patrick.net

Retiree Annuities May Be Promoted by Obama Aides

The government is looking at ways to promote the conversion of 401(k)s and IRAs into steady payment streams after a significant decline in plan balances

http://www.businessweek.com/investor/content/jan2010/pi2010018_130737.htm

(Bloomberg) — The Obama administration is weighing how the government can encourage workers to turn their savings into guaranteed income streams following a collapse in retiree accounts when the stock market plunged.

The U.S. Treasury and Labor Departments will ask for public comment as soon as next week on ways to promote the conversion of 401(k) savings and Individual Retirement Accounts into annuities or other steady payment streams, according to Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Secretary Mark Iwry, who are spearheading the effort.

Annuities generally guarantee income until the retiree's death, and often that of a surviving spouse as well. They are designed to protect against the risk that retirees outlive their savings, a danger made clear by market losses suffered by older Americans over the last year, David Certner, legislative counsel for AARP, said in an interview.

"There's a real desire on a lot of people's parts to try to encourage something other than just rolling over a lump sum, to make sure this money will actually last a lifetime," said Certner, legislative counsel for Washington-based AARP, the biggest U.S. advocacy group for retirees.

Promoting annuities may benefit companies that provide them through employers, including ING Groep NV (INGA:NA) and Prudential Financial Inc. (PRU), or sell them directly to individuals, such as American International Group Inc. (AIG), the insurer that has received $182.3 billion in government aid.

The Obama administration appears to have come up with a novel way of financing trillion-dollar budget deficits – demanding IRA and 401(k) holders buy trillions of dollars in Treasury bonds.

With the Treasury needing this year to see another $1 trillion in debt to finance the anticipated federal budget deficit, and the Federal Reserve about to discontinue its 2009 program of buying Treasury bonds for the Fed's asset portfolio, the Obama administration is scrambling to find ways to sell government debt without having to raise interest rates.

Bloomberg reported Friday that Assistant Labor Secretary Phyllis C. Borzi and Deputy Assistant Treasury Mark Iwry are planning to stage a public comment period before implementing regulations that would require private investors

to structure IRA and 401(k) accounts into what could amount to a U.S. Treasury debt-backed government annuity.

CNBC's Rick Santelli broadcast the rumor the same day from the trading floor during CNBC's "Power Lunch" show.

Spokesmen from both the U.S. Treasury and Department of Labor confirmed to WND that the federal agencies about to enter a pre-regulation public comment phase on the proposed rule change.

But the agencies are getting serious pushback from the mutual fund industry, objecting to what some financial planners see as a government attempt to divert hundreds of billions of dollars of private retirement accounts into federal government debt, regardless whether the investment in Treasury bonds is in the best interest of the retirement-oriented investor.

On the Department of Labor website, the transcript of a Dec. 9 webchat with Borzi confirms the Employee Benefits Security Administration is about to issue a Request for Information on how annuity lifetime options should be structured into a wide range of defined contribution retirement plans, including 401(k)s.

that was old news and dead on suggestion. public suggestion is meaningless.

SF ace says

that was old news and dead on suggestion.

Yep!

I think the government would face massive pressure from the mutual funds and Wall Street as a whole if they ever tried to forcibly convert 401ks to something back by government bonds.

However, the government has the ability to raise tax rates at any time on 401k withdrawals. In this case it can still be a good deal if the employer match is substantial.

You may be right now in your 20s be putting into your 401K to not pay taxes in the 25% only to find out 40 years down the road that the tax rates have went up and you are at the 40% bracket.

With 401K if you are young you are betting the tax rates will stay the same for at least 3 decades.

Armando148 says

You may be right now in your 20s be putting into your 401K to not pay taxes in the 25% only to find out 40 years down the road that the tax rates have went up and you are at the 40% bracket.
With 401K if you are young you are betting the tax rates will stay the same for at least 3 decades.

If you understand the tax structure, your highest tax burden is when you are earning income, thus the need to find pre-tax deductions, by the time you retire and live off the assets you accumulated, your tax burden is significantly reduced since a retiree will not be earning income, but live off of passive income. Your 25% to 40% scenerio is backwards. It's more like 25% to 15%.

At this point, you're just finding ways/excuses to not save for retirement. You're not alone. Don't call it a scam, it isn't. It's actually a gift from the U.S. treasury. Troy, Kevin, E-man and others give you solid reasons, you are finding minor cons and reaching for reasons.

Just apply the results test. People who contribute tp their 401K will have a comfortable retirement while those that don't will be dependent on the government, kids. Which side do you want to be on? None of you other alternatives will be pre-tax contributions and pre-tax growth. None of you alterantives will boost that with a match.

I really want to help you (and Vain) and this is something that is simple and 100% correct. You seem like someone that cares. There is no scenerio you should not be maxing out your 401K with a company match. At that point, you can do what you have been doing as well to save further. that's why I am responding more than I should.

Thanks SF Ace. I've since started to contribute again to the 401k. It does make sense for everyone if you have a little bit of extra money per month. The truth is I was skeptical about their investments - not the 401k. But I have found the money market fund selection which was deeply hidden. I'll collect free money from my employer now, and think about the fund selections later.

Side note though. At my work, I talk to patients who take expensive medicines (expensive is the norm nowadays). Being less well off is better if you are sick as there are tons of extra government assistances and subsidies. But every person I have spoke to with a 401k, pension, or the like, has been worse off because that income tops them over the threshold. They are stuck with insurances (Medicare Part-D) which doesn't help enough. If you get the low income subsidized version of Medicare, that's when it's smooth sailing.

I still think we need to hear a little more love for the Roth IRA. For those of us in the middle class (with middle to lower marginal tax rates due to home ownership, etc...), it is the best deal around (AFTER taking full advantage of the employer match for a 401k). For a Roth IRA, tax rate on capital gains = 0%. Tax rate on dividends = 0%.

EBGuy,

yes, let's do an analysis. ROTH IRA contribution limit is around 5,000 vs. 401K which is 16K.

Let's say we are talking about 5,000.

401K - pre tax value @ 5,000 year 1
Roth - Post tax @25% = 3,750

5000 @ 5% compounded return in 20 years = 13,266
3750 @ 5% compounded return in 20 year = 9,950
Difference is still 25%, the 401K is pre-tax and the roth is post tax.

So in the end, it is still about tax bracket entering and tax bracket exiting everything else being equal. For most people, people will have a higher tax bracket entering than exiting. Afterall, people don't withdraw their 401K in one year so you can manage the tax and perhaps pay 10% instead of 25%. (I guess if you believe tax rate will be signicantly higher and you have tons of income in your retiring year, the ROTH then can make some sense).

So unless you have 0 taxable income and/or in the 10-15% bracket in the year of contribution, you are better off with the 401K or even plain old IRA. I think ROTH is a raw deal since the chances of paying a higher tax rate in your retiring year is small. It is only a better choice then not having a retiring account.

Sigh, you guys really love backing out the tax savings (see also Troy his spreadsheets). Let's start the horse race again with $6,666.67 to invest (already contributed $11,500 to an 401k) . The taxpayer can take the $6,666.67 and put it in

401k:
$5000 (in 401k) +
$1250 (not in retirement account: $1,666.76 *.75)

or
Roth IRA:
$5000 (in retirement account with 25% eaten up by taxes)

Okay, somewhat contrived, but I think you may see my point. In the 401k case, if the taxpayer takes the $1250 and does the right thing (invest in a Roth or RE empire), we've got a race. If he goes to the French Laundry -- well, Roth guy will come out ahead. Not to mention, 401k-guy 'devalued' his mortgage interest and charitable deductions (if the 401k contribution drops him a bracket).

Additonally, Roth IRA's are self directed, so you have a much larger portfolio of investments to choose from. Also, don't make me do a spreadsheet with 20 years of retirement withdrawals of $50k per year (POST taxes). Despite all my protestations, I am starting to become convinced...

The guy who went to french laundry is ahead. A great meal is worth way more than a few extra dollars in retirement.

Vain says

Thanks SF Ace. I’ve since started to contribute again to the 401k. It does make sense for everyone if you have a little bit of extra money per month. The truth is I was skeptical about their investments - not the 401k. But I have found the money market fund selection which was deeply hidden. I’ll collect free money from my employer now, and think about the fund selections later.

Glad to help. Now, it is time for you to get out of that money market concept. You are too young to think this way. Read some books on investing and finance and if nothing else, get your feet wet. In baseball terms, you are not even willing to go up and bat for the fear of striking out, well, you don't have a chance if you are unwilling to step up to the plate.

Really, how much do you stand to lose now anyway. At this stage in your life, you should be investing in some REIT 401k instead of bonds. I was wiped out in the stock market in 2001, lost all 10K of it! It was the best thing that happened to me. That education have helped me gained 300K in ten years and propective million(s) here on out.

I've already gave you one idea on 401K. REIT's. REITS are non-taxable at the entity level, and they are non-taxable at the 401K level, which makes them terrfic investment as a 401k (This is zero taxation vs double/triple taxation. For example, A REIT with pretax income of 100M will distribute 100M to the 401K shareholder, the government gets nothing, whereas if IBM makes 100M pre-tax, the fed/state government would have eaten 60M-70M of it at the entity level and the shareholder level). These are structural advantage you should think about and take advantage of. There are no other like it. An investment in REIT in year 2000 would have returned 10% a year in the face of two severe market downturns.

If you think you have too much money to qualify from some government assistance, just give them all to your kids, charity of whatever. Wealth is built over time so you have to do the right things consistently. Do you really want to rely on the government and plan your life that way?

EBGuy says

Sigh, you guys really love backing out the tax savings (see also Troy his spreadsheets). Let’s start the horse race again with $6,666.67 to invest (already contributed $11,500 to an 401k) . The taxpayer can take the $6,666.67 and put it in
401k:
$5000 (in 401k) +
$1250 (not in retirement account: $1,666.76 *.75)
or
Roth IRA:
$5000 (in retirement account with 25% eaten up by taxes)
Okay, somewhat contrived, but I think you may see my point. In the 401k case, if the taxpayer takes the $1250 and does the right thing (invest in a Roth or RE empire), we’ve got a race. If he goes to the French Laundry — well, Roth guy will come out ahead. Not to mention, 401k-guy ‘devalued’ his mortgage interest and charitable deductions (if the 401k contribution drops him a bracket).
Additonally, Roth IRA’s are self directed, so you have a much larger portfolio of investments to choose from. Also, don’t make me do a spreadsheet with 20 years of retirement withdrawals of $50k per year (POST taxes). Despite all my protestations, I am starting to become convinced…

So in the end it is still about tax bracket entering and tax bracket exciting. The reason why an IRA is preferable is it is easier to manipulate tax over a 30-40 years withdrawal and generally people pay less tax (as a %) in their retiring years than earning years.

IRA and ROTH IRA have the same source of investment choice. 401K doesn't, but the matching boost more than makes up for it. I would caveat that it is a good time to convert to ROTH IRA when the earnings are way down and post tax conversion is in the 0-15% range.

Oh interesting idea. So you're saying over time convert to a Roth IRA, before retirement IF you've end up with a couple of "bad" years in income.

I've never had a matching 401K plan. Ugh. Although I've almost always maxed them out when available. This current job doesn't even have a 401K. Ah well, lose some gain some.

Is there a reason that a 401K has a higher yearly limit than an IRA?

For the pro 401k crowd out there, socking away retirement dollars with the dedication of Keebler elves, keep in mind there's another family of elves that scheme instead of work...the Wall Street boys. They want your 401 money....all of it. Why arent 401s insured by Fed ? Corp.'s are already stealing pensions by dumping them on the Fed which in turn pays pensioners 1/3 rd what they worked for. And we're supposed to trust these same institutions with 401 money? No. Instead, take whatever's left after paying bills and buy something that has real value that you can use in the future.......land,seeds,water,tools,small windmill ,preservable food, etc. Ultimately we are talking about having food, shelter, and hopefully utilities we can afford, right ? Now you're working a plan instead of dumping dollars into a black hole investment.

Nomo -

You and I agree that the first assertion is an opinion rather than a statement of fact. The problem, however, lies in that there are those that think it IS true. If they believe is it true and then take the next leap (and you can call it 401k or any other wealth they consider "idle"), then THEY may end up with what they think is a logical conclusion. Not a problem if the person making these assumptions/espousing these beliefs have no power to act on it - for you and I, it is just some blithering idiot. But let's say that blithering idiot is capable of taking action...that's where I get concerned with the current group in control of our government...the other batch of morons aren't any better, though.

This line of thinking is incorrect but the propaganda is out there - perhaps I was not clear enough in my original post but confiscating 401k's is NOT something I'm proposing ;) Looking back and what I posted, I see that I took some ideas/statements from another thread (someone stating that idle wealth needs to be taxed) and tacked them onto this one. My bad! Weird, though, that someone coughed up some info about converting 401k's to government "investments"...

This current job doesn’t even have a 401K.
401k's can be cost prohibitive for smaller companies (not sure if this is the case for where you work now). At any rate, a SIMPLE IRA can be a good (almost no cost) alternative (the contribution limits are lower, though). Maybe you can drop some hints to management...

@EBguy

Been hinting for a couple of years now! From day one in fact... I'll use the IRA this year though.

EBGuy says

This current job doesn’t even have a 401K.
401k’s can be cost prohibitive for smaller companies (not sure if this is the case for where you work now). At any rate, a SIMPLE IRA can be a good (almost no cost) alternative (the contribution limits are lower, though). Maybe you can drop some hints to management…

401K is an expensive program. Afterall, the company incur admistration fee and actually put in the money as stated on the match. Fidelity and Merril Lynch are the most well known administrator.

Companies go into 401K programs for various reasons 1) It is a must to recruit personnel, especially experience hires. Visa used to match 400% into the 401K, now it is 200% and that is why it is such a good draw and they can attract employees. 2) 401k helps retain employees for the longer term for obvious reasons.

I believe 401K have a higher contribution limit over IRA solely because the lobbying effort of Merrill and Fidelity succeeded. Afterall, your average VISA worker Bee can easily put in 5K a year, most people can do 16K and that is how Merrill maximize $$ into the program.

You crack me up dude -

While you are at it, why don't we annex Mexico like we did to Canada...that'll fix the immigration problem for sure. Now if we could only complete the trans-oceanic oil pipeline to Iraq before Iran nukes Israel...

Oh crap I wasn't supposed to publicly state that we annexed Canada...they get a little touchy on that subject

Does a 401K max out at 16K regardless of who contributes? Or could a Visa employee put in 16K and get 64K matched up to 80K per year saved?!

I thought 16K was aggregate of employee + employer contribution, but I also thought you had mentioned you and your wife did 32K + 32K employee matching?

I was told by the CFO of our last company that many of these 3rd party HR companies will toss in a 401K plan into their package deals if it's negotiated correctly. Based on what we have here, we didn't negotiate :)

Nomo says tax the match in excess of $16,500. I say, no tax unless you hit the Additional Limits that the IRS specifies:
Additional limits. There are other limits that restrict contributions made on a plan participant’s behalf. In addition to the limit on elective deferrals, annual contributions to all of a participant’s accounts - this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to participant accounts - may not exceed the lesser of 100% of the participant’s compensation or a specific dollar limitation. The dollar limitation is $49,000 in 2009 and 2010. In addition, the amount of compensation that can be taken into account when determining employer and employee contributions is limited. In 2009 and 2010, the compensation limitation is $245,000.

http://news.coinupdate.com/us-departments-of-labor-and-treasury-schedule-hearing-on-confiscation-of-private-retirement-accounts-0431/

Not sure where you people are getting your information about this possibility being dead. From the article it seems that this is something still in the works that has been part of the Federal Governments agenda for some time.

If you relegate the possibility of a government seizure of 401K's to the conspiracy theory pile given the history of confiscation in our country and others, then you are scared to face facts. Sticking your head in the sand will not help you. Roosevelt wasn't the only one practicing confiscation in the 30's. That's also when most of our farmland was seized and later turned over to giant corporations. Let's take this up to today. Confiscation is taking place right now. Why do you think so much housing inventory isn't being released? What happens to all those toxic assets on bank ledgers if the dollar gets wiped out? Those houses, and especially the land they are on will always have value though, regardless of the direction of our fiat currency. You think ALL that property was always owned by banks?

But go ahead, call it crazy conspiracy, and speculation. Just remember, history tends to repeat itself... Especially when we fail to learn from past mistakes. And there's no better way to avoid learning than sticking your head in the sand!

NuttBoxer says

But go ahead, call it crazy conspiracy, and speculation

OK--It's crazy conspiracy.

NuttBoxer says

http://news.coinupdate.com/us-departments-of-labor-and-treasury-schedule-hearing-on-confiscation-of-private-retirement-accounts-0431/

Your article's own words say he has been warning of a gov't takeover of IRAs for "more than the past ten years." So he's admitting he's been wrong for 10+ years, yet you follow his advice??? When there's an actual vote on something like this, then it is worth looking into. Until then, seems pretty crazy to me.

mthom says

NuttBoxer says

http://news.coinupdate.com/us-departments-of-labor-and-treasury-schedule-hearing-on-confiscation-of-private-retirement-accounts-0431/

Your article’s own words say he has been warning of a gov’t takeover of IRAs for “more than the past ten years.” So he’s admitting he’s been wrong for 10+ years, yet you follow his advice??? When there’s an actual vote on something like this, then it is worth looking into. Until then, seems pretty crazy to me.

A plan like seizing all Americans 401K plans isn't something that someone just "comes up with" overnight. Stuff like this is usually is development for a while before it happens. If it does happen, it may be through normal channels, but it's more likely it would take place under the guise of some "Emergency Plan" that would necessitate immediate seizure. That's the problem with waiting on stuff like this... By the time you realize what's happening, it's already too late.

Incidentally, what investments are out there that warrent still holding a 401K in the first place? If you would've purchased physical gold or silver over the past year you would have a return of at least 10%. Is a stock market that gains 300 points today, and loses 400 tomorrow, still appealing as a "retirement" investment?

"Incidentally, what investments are out there that warrent still holding a 401K in the first place? If you would’ve purchased physical gold or silver over the past year you would have a return of at least 10%. Is a stock market that gains 300 points today, and loses 400 tomorrow, still appealing as a “retirement” investment?"

A 401k REIT Fund would have return over 10% per year this decade. The one I hold specifically, Cohen & Steers Realty returned 11.89% since inception date of 7/2/1991. and 10.91% the last ten years.
http://www.cohenandsteers.com/opmc_perfomance.asp?cusip=1

Gold would have been a fantastic investment the past decade, but gold could rise $20 today and lose $30 tommorow as well, what's the point. I need more to show Gold is a good investment now.

As far as I know, some 95% of respondent is against that plan so your scenerio is dead on suggestion.

If I get the gist of this http://www.dol.gov/ebsa/regs/cmt-1210-AB33.html

Which is where the crazy nutjob refrain is coming from...

It appears that somewhere someone is promoting a push for a "by default" conversion into an annuity when the hippie boomers retire and don't take some sort of "action". Of course the peddlers of annuities are drooling over this. It is a leap to say that this means the government will take over your retirement funds without consent and convert it into treasuries ... but how does one properly eat an elephant? One bite at a time...is this the first bite or just the peddlers of one particular financial product (i.e. annuities) lobbying to get a bigger piece of the pie? It looks like the latter to me but I lost my crystal ball years ago.

SF ace says

A 401k REIT Fund would have return over 10% per year this decade. The one I hold specifically, Cohen & Steers Realty returned 11.89% since inception date of 7/2/1991. and 10.91% the last ten years.

http://www.cohenandsteers.com/opmc_perfomance.asp?cusip=1
Gold would have been a fantastic investment the past decade, but gold could rise $20 today and lose $30 tommorow as well, what’s the point. I need more to show Gold is a good investment now.
As far as I know, some 95% of respondent is against that plan so your scenerio is dead on suggestion.

As you stated, gold over the same time period would've returned quite a bit more. Even in the past year it's gone from approx $950 to $1,270. Obviously, like your 401K, gold is a long term investment, not something you buy today and sell tomorrow. All asset classes tend to have small up and down swings, an long term investment isn't based on those. It's based on the primary trend of the current market that lasts over a 15 year period. The previous trend was stocks and housing. The current trend is gold and silver. You've already had several years of uptrend to verify this.

FYI, I'm speaking of gold and silver that involves physical delivery/possession, no pieces of paper. Numerous articles have come out recently stating that even the physical bullion markets are over-leveraged. Good luck collecting those deliveries when there's no gold left to give you.

NuttBoxer says

gold is a long term investment, not something you buy today and sell tomorrow.

That's right. People who paid over 800/oz for gold in 1980 are finally seeing that the trend is their friend.

I'll go ahead and share my experience since my wife and I went back and forth about this for a year or two before deciding to pull the plug on our 401k plans.

We both contributed up to the company match in aggressive plans for several years. Never really thought about where the money was going, just picked through some of the various options on the Fidelity website. Started reading Mish and other websites and got concerned that the market was going to tank and we both cashed out and took the 10% penalty around DOW 13,000 ish or so. It was only a 10% penalty because we did post tax 401k's, but would have been around a 30% penalty had we have done pre tax instead.

We dumped our earnings into PM's - primarily 1 oz Gold American Eagles, and 1oz silver rounds/bars around gold 900 and silver 11-12ish. In just a couple years my PM's are up near 50% from when we bought in, while the market keeps fluttering around DOW 10,000... every time it bumps up, it plops back down and the gubbermint rushes in to keep it afloat.. seems that 10k is the magic number.

In other words, NO - you don't have to invest in a 401k, even if you receive a company match. I'm far ahead of most of my co-workers just by being liquid in PM's and cash. I actually did much better taking a 10% loss and then dumping the proceeds into hard assets.

Most of the plans Fidelity offered didn't allow you much control over the allocation of your assets. The Fidelity 500,400,300 etc... Secondly, the 401k is a market based instrument. If the market tanks, you lost. Is it as risky as going to a casino? No, but you're playing the same game everyone else is. You probably don't want to play anymore if the music stops.

I personally feel like the market is going to take at least one more solid nose dive coming up here real soon, and that's going to wipe a lot of people out. When it does, it won't be rebounding any time soon. Another thing to consider is that as the boomers start cashing out, the market won't float as well. Heck, even after the last crash - I know plenty of people who have delayed retirement because of it.

Some people swear by the 401k/company match, and some people do well. But it's not for everyone. I'll take hard assets any day over monopoly money, or my 2% return on a cash maximizer savings account at BoA.

Also, my dad never had a 401k plan or played the stock market - thought it was a piss poor idea from the get go. He just invested when he could in property (mostly land), and CD's. He has several million in the bank now, retired at 60, and to be honest, none of his friends can AFFORD to retire.

Just live a debt free life style, spend wisely, save what you can, diversify within your comfort range, and you'll be fine. Remember, the 401k is a relatively new instrument (1970's or so?)- people did just fine before they came about.

joshuatrio says

We both contributed up to the company match in aggressive plans for several years. Never really thought about where the money was going, just picked through some of the various options on the Fidelity website. Started reading Mish and other websites and got concerned that the market was going to tank and we both cashed out and took the 10% penalty around DOW 13,000 ish or so. It was only a 10% penalty because we did post tax 401k’s, but would have been around a 30% penalty had we have done pre tax instead.

Wow--lots of questions.

Why did you do post-tax? I can't think of any reason to do that by choice.
If you thought the market was going to tank, why not just change where your 401K was invested? No need to cash out. Wasn't there a money market fund choice?

joshuatrio says

In other words, NO - you don’t have to invest in a 401k, even if you receive a company match

You don't have to, but you should. Your investment performance is highly unusual. Giving up a certain 50% gain on day 1 is lunacy.

joshuatrio says

But it’s not for everyone. I’ll take hard assets any day over monopoly money, or my 2% return on a cash maximizer savings account at BoA.

It should be the first retirement investment for everyone. If you want a low risk investment, just put your 401K in a money market fund. I don't even know what you mean about monopoly money--I've never seen that option on any 401K I've been in.

joshuatrio says

Remember, the 401k is a relatively new instrument (1970’s or so?)- people did just fine before they came about.

Yes, because everyone had defined payment pension plans. Now those plans have gone the way of the dinosaur, so everyone needs a 401K.

tatupu70 says

Why did you do post-tax? I can’t think of any reason to do that by choice.
If you thought the market was going to tank, why not just change where your 401K was invested? No need to cash out. Wasn’t there a money market fund choice?

So the penalty wouldn't have been as high if we'd decided to cash out - which we inevitably did. I was never sold on the 401k from the beginning. There was a money market choice, but I thought PM's looked better - in which case I was right.

tatupu70 says

You don’t have to, but you should. Your investment performance is highly unusual. Giving up a certain 50% gain on day 1 is lunacy.

I didn't give up anything, and as far as I'm concerned, the market still isn't even close to what it was before the bust. I jumped ship, before the ship sank.

tatupu70 says

It should be the first retirement investment for everyone. If you want a low risk investment, just put your 401K in a money market fund. I don’t even know what you mean about monopoly money–I’ve never seen that option on any 401K I’ve been in.

NO it shouldn't. To each his own. Do what you're comfortable with. Some of us don't like betting against the house. Transferring all my 401k cash to PM's was a great move. I may dump my metals in the near future, but then I'll invest the profits into something else.

tatupu70 says

Yes, because everyone had defined payment pension plans. Now those plans have gone the way of the dinosaur, so everyone needs a 401K.

This is true - but not everyone needs a 401k. I know plenty of people who never had a pension or a 401k, and they are quite comfortable.

The 401k is completely sub par compared with previous pension plans, and a portion of your money invested goes to administrative fees. Then when you retire, you still pay tax on your damn retirement. The 401k was never designed to be a full fledged retirement plan, it was designed to assist/help save for retirement. In other words, supplement your income. You have thousands of sheeple dumping large percentages of their paychecks into the casino which is nothing more than a house of cards. Most of the people I know who contribute only have a 401k and nothing else.

There are plenty of ways to "invest" without having your money tied up in the market. Start a business, get into rentals/real estate, PM's, get an education. There is always a risk, but like I said earlier, do what you're comfortable with.

joshuatrio says

I didn’t give up anything, and as far as I’m concerned, the market still isn’t even close to what it was before the bust. I jumped ship, before the ship sank.

So don't invest in the stock market. Invest in money market. Even with your performance to date, I bet you're still losing. PMs have to go up in excess of ~60%/year to break even with the 401K. And that doesn't even take into account the miracle of compound interest from the tax savings. You literally cannot beat it.

joshuatrio says

There are plenty of ways to “invest” without having your money tied up in the market.

Right. And 401K is the best one.

marcus says

NuttBoxer says

gold is a long term investment, not something you buy today and sell tomorrow.

That’s right. People who paid over 800/oz for gold in 1980 are finally seeing that the trend is their friend.

Really? 1980 and $800oz seems more relevant to you than 2000 and $200oz, or 2009 and $950oz? Why use such an outdated, and irrelevant reference?

tatupu70 says

So don’t invest in the stock market. Invest in money market. Even with your performance to date, I bet you’re still losing. PMs have to go up in excess of ~60%/year to break even with the 401K. And that doesn’t even take into account the miracle of compound interest from the tax savings. You literally cannot beat it.

Yeah, that's right. I'm losing. Remember, you can lose money in a 401k as well (majority of Americans still haven't recovered from the last bust). Compounding interest only works when you have a positive rate of return.

My savings account at the local bank has had a higher rate of return that the stock market - and it's guaranteed. How's that for compounding interest?

tatupu70 says

Right. And 401K is the best one.

Do what you're comfortable with. My wife and I have generally gone against what the masses are doing and we've been fine. We have healthy balances and should be able to retire around 40. Diversify, don't put all your eggs in one basket. I know we're strictly in cash/PM's right now, but we're looking to expand our horizons - just not the stock market. We've invested our time and $$ heavily into education as well, and it's really paid off salary wise.

So anyhow, to each his own.

joshuatrio says

Do what you’re comfortable with. My wife and I have generally gone against what the masses are doing and we’ve been fine. We have healthy balances and should be able to retire around 40. Diversify, don’t put all your eggs in one basket. I know we’re strictly in cash/PM’s right now, but we’re looking to expand our horizons - just not the stock market. We’ve invested our time and $$ heavily into education as well, and it’s really paid off salary wise.

I must not be doing a good job of explanation. You CAN diversify in a 401K. Most people do. Granted most don't offer a way to invest in precious metals, but by no means do you have to invest in the stock market. Historically it has proven to be a good long term investment, but if you decide you don't like it--put your money elsewhere. But it's just insane not to get the company match! That's free money.

tatupu70 says

I must not be doing a good job of explanation. You CAN diversify in a 401K. Most people do. Granted most don’t offer a way to invest in precious metals, but by no means do you have to invest in the stock market. Historically it has proven to be a good long term investment, but if you decide you don’t like it–put your money elsewhere. But it’s just insane not to get the company match! That’s free money.

You CAN - but your options are limited... Historically? The 401k has only been around for 30-40 years.

Insane not to get the company match? Well, not always. You only get the company match if your plan has vested - which locks you into one company for what... 5-10 years? This could prohibit you from taking other job opportunities, if that company match is indeed that important to you... But what if you're offered a job that pays that much more? Do you jump ship?

Secondly, assuming the market is flat, that company match means nothing if you pull the plug, get taxed at 30% and pay associated fees. You pretty much get back what you put in - money that could have been put to work elsewhere.

So in my mind, the company match only makes sense if you plan on being with a company for an extended period of time.

Me? On average, I hold a new job every two years. Each position paid significantly more than the last - all for different companies. I make over double what I did two years ago - each job has been more technical and a huge career benefit. If I'd stuck with the same company since I graduated college (6 years ago), I'd be making pennies to what I am now, hoping that my 401k didn't get wiped out by the crash, and holding onto hope that the company match would save my retirement - not to mention, my level of knowledge would be nothing to what it is now. I've done better by climbing the ladder, pursuing education and investing myself.

Like I said, to each his own. The company match is free money - but they own you.

So you rolled the dice and came up with a better investment? Good for you. Speculating in precious metals carry a risk as well. This does not mean that 401k investing is not a valid investment vehicle - when the employer matches 100% of your contribution you are getting an immediate 100% return on your investment. Sure, there are risks - but what would you be saying if PM's tank? Like I said, you were fortunate to switch your investments on the upswing of one "investment" - a lot of people did that with real estate. Some were winners, some were losers. Does this mean that real estate investment is universally and always a bad choice? Sometimes it's the right choice, sometimes it isn't. Timing is everything. Just because you hit it right this time doesn't mean the gravy train will run forever. Real estate investors felt the way you do right up until the crash.

Looking at the market as a whole and coming to the conclusion that it stinks leaves out the time that when the 401k contributions were done AFTER it went down - you aren't shoving all of your investments into the market at one time (this is what you did, btw, when you cashed out your 401k...). You are buying when it is high as well as when it was low in a 401k - and the company match more than likely puts you ahead over the long haul. There were a lot of people who had a smug attitude about their high tech investments in the late 90's - I had a friend that called me a long time ago and asked me if I had ever heard of a company called Enron ;)

EightBall says

So you rolled the dice and came up with a better investment? Good for you. Speculating in precious metals carry a risk as well.

You're right. I did speculate. But that's ultimately what investing boils down to - put your money where you think it will grow the most. I invested/speculated that hard assets were the safest investment at the time and would grow the most over the next several years.

EightBall says

Looking at the market as a whole and coming to the conclusion that it stinks leaves out the time that when the 401k contributions were done AFTER it went down - you aren’t shoving all of your investments into the market at one time (this is what you did, btw, when you cashed out your 401k…). You are buying when it is high as well as when it was low in a 401k - and the company match more than likely puts you ahead over the long haul.

I never said the market stinks. I've been consistently saying "to each his own" and "do what you're comfortable with." The company match MAY put you ahead in the long term, but it MAY NOT. By putting your money into a 401k, you're "speculating" that it will go up in the long term. You're also speculating that you'll stay with the company for a good portion of your life - that you won't get fired, that you won't switch companie before your plan is fully vested, and that the market will go UP.

I look at resume's all day and I can tell you that the majority of (highly qualified) applicants spend on average 2 years at a job. I don't know what the national average is, but from what I can tell, most people don't hang around until their plan has vested.

The Dow, Nasdaq and S&P are all at lower levels than they were 10 years ago (around the tech highs). PM's are up plenty since then. This trend could reverse or continue - in either way. When you invest/plan for the future - put your money where you think it will benefit you the most. You're really just gambling - pick your game: poker or roulette. Some have more risk than others.

I may cash out PM's in the next year or two and buy a couple rentals - considering that real estate may become a bargain here real soon. Guess what, if that's what I'm comfortable with, that's what I'll do.