How much has your 401K earned you over 30 years?

[NWFlyer 2]

I'm just pointing out a rather simple and obvious error you just made in understanding eligibility for 403(b) plans, which calls into question your reliability as a retirement investment expert (never mind all the basic math and understanding errors already pointed out above).

But you carry on, mkay? I'll stick with my own investment plans for now.

"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences." -P.J. O'Rourke

[Remster 30]

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I could be wrong

Naaaaaaa....

Remster

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The 401K hasn't faired better than other accounts. There is one thing for sure: when you are ready to withdraw from 401 you'll enjoy or suffer the advantages of 401. With personal savings you'll know exactly what you will be enjoying, and you will not have to worry about market fluxuations at the time you want to access your money.

Well, other people have pointed out that you make a lot of assumptions or start with poor definitions which influence your analysis very heavily.

I'd just like to address one, which you don't seem too sure of. A 401K is not really a "kind of account" in the way a savings accoung is a "kind of account." 401K really only speaks to the tax treatment of the account, not the kinds of investments which are in it. The savings account really speaks to the kind of investment which are in it.

A 401k, depending on employer and plan sponsor, may include many kind of investments. One of those investment types may be a savings accoung. Often it is a money market account, but so are many of the savings accounts sold at retail banks these days, in my limited experience. It likely has a lot of other choices, too. But if you want to match your savings account and get the tax advantaged status of a 401k, which you don't seem to entirely comprehent, you can jsut select that option in your plan.

Sure I agree there are choices within a retirement vehicle including money market, bond funds, stocks and even mutual funds.

Clearly if you put your money in static money market earning an annual percentage the results to what I'm inquring about might be the same and that choice within a 401 could be best. I'm looking more closely to areas where there are market fluctuation at the time you want the money. For instance. Taking money out of retirment would have been much worse in 2009 that today. Money in the cookie jar is there when you need. The same mony you put in. Not so with investment. ...

[Remster 30]

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The same mony you put in. Not so with investment. ...

If you want to talk about risk, now you also need to involve inflation as that is a major risk with the mattress method.

By the way, nice way of not acknowledging the errors of your scenario.

Go take a couple of finance classes and come back.

Remster

[quade 4]

There is no single magic financial instrument that will absolutely shield you from fluctuations. Everything fluctuates except your money in a cookie jar. Its value only goes down.

quade -
The World's Most Boring Skydiver

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I'm just pointing out a rather simple and obvious error you just made in understanding eligibility for 403(b) plans, which calls into question your reliability as a retirement investment expert (never mind all the basic math and understanding errors already pointed out above).

But you carry on, mkay? I'll stick with my own investment plans for now.

So instead of pointing out what you might think are errors just what are the eligablity of 403b? That's not what we're even talking about. Jeessh. We are talking about wether or not your stock market fluctuation retirment investment will be good, bad, the same as having money in your pocket at the time you need it.
That's all.
And it would seem to me the only way to do that is come up with an illustration. Now I tried that, and I'm not getting too much help. Taxes are not added to or deducted went funding your retirement account. It's just money in the accout and nothing happens to the value of the money until you put your hands on it. Right?

So why not help with the conversation...

[devildog 0]

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The moral is this - don't bother arguing retirement finances when people want to prove that 401ks don't work. They have no idea what they're talking about. They just want to rationalize their lack of retirement savings.

I'm just happy I have a 403(b) instead so I don't have to deal with all these flaws in the 401(k).

ditto :)

You stop breathing for a few minutes and everyone jumps to conclusions.

[NWFlyer 2]

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So why not help with the conversation...

Because many others have tried and failed so far, so I'm taking the comic relief approach. At least a couple people got the joke, at least.

"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences." -P.J. O'Rourke

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There is no single magic financial instrument that will absolutely shield you from fluctuations. Everything fluctuates except your money in a cookie jar. Its value only goes down.

I'm not seeking a formula. All varibles have been excluded including interest earned and inflation.
So It should be pretty simple.
If you put $300K in a cookie jar. How much will be there when you want to take the money.

If you put $300K in an account with a broker that fluctuates how much will be there when you want to put your hands on it. If you can't tell me, then obviously it could be less than $300,000 Right?

Do you want piece of mind, or do you want risk?

Here's a delema: A check is coming and the person is going to owe nearly $350,000 in TAXES which wipes out completely the interest earned over 25 years including some of the principal invested.

All I know is, I'd rather make money not lose money.

[wmw999 2,589]

If you exclude all variables including interest and inflation, then yes, the cookie jar is an excellent approach.

Wendy P.

There is nothing more dangerous than breaking a basic safety rule and getting away with it. It removes fear of the consequences and builds false confidence. (tbrown)

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So why not help with the conversation...

Because many others have tried and failed so far, so I'm taking the comic relief approach. At least a couple people got the joke, at least.

OH so the joke is non government people are the ones need worry about details and you don't? How fun
But it appears your account could suffer value pending market value at the time of a lump sum distribution should you want to take it.


http://www.irs.gov/publications/p571/ch01.html

[NWFlyer 2]

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OH so the joke is non government people are the ones need worry about details and you don't? How fun

I've already told you I don't work for the government.

Or maybe I do... and I'm using this thread to figure out how I can tax and steal what's in your cookie jar. Muahahahahahaha.

"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences." -P.J. O'Rourke

[kelpdiver 2]

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With personal savings you'll know exactly what you will be enjoying, and you will not have to worry about market fluxuations at the time you want to access your money.

I'll let you mull your misfortunes with one more thought.

Any money you put in a regular bank savings account is pretty much guaranteed to lag inflation, and probably by a minimum of 100 basis points (1%). So yes, you know exactly what's there, but the longer you leave it there, the less valuable it becomes to you. You can minimize the damage with laddered CDs and take advantage of times when rates are better than this current 1% on 5 year CD nonsense, but you're always losing.

The point of liquid savings is to have enough money to meet short term needs where you don't need to worry about fluctuations in the balance of your higher returning, higher risk assets. People who got hurt most by the 2008 crash are the ones that had too much money in riskier stock assets (like all of their money) and then in early 2009 converted all of it to low paying savings accounts, where they left it until last year. People who had sufficient savings and a proper balance of stocks and bonds did nothing (unless they suffered a job loss) and are better now than they were then. I made out like a bandit from that downturn.

[kallend 2,150]

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The moral is this - don't bother arguing retirement finances when people want to prove that 401ks don't work. They have no idea what they're talking about. They just want to rationalize their lack of retirement savings.

I'm just happy I have a 403(b) instead so I don't have to deal with all these flaws in the 401(k).

So do I.

...

The only sure way to survive a canopy collision is not to have one.

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With personal savings you'll know exactly what you will be enjoying, and you will not have to worry about market fluxuations at the time you want to access your money.

I'll let you mull your misfortunes with one more thought.

Any money you put in a regular bank savings account is pretty much guaranteed to lag inflation, and probably by a minimum of 100 basis points (1%). So yes, you know exactly what's there, but the longer you leave it there, the less valuable it becomes to you. You can minimize the damage with laddered CDs and take advantage of times when rates are better than this current 1% on 5 year CD nonsense, but you're always losing.

The point of liquid savings is to have enough money to meet short term needs where you don't need to worry about fluctuations in the balance of your higher returning, higher risk assets. People who got hurt most by the 2008 crash are the ones that had too much money in riskier stock assets (like all of their money) and then in early 2009 converted all of it to low paying savings accounts, where they left it until last year. People who had sufficient savings and a proper balance of stocks and bonds did nothing (unless they suffered a job loss) and are better now than they were then. I made out like a bandit from that downturn.

I don't have any misfortunes.
Yes most who didn't move out of stocks are about back to where they were, but you are missing the main point. The market value at distribution.
You say you made out like a bandit, but that probably wasn't at retirement age.
For instance taking your lump sum in 2007 would have been a lot better than taking in 2009 for that matter, or even now perhaps. No one knows what the maket will be when they want to take their distribution.

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If you exclude all variables including interest and inflation, then yes, the cookie jar is an excellent approach.

Wendy P.

Well we're making progress. Thank you. I agree.

[weekender 0]

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There is no single magic financial instrument that will absolutely shield you from fluctuations. Everything fluctuates except your money in a cookie jar. Its value only goes down.

I'm not seeking a formula. All varibles have been excluded including interest earned and inflation.
So It should be pretty simple.
If you put $300K in a cookie jar. How much will be there when you want to take the money.

If you put $300K in an account with a broker that fluctuates how much will be there when you want to put your hands on it. If you can't tell me, then obviously it could be less than $300,000 Right?

Do you want piece of mind, or do you want risk?

Here's a delema: A check is coming and the person is going to owe nearly $350,000 in TAXES which wipes out completely the interest earned over 25 years including some of the principal invested.

All I know is, I'd rather make money not lose money.

i agree with you, it is very simple if you remove all factors including inflation and interest earned.

but that right there is the problem with your entire post and why your not getting the answer you want. you have removed all realistic factors from your situation making your entire question impractical and of no real value to anyone but yourself. not to mention you have changed your point several times in this thread. it was originally about 401k's vs non tax deferred accounts. now i dont know what its about.

the fact of the matter is that currencies always fluctuate. so you only have two real world options. you can park your money and accept that it will most likely erode in value or look for some yield and accept risk.

normally i accuse you of being clueless and factually inaccurate. in this case, i am just confused as to what your point is. at some point, you have to realize that you are the only person here who understands what you are trying to explain. maybe it isnt all of us.

"The point is, I'm weird, but I never felt weird."
John Frusciante

[NWFlyer 2]

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No one knows what the maket will be when they want to take their distribution.

True.

That's still not an argument against 401Ks or similar accounts.

"There is only one basic human right, the right to do as you damn well please. And with it comes the only basic human duty, the duty to take the consequences." -P.J. O'Rourke

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No one knows what the maket will be when they want to take their distribution.

True.

That's still not an argument against 401Ks or similar accounts.

Ok, I'm not arguing against 401K. I just want to know what is better over 30 years considering taxes. For 401K and similar account you'd only the now the answer at day of withdrawal, where with cookie jar you might have better idea perhaps what the payout would be.

Answer is: there is no answer what is better.

[Remster 30]

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Answer is: there is no answer what is better.

I, for one, am glad you made it clear for us.

Remster

[champu 1]

There's a lot of problems with your "simplified" scenario but I'll point out the main one. If you pay, say, 25% taxes all the way along, and you put away $1K/mo in a cookie jar, then that means you had to earn $1333 that month, pay $333 tax on it, and then deposit the $1K. If you have a 401(k) you put the whole $1333 in the account. After 30 years, your cookie jar will have $1k * 12 * 30 = $360K or your 401(k) will have $1333 * 12 * 30 = $479,880. If I pay 25% at that point I have the same $360K.

A big thing that ends up helping you is the fact that you have that extra $333/mo experiencing the same growth as the rest of your fund, so even if your tax rate does go up a bit, it's unlikely to outpace the performance of your account if you manage it wisely. A second bonus is that many employers will put extra money into your 401(k) if you contribute at least x amount yourself. If you use a cookie jar, the company just keeps that money for themselves. Finally, it lets you work in a state and with high state income taxes, and retire in a state with lower state income taxes to make the most of having not paid taxes on the money when you earned it.

As for market volatility, that's always going to happen. Which is why what you have your money invested in (whether it's pre-tax or after-tax) should depend largely on when you need it. If you're 30 years away from retirement, go risky... Your account value is going to be all over the place in the near term but in the long term you'll come out ahead. As you get closer to retirement you can migrate money towards bonds and as you get right up against it you can move it to something basic like a money market account. If you put your money in a savings account/CD/money market account for 30 years you're going to lose value. If you leave your money in risky small-cap or emerging market funds all the way to retirement, you're rolling the dice.

Speaking as a rocket scientist I will say, it's not rocket science.

[kelpdiver 2]

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Ok, I'm not arguing against 401K. I just want to know what is better over 30 years considering taxes. For 401K and similar account you'd only the now the answer at day of withdrawal, where with cookie jar you might have better idea perhaps what the payout would be.

Answer is: there is no answer what is better.

You could have made that argument if you said over a 10 year span. But 30 years...no, the 401k (invested in any suitable target date retirement fund) wins handily. There has never been a 30 year stretch where the opposite is true.

The tax question has been addressed - you neglected to account for the difference at deposit time. You also don't understand the costs of compounded taxation on the savings account (or any high turnover brokerage account) and how that loses to a sheltered account.

[devildog 0]

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There is no single magic financial instrument that will absolutely shield you from fluctuations. Everything fluctuates except your money in a cookie jar. Its value only goes down.

I'm not seeking a formula. All varibles have been excluded including interest earned and inflation.
So It should be pretty simple.
If you put $300K in a cookie jar. How much will be there when you want to take the money.

You'll have paper that's printed out to say $300,000, but after 30 years of average inflation, you'll only have about $126,000 in purchasing power. So in effect, you lost 174k or 58% of your investment.

You stop breathing for a few minutes and everyone jumps to conclusions.

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What we've learned there are just too many factors: the lady was liquid, did a real estate deal and doubled her money in two years. Meanwhile her 401K was getting hammered by stock market forces. Now she's faced with huge tax bill to get at her 401K money. Her savings and use of money faired better.

Just too many factors to determine if 401K is better than cash/ savings account. Also, if you are an entrepreneur and know how to use cash to your advantage, having cash could trump 401K.

[devildog 0]

I didn't say it was better or worse. The question was asked what would $300k be worth if you stuck it in a jar. All I did was answer that question with historic data.

Similarly, using long standing historic data, you'd probably be looking at 8% (after inflation) with stocks after 30 years, which would give you about 3M worth of purchasing power.

IMHO, if you can weather the ups and downs and don't need the money in the near / semi near future, its best just to invest and forget, to speak, and the closer retirement comes, its probably a good idea to move to more stable investments so if/when retirement comes, you aren't in a dip when you need to withdraw.

You stop breathing for a few minutes and everyone jumps to conclusions.