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

[kelpdiver 2]

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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.

Who is this lady and when did she enter the question?

Hey, if you have one dollar and use it to buy a winning lottery ticket, of course that's better than investing it.

Real estate can provide very high short term returns due to the leveraged nature, but only 4 years ago that same concept left people broke. And in the long term, it's very difficult to get those sort of 100% returns like one might if they bought in 2010 or 2011 when things looked very bleak. Having cash then certainly gave an opportunity. But putting your whole fortune into one market is a dicey one - Trump has gone bankrupt a couple times in his roller coaster of success.

Add: if you convert your 401k into an ira when you leave a job (you should), you do now have the option of using that money to invest in real estate. The gotcha is that you can't add funds in, so you have to plan carefully to have sufficient reserves. And depending on your company, you can typically borrow up to 50k (and for any reason with my firm) for 5 years (10 for a home purchase) that you then pay back to yourself at rates around 4.25%. It has some gotchas (don't quit the job), but does give you some access.

[Stumpy 284]

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Also, if you are an entrepreneur and know how to use cash to your advantage, having cash could trump 401K.

Well duh

Never try to eat more than you can lift

[champu 1]

Side note as I'm doing my taxes and came across this... if you have a low AGI, the IRS has a tax credit to encourage you to contribute at least something to your 401(k) or other retirement savings. Only applies if you make < $57K married or < $29K single. Google "IRS Form 8880"

Think of it as a rather generous 401(k) contribution matching for poor people.

[OHCHUTE 0]

Buy and hold may work for retiree so long money is taken out of 401 after growth, not during totally collapse. As previously stated, no on can predict total collapse. I suspect as millions of baby boomers are looking to withdraw money from 401, 403 etc to fund annuities, stock market might suffer as trillions are withdrawn. The market will crash eventually. It always does. It's just a matter of when it crashs. A retiree may not have choice but to withdraw money during crash, as opposed to waiting through crash to the next up cycle.
List of crashes here:

http://en.wikipedia.org/wiki/List_of_stock_market_crashes_and_bear_markets

[kelpdiver 2]

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Buy and hold may work for retiree so long money is taken out of 401 after growth, not during totally collapse. As previously stated, no on can predict total collapse. I suspect as millions of baby boomers are looking to withdraw money from 401, 403 etc to fund annuities, stock market might suffer as trillions are withdrawn. The market will crash eventually. It always does. It's just a matter of when it crashs. A retiree may not have choice but to withdraw money during crash, as opposed to waiting through crash to the next up cycle.
List of crashes here:

Market "crashes" don't last 20 years. And a properly constructed retirement plan would have equities down to 50% or less in equities, so a market downturn only has some impact. No question you want to start drawing down when it's going up instead of down, but it's not nearly the dramatic impact you suggest, unless their asset allocation was trying to make up for lost time.

There is a newer thinking about asset allocation that directs you to fund 3 pools - the immediate future of a couple years (cash accounts), the mid period of the next decade (bond and dividend paying stocks), and then the long term picture (equities). For each, you invest appropriately for the interval, so in concept a bear market doesn't really matter to you.

[OHCHUTE 0]

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Buy and hold may work for retiree so long money is taken out of 401 after growth, not during totally collapse. As previously stated, no on can predict total collapse. I suspect as millions of baby boomers are looking to withdraw money from 401, 403 etc to fund annuities, stock market might suffer as trillions are withdrawn. The market will crash eventually. It always does. It's just a matter of when it crashs. A retiree may not have choice but to withdraw money during crash, as opposed to waiting through crash to the next up cycle.
List of crashes here:

Market "crashes" don't last 20 years. And a properly constructed retirement plan would have equities down to 50% or less in equities, so a market downturn only has some impact. No question you want to start drawing down when it's going up instead of down, but it's not nearly the dramatic impact you suggest, unless their asset allocation was trying to make up for lost time.

There is a newer thinking about asset allocation that directs you to fund 3 pools - the immediate future of a couple years (cash accounts), the mid period of the next decade (bond and dividend paying stocks), and then the long term picture (equities). For each, you invest appropriately for the interval, so in concept a bear market doesn't really matter to you.

The whole argument hinges on when you need the money.
You get hit with 10% penalty, federal and state tax before 59.5 years old and state and federal tax after 59.5 years old. If you need the money at 60 and the market is tanked, lets say off 15% including your investment and you want the money you're going to get hit with 47% load on the money you take. So all of a sudden:

IF you want lump sum for non qualified annuity: $1,000,000.00 in 401 ends up being $530,000 annuity single pay.

Now if you put in $600,000 in your 401, out of your pocket, grew the account to 1m dollars and only realize $530,000, you've lost money. In this instance, putting $600,000 into a bank saving account at zero interest instead of a 401 would have been better over the long haul.

Again, it is market value of 401 at the time you want to make your deduction. Doing it before 59.5 makes matters worse.

[Channman 2]

I'm getting into this discussion way late. At 3% you roughly double your money every 24 years. So it would take you 48 years to have roughly $48,000.00.

[wmw999 2,589]

But we're talking about continuing to put money in, just as one might continue to put money into a 401K. Doesn't make any difference to whether a simple savings account is better, but it does change it a little.

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)

[kelpdiver 2]

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Now if you put in $600,000 in your 401, out of your pocket, grew the account to 1m dollars and only realize $530,000, you've lost money. In this instance, putting $600,000 into a bank saving account at zero interest instead of a 401 would have been better over the long haul.

Are you refusing to accept that it's not 600k versus 600k?

My marginal tax rate is 28% (Fed) + 9.4% (Cal) which becomes effective rate of about 34%. So if I'm putting 600k into my 401k, then choosing instead to make post tax contributions to a savings account means 396k in said savings accunt. 530 > 396, correct?

And of course, you're not going to pull it out all at once, esp in a bear market. You're going to pull out what you need for the year. I have seen some good arguments for pulling out 25% to put into an annuity. But 100% dump out - doesn't make much sense, esp if you're funding it with retirement account money.

No matter how you make up the numbers, the effects of tax deferred compound interest wins. (and if your employer kicks in money, much more so)

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Again, it is market value of 401 at the time you want to make your deduction. Doing it before 59.5 makes matters worse.

It was designed to to discourage grabbing before retirement. You still should have liquid savings to last you 6-12 months. And if you are actually retiring before the age of 59.5, there are ways to pull money out without penalty, but its fixed by a life expectancy table.

[OHCHUTE 0]

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But we're talking about continuing to put money in, just as one might continue to put money into a 401K. Doesn't make any difference to whether a simple savings account is better, but it does change it a little.

Wendy P.

Adding money was a given. Unless of course you get laid off or decide not to save money for retirement.

[weekender 0]

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But we're talking about continuing to put money in, just as one might continue to put money into a 401K. Doesn't make any difference to whether a simple savings account is better, but it does change it a little.

Wendy P.

Adding money was a given. Unless of course you get laid off or decide not to save money for retirement.

I think you are missing something.

most people not only put additional money in but also dollar cost average, due to the nature of the plans. most, in my experience, are employer based and deposit money monthly. this will deeply blunt the effect of a sell off. there are entire books and papers written on it. im sure you can find a more detailed explanation than mine, if you are inclined to learn.

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

[OHCHUTE 0]

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But we're talking about continuing to put money in, just as one might continue to put money into a 401K. Doesn't make any difference to whether a simple savings account is better, but it does change it a little.

Wendy P.

Adding money was a given. Unless of course you get laid off or decide not to save money for retirement.

I think you are missing something.

most people not only put additional money in but also dollar cost average, due to the nature of the plans. most, in my experience, are employer based and deposit money monthly. this will deeply blunt the effect of a sell off. there are entire books and papers written on it. im sure you can find a more detailed explanation than mine, if you are inclined to learn.

Dollar cost averaging only works when buying stocks at low prices. If you are making monthly deposits you might not being buying when it is low over the long haul when buying stocks and may not "deeply blunt the effect of withdrawing lump sum from retirment 401.
Again money held by wall street is subject to wall street market influences.

The poll, if trusted, shows most people lost money over the long haul in 401 as of this post. It would seem actual experiences trump any equation or talk about how much money one can make for retirement allowing wall street to hold your money.

Lets see how the next 30 years will do for you. See you in 2043

[Remster 30]

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Dollar cost averaging only works when buying stocks at low prices.

It'd be funny if you weren't serious.

Remster

[weekender 0]

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But we're talking about continuing to put money in, just as one might continue to put money into a 401K. Doesn't make any difference to whether a simple savings account is better, but it does change it a little.

Wendy P.

Adding money was a given. Unless of course you get laid off or decide not to save money for retirement.

I think you are missing something.

most people not only put additional money in but also dollar cost average, due to the nature of the plans. most, in my experience, are employer based and deposit money monthly. this will deeply blunt the effect of a sell off. there are entire books and papers written on it. im sure you can find a more detailed explanation than mine, if you are inclined to learn.

Dollar cost averaging only works when buying stocks at low prices. If you are making monthly deposits you might not being buying when it is low over the long haul when buying stocks and may not "deeply blunt the effect of withdrawing lump sum from retirment 401.
Again money held by wall street is subject to wall street market influences.

The poll, if trusted, shows most people lost money over the long haul in 401 as of this post. It would seem actual experiences trump any equation or talk about how much money one can make for retirement allowing wall street to hold your money.

Lets see how the next 30 years will do for you. See you in 2043

do some research on dollar cost averaging. you seem a bit confused.

also, "Wall Street" doesnt hold your money. You do. you are free to do what you wish. you keep making the assumption risky stocks are the only option. i have a lot of money in cash in my 401k. im still trying to come to grips with the fact i am an old man and need to re-balance my portfolio.

there is so much information out there on basic finance and financial planning. i have no idea why you chose to come here to argue the basics. you are obviously on a computer.

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

[DougH 270]

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Dollar cost averaging only works when buying stocks at low prices.

It'd be funny if you weren't serious.

I don't know why you guys continue to respond to him.

I thought this was an obvious troll. Either way he already has his mind made up, I saw that from the first few replies.

I almost took the bait but I decided I would rather stick my hand on the hot stove, versus trying to talk finances with him!

"The restraining order says you're only allowed to touch me in freefall"
=P

[weekender 0]

>"The poll, if trusted, shows most people lost money over the long haul in 401 as of this post."



it should be obvious to anyone who can do math that your poll is a novelty.

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

[weekender 0]

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Dollar cost averaging only works when buying stocks at low prices.

It'd be funny if you weren't serious.

I don't know why you guys continue to respond to him.

I thought this was an obvious troll. Either way he already has his mind made up, I saw that from the first few replies.

I almost took the bait but I decided I would rather stick my hand on the hot stove, versus trying to talk finances with him!

i respond to him and people like him because i feel they spread falsehoods. i guess it just bothers me so i set out to expose they do not understand what they are discussing. this way no one repeats it back to me over the weekend.

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

[Remster 30]

You're right... I'm the first one who normally says "don't feed them"...

Mea culpa...

Remster

[Channman 2]

OOPSEY...my public education raised its ugly head. Read the F...ing question comes to mind.

[kelpdiver 2]

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i respond to him and people like him because i feel they spread falsehoods. i guess it just bothers me so i set out to expose they do not understand what they are discussing. this way no one repeats it back to me over the weekend.

That is the problem. Good people lose real money when they hear this sort of nonsense and second guess the proper actions they're taking. I don't care one bit about his finances, but I'd hate to see him hurt others here.

[DougH 270]

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i respond to him and people like him because i feel they spread falsehoods. i guess it just bothers me so i set out to expose they do not understand what they are discussing. this way no one repeats it back to me over the weekend.

That is the problem. Good people lose real money when they hear this sort of nonsense and second guess the proper actions they're taking. I don't care one bit about his finances, but I'd hate to see him hurt others here.

Fair enough.

Then again anyone dumb enough to follow his retirement planning advice is probably going to send some gains my way...

Buy high... sell low!

"The restraining order says you're only allowed to touch me in freefall"
=P

[OHCHUTE 0]

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>"The poll, if trusted, shows most people lost money over the long haul in 401 as of this post."



it should be obvious to anyone who can do math that your poll is a novelty.

Why? People either have lost money or made money. What math are you using that other peoples math is a novelty? There have been many votes.
Look up there: you're posts display lack of knowledge. In fact you even bailed from this discussion very early because you said you didn't know enough about the topic. In addition, you back tracked in another thread because you realized what an idiot you were about money and finance.
You are a broker dealer banker and of course you'd recommend buying stocks, even if long haul stock ownership is a failed concept: WHY? because stock brokers get paid no matter if their clients win or lose.

[wmw999 2,589]

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stock brokers get paid no matter if their clients win or lose

Woohoo!!! You said something that's unassailably true!!!

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)

[livendive 8]

Assuming a 27.5% income tax rate, putting $12,000 in a savings account will cost you $15,300 each year regardless of whether the account earns any interest. Without even addressing the annual tax on any earnings, if it earned 0% interest, you'd have "spent" $459k over 30 years compiling an account worth $300k.

Also, most people take a cut in income when they retire, thereby decreasing their tax bracket, thus the taxes paid on 401k withdrawals should always be less than the taxes that would have been paid if they'd not been deposited on a pre-tax bases.

Also, there's a slight incentive to pre-tax your 401k deposits affecting the money you DON'T deposit. If you make $100k/year and deposit $12k/year in a savings account, you're going to pay the $100k rate on all $100k. If, instead, you deposit $12k/year into a 401k, you're going to pay 0% (that year) on $12k and the $88k/year rate on the rest.

Blues,
Dave

"I AM A PROFESSIONAL EXTREME ATHLETE!"
(drink Mountain Dew)

[weekender 0]

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>"The poll, if trusted, shows most people lost money over the long haul in 401 as of this post."



it should be obvious to anyone who can do math that your poll is a novelty.

Why? People either have lost money or made money. What math are you using that other peoples math is a novelty? There have been many votes.
Look up there: you're posts display lack of knowledge. In fact you even bailed from this discussion very early because you said you didn't know enough about the topic. In addition, you back tracked in another thread because you realized what an idiot you were about money and finance.
You are a broker dealer banker and of course you'd recommend buying stocks, even if long haul stock ownership is a failed concept: WHY? because stock brokers get paid no matter if their clients win or lose.

i am not a broker. i have mentioned this many times. you are too clueless on finance to understand what a broker is. also, as you have been told over and over. a 401k is not a stock portfolio. your ability to not understand this is comical.

you have once again bested me. yes, as everyone who can read your threads, i am the idiot, with no knowledge of finance. i stopped posted not because i tired of you, or because i completed my goal of exposing you as clueless. i stopped because you bested me. i am truly ashamed.

I'm done posting again,fyi. my mission here is complete. you can continue to call me names and post all the falsehoods and inaccuracies you like. everyone knows what you are.

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