Is a 401(k) still the ideal way to save for retirement?

[coaster831]

how so?

He's saying that if there's no employer match, an IRA *usually* provides access to a broader range of funds with lower expense ratios than a 401(k). There are several exceptions to this (e.g., some 401(k)s are provided by Vanguard and give access to several of their low-cost institutional funds), but in general it is true.

Edited: Used 'IRA' where I meant '401(k)'

 

[spidey07]

How do you get a pension?

Work for a company that offers one. Normally have to be there 5 years to get anything at all. And to fully vest (ie, get 66% or more of your salary for life) you have to work there 25-30 years). I've got one from a previous employer.

 

[coaster831]

I was told that same thing, and still lost money.




When your entire investment disappears overnight, you might have a different opinion on that.

Losing that much means either picking risky investments or not understanding the investments. A stable value fund would have slightly increased (or at least maintained) an investment. I've never seen a 401(k) that doesn't offer one or an equivalent... not saying all of them do, though.

 

[maziwanka]

He's saying that if there's no employer match, an IRA *usually* provides access to a broader range of funds with lower expense ratios. There are several exceptions to this (e.g., some IRAs are provided by Vanguard and give access to several of their low-cost institutional funds), but in general it is true.

Thanks - i also realized that i dont think im really eligible for the full deductions based on my salary for an ira or roth ira, but that was based on reading one website. maybe im wrong

 

[GT1999]

I do it just because I get a match and it's free money. If I get fired, or something happens, I can cash it out after taxes and still be up cash wise.

 

[coaster831]

Sorry... mistake post

 

[DaveSimmons]

I was told that same thing, and still lost money.

When your entire investment disappears overnight, you might have a different opinion on that.

Sorry but I don't think you had your money in a money market fund. A money market fund can, rarely, lose money but highest I've heard of was a 4% drop not your claimed 20%+.

 

[Blackjack200]

How do you get a pension?

Work for a company that offers one. Normally have to be there 5 years to get anything at all. And to fully vest (ie, get 66% or more of your salary for life) you have to work there 25-30 years). I've got one from a previous employer.

401(k) plans are pension plans, what you guys are referring to are defined benefit pensions. (401 k is defined contribution)

Even a 401(k) plan will have vesting requirements: usually that 100% match isn't really yours for 3 years.

 

[ViviTheMage]

I get pension + 5% 100% match!!1

 

[JS80]

401(k) plans are pension plans, what you guys are referring to are defined benefit pensions. (401 k is defined contribution)

Even a 401(k) plan will have vesting requirements: usually that 100% match isn't really yours for 3 years.

In real life usage of the word, pensions refer to defined benefit plan whereas 401k's are not referred to as pensions.

 

[Blackjack200]

In real life usage of the word, pensions refer to defined benefit plan whereas 401k's are not referred to as pensions.

And that's fine, but in a thread about 401(k) and now DB plans, it's worth being precise. DC and DB plans actually have a lot in common: governed by ERISA law, assets are held by the plan sponsor, plan sponsor has fiduciary responsability and a lot more.

For example, did you know that your company can pull money out of your 401(k) account to pay plan expenses? Most won't do it because they're afraid of getting sued, but some do.

 

[JS80]

And that's fine, but in a thread about 401(k) and now DB plans, it's worth being precise. DC and DB plans actually have a lot in common: governed by ERISA law, assets are held by the plan sponsor, plan sponsor has fiduciary responsability and a lot more.

For example, did you know that your company can pull money out of your 401(k) account to pay plan expenses? Most won't do it because they're afraid of getting sued, but some do.

They have nothing in common. One is real money, the other is bankrupt fantasy.

And yes, I knew that.

 

[BlahBlahYouToo]

How do you get a pension?

private company pensions rare these days because they've learned that they are unsustainable.
our public counterparts have yet to realize this and thus are destroying our local govts.

 

[Blackjack200]

They have nothing in common. One is real money, the other is bankrupt fantasy.

And yes, I knew that.

private company pensions rare these days because they've learned that they are unsustainable.
our public counterparts have yet to realize this and thus are destroying our local govts.

With proper regulation (in both public and private sectors), there's no reason a DB plan can't work. When you water down funding requirements it's not surprising that these companies get themselves into trouble.

Really, the DB plan makes a whole lot more sense. Why would expect the entire American workforce to be sophisticated investors that are capable of effectively investing their own pension funds?

 

[OutHouse]

My company matches 200% of 5% and there are still people who don't max it out :biggrin:

In this economy thats amazing.

I just checked my 401k and im doing 11.2% return this year. I stopped my contributions for this year and dumping money into my savings. I want to get my liquid assets up to 6 figures.

 

[abaez]

"If you are eligible for a company contribution for a Plan Year (see Question 13) the company will contribute 8% of your eligible Plan Year compensation plus 5.7% of your eligible Plan Year compensation, if any, that exceeds the Social Security wage base."

Does that mean they are matching 8% ? Or 13.7% ?

 

[DaveSimmons]

"If you are eligible for a company contribution for a Plan Year (see Question 13) the company will contribute 8% of your eligible Plan Year compensation plus 5.7% of your eligible Plan Year compensation, if any, that exceeds the Social Security wage base."

Does that mean they are matching 8% ? Or 13.7% ?

If I'm reading that correctly, 8% matching on the first ~$90,000 of wages, 13.7% on any of your wages above that.

Basically they're giving you the social security employer matching that they give the IRS for the first $90K of your wages.

 

[JS80]

With proper regulation (in both public and private sectors), there's no reason a DB plan can't work. When you water down funding requirements it's not surprising that these companies get themselves into trouble.

Really, the DB plan makes a whole lot more sense. Why would expect the entire American workforce to be sophisticated investors that are capable of effectively investing their own pension funds?

Because it's a lesser evil to have an individual control his own destiny than to have a pension fund manager run it to the ground.

 

[Engineer]

OP: Depends on whether it goes to a 501k (i.e. gains) or back to a 201k (like 2008-2009). Market has been tough for over a decade now and is on it's way back down. Confidence is low...I repeat...confidence is low.

 

[FoBoT]

don't waste your time
first , after the coming financial Armageddon only the super rich will be able to retire, like it was before WWII/GD
second, the coming hyper inflation will devalue any savings you have to the point it'll be worthless, so spend in now while you can

 

[postmortemIA]

all 401k advantages have been discussed, here are 2 disadvantages:
1. how much cash in your pocket is more valuable than having it in 30 or so years or losing the opportunity to use dollars when they matter the most:
you can buy/ afford more today if you save less for tomorrow - you could get that sports car in your 20s/30s, instead of in your 60s. Doesn't sound too responsible, but saving too much could make your living standard today worse.
2. lot of plans won't let you actually get access to your fund unless there's hardship or you leave company.

 

[rcpratt]

My 401k got sadder towards its 1 year anny 🙁

At least it's still above the market.

 

[FallenHero]

don't waste your time
first , after the coming financial Armageddon only the super rich will be able to retire, like it was before WWII/GD
second, the coming hyper inflation will devalue any savings you have to the point it'll be worthless, so spend in now while you can

And if it doesn't crash? He screwed himself out of a decent retirement.

Save it now, learn to live on less. If/When the big crash happens, yur screwed anyway. Might as well bank on having a good future should it not happen.

Or you can prepare for both and buy bullets/weapons to prepare for WWZ.