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401Ks are a waste of money


By tovarichpeter   Follow   Mon, 26 Nov 2012, 10:26am PST   2,537 views   16 comments
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http://www.theatlantic.com/business/archive/2012/11/the-401-k-is-a-240-billion-waste/265593/

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Kevin   Mon, 26 Nov 2012, 5:18pm PST   Share   Quote   Permalink   Like   Dislike     Comment 1

We don't necessarily need the tax benefits of the 401(k), but we do need employer-managed retirement. Most people are awful at planning for their retirement, and this country can't afford to have millions of people incapable of working relying on government aid.

Call it Crazy   Mon, 26 Nov 2012, 11:43pm PST   Share   Quote   Permalink   Like   Dislike (1)     Comment 2

Kevin says

Most people are awful at planning for their retirement, and this country can't afford to have millions of people incapable of working relying on government aid.

We already have that..... the 47%ers...

swebb   Tue, 27 Nov 2012, 2:36am PST   Share   Quote   Permalink   Like   Dislike     Comment 3

Agreed. Even with one person working and no employer match it's a godsend. Without it you are left with $10k (married) IRA contribution -- with the 401K it adds $17k.

I'm less sure about the advantage of putting in pre-tax vs post tax, though. I have contributed to both my Roth 401K and traditional 401K and it's not at all obvious to me that the traditional is the way to go, especially if you are trying to get as much value in and are otherwise hitting the contribution limits.

-S

Kevin   Tue, 27 Nov 2012, 1:28pm PST   Share   Quote   Permalink   Like   Dislike     Comment 4

SFace says

The problem is it is great if you make a high income but 401K's are useless at low income level. Without tax deferred feacture, there is no way we put that much or any in retirement. We'll probably buy up more properties instead.

People at low income levels can't buy investment properties.

BoomAndBustCycle   Tue, 27 Nov 2012, 3:00pm PST   Share   Quote   Permalink   Like   Dislike     Comment 5

Only the top 10% of earners could come close to being able to put $17k in a 401k. For the vast majority of married couples... $10k IRA contribution is plenty per year. Not to mention Roth IRA are better because taxes are gonna be a lot higher in the future.

ttsmyf   Tue, 27 Nov 2012, 10:31pm PST   Share   Quote   Permalink   Like   Dislike     Comment 6

TIMING ├╝ber alles
http://patrick.net/?p=1219038

fil   Thu, 29 Nov 2012, 4:10am PST   Share   Quote   Permalink   Like (1)   Dislike     Comment 7

BoomAndBustCycle says

Only the top 10% of earners could come close to being able to put $17k in a 401k. For the vast majority of married couples... $10k IRA contribution is plenty per year. Not to mention Roth IRA are better because taxes are gonna be a lot higher in the future.

It's not that hard to max your 401k unless you have a big mortgage tying up your money. With all the taxes here in CA your paychecks don't even go up that much when you lower your 401k contributions.

tatupu70   Fri, 30 Nov 2012, 2:22am PST   Share   Quote   Permalink   Like   Dislike     Comment 8

BoomAndBustCycle says

$10k IRA contribution is plenty per year. Not to mention Roth IRA are better because taxes are gonna be a lot higher in the future

At most companies, a $10K IRA becomes $15K in 401K. If you get a 50% company match, you really need to put in enough to get the full match.

The value of a Roth IRA isn't as clear as you make it. Taxes probably will be higher in the future, but your income will be much less in retirement so I'm not sure it will be a winning strategy. I don't think anyone can really know at this point.

gbenson   Fri, 30 Nov 2012, 4:48am PST   Share   Quote   Permalink   Like   Dislike     Comment 9

Just checked my 401k. This years rate of return is -1.5%, my 5 year return is around 3%.

I'm making 8+% on my real estate investments (after taxes)

Why am I doing this 401k thing again?

tatupu70   Fri, 30 Nov 2012, 4:55am PST   Share   Quote   Permalink   Like   Dislike     Comment 10

gbenson says

Just checked my 401k. This years rate of return is -1.5%, my 5 year return is around 3%.
I'm making 8+% on my real estate investments (after taxes)
Why am I doing this 401k thing again?

8% after taxes on real estate is darn good. I question whether that is sustainable over the long term.

And I'd hope that your 401K should return more over a longer window.

But the real reason is this:

http://www.ehow.com/how-does_4600339_compound-interest-work.html

CL   Fri, 30 Nov 2012, 6:41am PST   Share   Quote   Permalink   Like   Dislike     Comment 11

gbenson says

Why am I doing this 401k thing again?

Of course, there are alternatives to retiring. :)

Ceffer   Fri, 30 Nov 2012, 7:39am PST   Share   Quote   Permalink   Like   Dislike     Comment 12

CL says

gbenson says

Why am I doing this 401k thing again?

Of course, there are alternatives to retiring. :)

You mean, like suicide?

CL   Fri, 30 Nov 2012, 7:46am PST   Share   Quote   Permalink   Like   Dislike     Comment 13

Ceffer says

You mean, like suicide?

Yeah, but if you invest wisely, you can pay someone to do it for you. :)

CL   Fri, 30 Nov 2012, 7:49am PST   Share   Quote   Permalink   Like   Dislike     Comment 14

gbenson says

This years rate of return is -1.5%

My one year is over 13%! Did Rove handle your money?

BoomAndBustCycle   Sun, 2 Dec 2012, 2:13pm PST   Share   Quote   Permalink   Like   Dislike     Comment 15

tatupu70 says

At most companies, a $10K IRA becomes $15K in 401K. If you get a 50% company match, you really need to put in enough to get the full match.

The problem with company 401Ks is they usually choose the one that is cheapest for the company. Meaning high hidden fees and few crappy options for it's employers. I'd much rather have the smorgasbord of an IRA to choose what individual stocks and funds I want to invest in.

I agree, if the company is matching your money in a 401K.. you gotta take advantage of that... it's free money. But honestly, unless you work for a large fortune 500 company.. most small businesses aren't matching your 401K contributions.

HEY YOU   Sun, 2 Dec 2012, 3:15pm PST   Share   Quote   Permalink   Like   Dislike     Comment 16

Whenever I see anyone mention a % return, have they taken into account inflation?

Never trust the Gubberment figures?
A different estimate:
http://www.shadowstats.com/alternate_data/inflation-charts

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