Are 401(k)s a bad idea?

re: Are 401(k)s a bad idea?

coo — Wed, 13 May 2009 18:51:47 GMT

401K were designed not for a sake of ordinary people but financial institutions. The last ones use your money to make more and in return they pay almost nothing and are not responsible for anything, Isn't it a heavean for all legal thieves? The government pushes you to invest in 401k but hasn't figured out how to protect your money. It's very convenient!

re: Are 401(k)s a bad idea?

Joe Mak — Mon, 11 May 2009 01:17:30 GMT

I totally agree with Mia's point to"keep an eye on your money - don’t trust any advisor, bank or financial company without watching them and their fees". In my experience, it boils down to keeping track of the average price you paid for each mutual fund in your portfolio - after accounting for purchases, dividends, fees, and transfers. For the past 10 years now, I have reconciled in one convenient spreadsheet the dollars amounts and share amounts from 401(k) plans with Nationwide and Wachovia.

In my experience, the trend among 401(k) plans is to provide less and less transactionary detail in a form convenient to the end user. In the 3rd Quarter 2008, Nationwide changed it practice so that quarterly statements received at home are summary in nature. So every quarter since then I have had to do 5-10 minutes of on-line research to determine the dividend shares paid but not reported by Nationwide. Wachovia allows access to transactionary detail on line, but there is a 1 year limit on availability. Neither of these practices discourage me from completing my quarterly spreadsheet reconciliations, which are then rolled up to the annual level. However, I suspect the practices I mentioned are intended to compound investor ignorance for those who otherwise feel - like many of my current and former coworkers - that my approach is "too much trouble". In my opinion, practices at many 401(k) administrators are shameful and designed solely to take advantage of unsuspecting investors.

re: Are 401(k)s a bad idea?

Joe — Sat, 09 May 2009 23:22:11 GMT

Robert, neither pensions nor 401k's are scams. The government didn't tax the money when you invested it, but you have to pay tax when you take it out.The only reason your 401k was reduced was because you pay all the tax you DIDN'T pay when you put the money in and a 10% penalty for early withdrawal . If you believe you are being cheated, you are obviously not very bright.

re: Are 401(k)s a bad idea?

Robert — Sat, 09 May 2009 15:15:54 GMT

I have no clue what I plan to do for retirement. I know BOTH pensions and 401ks are scams and the penance of a "return" is nothing that the managers of the accounts get off of my alleged money. Apparently, it is not my money enough to be penalized by the government for taking it out early. I have had three 401ks and I got a check for less that $3000 each time I cashed them out with supposed balances over $10,000 each. I swear they just make numbers up.

re: Are 401(k)s a bad idea?

Susan — Sat, 09 May 2009 00:52:55 GMT

I didn't see the 60 Minutes story, but it sounds like shoddy journalism at its worst. Social Security is badly broken, and even in its glory days did not pay enough to fund the type of comfortable retirement that would inspire me to quit me job.

Pensions are broken too. Many people have lost pensions that were promised to them. I read a story awhile back about a woman who worked 20+ years at Polaroid. She lost her pension and is now in her 80s and collecting cans to make ends meet. That is so scary and sad.

I would never work for a DB company, and would opt out of SS too if given the chance. Give me a 401K any day of the week! It is one of the few tax breaks I get, and there is an employer match too! Yes, the market lost money this year. So what? You could build a 401K without putting a dime into stocks if that's what you wanted. Plus, you still have more money than if you'd wasted those dollars on taxes.

Oh, but of course we're all too stupid to manage our money. We need to have it confiscated by big business and the government instead. Hooray again for the extreme left who want to roll our 401Ks into Social Security and take away our tax breaks. Could 60 Minutes have done a more biased, stupid piece? Those people at the career fair need jobs not interference into their retirements!

re: Are 401(k)s a bad idea?

Joe — Fri, 08 May 2009 19:42:54 GMT

Mia, 401k's are not supposed to be liquid. The Federal government isn't making worker's pay tax on the principal and is also defering the int/divs until retirement. You should be heavily penalized if you break that agreement. Part of managing your money is figuring out how much you'll need at retirement and then saving it. I wouldn't recommend people base their contribution on match, but more on what they'll need in later years - whatever that percentage is (and there are many programs, magazines and professionals that can help) should be put in and left there. Also, keep in mind that most people think 401k's are too complicated (I don't, but they do) and you're asking to do even more on there own. Remember, you'll dealing with dummies, here.

re: Are 401(k)s a bad idea?

Dave Fett — Fri, 08 May 2009 18:27:39 GMT

Im a firm believer in 401k's. BUT, they are just part of an overall retirement plan. In my opinion everyone should also have a ROTH IRA. And a traditional IRA. Plus own some real estate, whether it be your home or some land. In addition to that, traditionial savings in a high interest savings account or CD's, or both. At the same time minimize or eliminate your debt and for god sakes get rid of the credit cards. These are all just pieces of a plan. Not one of them is the end all be all. A lot of it just comes down to people lacking knowledge. Subscribe to Fortune, or Money, or one of the other Personal Finance mags and get educated.

re: Are 401(k)s a bad idea?

mia — Fri, 08 May 2009 18:06:53 GMT

I have to agree with pieces of everyone’s statements above, however, I still believe a 401k is needed but with a caveat.... only to the percent you are being matched. Most plans have sub-par options and more often than not have restrictions on liquidity (if you disagree call your plan and see if you can get your money out right now). Invest the amount you get a match for and move the rest of your funds into a separate account for better returns and liquidity. Also, as a side note you pay a huge amount of your money to manage these "funds" and it can better be managed on the side by you even without any training. Even if it is a simple index fund of bond fund, maintain your liquidity, get the highest return you can and keep a diversified approach. Lastly, keep an eye on your money - don’t trust any advisor, bank or financial company without watching them and their fees. These institutions take too much of our money for lousy management and returns, I say we keep more of it for ourselves and they get a pay cut.

re: Are 401(k)s a bad idea?

Joe — Thu, 07 May 2009 23:40:23 GMT

Sydney, if the worker doesn't know what to do, they can get help. That's not a problem. The best advice for 90% or workers is to dollar cost average - put a fixed percent of pay into 2 or 3 mutual funds no matter what the market does. At the end of the day, you'll get your 8% average return. Trying to "maximize" the return just makes people try to time the market, and that's where most people lose. As you get older, you slowly move money to fixed assets. It's a lower return, but predictable income at retirement. Want to know the sad part? That advice hasn't changed in fifty years. The problem is that nobody listens. Also, fund managers can't stop the market from crashing, either, so it's not like "highly regarded professionals" could somehow get 8% last year. Funds have objectives and they have to stick to it so if the fund was in stocks, it was down last year. They can't just sell it all and buy CDs because they looked in their crystal ball and saw a crash.

re: Are 401(k)s a bad idea?

Sydney — Thu, 07 May 2009 21:58:11 GMT

One of the problems with DC plans is the implicit assumption that the worker will know best how to maximize their return while building in just the right amount of safety over several decades. Given that many highly regarded professional fund managers haven't been able to achieve similar goals, I have to wonder if it's a reasonable demand to place on "ordinary" workers. That means in a constantly changing economic environment, with little or no zero financial education, every covered worker needs to have the knowledge and time to correctly navigate all the investment strategies needed during each stage of his/her life. While that may be the ideal, in the real world, it doesn't often work. We're seeing the results of that now.