be done. And maybe have dinner with Warren Buffet. He may actually own a yacht company.

Warren Buffett didn't get rich by stashing money in a 401K. And for every rich Boglehead, there are a hundred others who don't have close to enough in their 401K to live off of.

[TexasHusker]

It's not silly to turn down the 401K contribution. It might appear to be "free" money, but that's just on a monthly statement - you don't have access to any of that until you turn 59.5. Unless you pay substantial penalties plus taxes.

401K's are for retirement savings. They are not a place to put money you want to withdraw to screw around with buy speculative real estate, invest, etc. It's the best thing going for many people and creates kind of a "forced savings" plan. Many wouldn't have anything other than social security at retirement if they didn't participate in their 401K.

Do I think a 401K is the quickest, best way to get wealthy ... NO. Self employment is the fastest way to true wealth, but that's a whole different discussion.

As I said, it's a program for the masses. That is fine, but do some math, be realistic, and do not expect anything spectacular.

[corn18]

It's not silly to turn down the 401K contribution. It might appear to be "free" money, but that's just on a monthly statement - you don't have access to any of that until you turn 59.5. Unless you pay substantial penalties plus taxes.

And you are usually limited to a very narrow list of investment options - typically mutual funds with paltry annual returns. That's not my idea of free money. In fact, it may keep you in the poor house.

You can withdraw from a 401k without penalty before you are 59.5 if you have left your employer:

http://www.investopedia.com/articles/retirement/02/112602.asp

[TexasHusker]

You can withdraw from a 401k without penalty before you are 59.5 if you have left your employer:

http://www.investopedia.com/articles.../02/112602.asp

Oh my gosh that is completely NOT TRUE. You are REQUIRED to roll it into an IRA within a certain amount of time, and if you do not, you pay ordinary income taxes PLUS a 10% penalty on the entire amount.

The Substantially Equal Payments clause provides a very narrow, and arduous, window to take money out of the 401K. When you set this plan up, you take out WHAT THE IRS TELLS YOU TO TAKE OUT each year, and nothing more.

This is another reason why I don't like these plans - if you did get lucky and amass a fortune at age 50, you're pretty well screwed until age 59.5, as you can't get to the money without substantial cost. The gubmit and your employer have you by the balls, as intended.

[corn18]

Oh my gosh that is completely NOT TRUE. You are REQUIRED to roll it into an IRA within a certain amount of time, and if you do not, you pay ordinary income taxes PLUS a 10% penalty on the entire amount.

The Substantially Equal Payments clause provides a very narrow, and arduous, window to take money out of the 401K. When you set this plan up, you take out WHAT THE IRS TELLS YOU TO TAKE OUT each year, and nothing more.

This is another reason why I don't like these plans - if you did get lucky and amass a fortune at age 50, you're pretty well screwed until age 59.5, as you can't get to the money without substantial cost. The gubmit and your employer have you by the balls, as intended.

Sorry, it is true:

https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments

There is no 10% penalty in the case of substantially equal payments.

[TexasHusker]

Sorry, it is true:

https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments

There is no 10% penalty in the case of substantially equal payments.

As I said, the SEPP clause is an incredibly narrow, arduous process, which only allows withdrawals of equal portions for the rest of your estimated life.

To broadcast that one can withdraw 401K money penalty free before age 59.5, without including the fine print, is irresponsible.

Of course, people shouldn't be making financial decisions based upon an internet discussion forum anyway...

[corn18]

As I said, the SEPP clause is an incredibly narrow, arduous process, which only allows withdrawals of equal portions for the rest of your estimated life.

To broadcast that one can withdraw 401K money penalty free before age 59.5, without including the fine print, is irresponsible.

Of course, people shouldn't be making financial decisions based upon an internet discussion forum anyway...

To broadcast that one cannot withdraw from a 401k before 59.5 is irresponsible.

[TexasHusker]

To broadcast that one cannot withdraw from a 401k before 59.5 is irresponsible.

whatever dude.