Posted on 08/04/2005 11:06:30 AM PDT by Graybeard58
The rancor over the coming insolvency of Social Security portends a future in which the secure will be those who exercised personal responsibility in saving for retirement.
So it's disheartening to read that 45 percent of employees who change jobs cash out their 401(k)s, despite having to forfeit 30 percent to the government for taxes and penalties. Among them are more than three in 10 workers in their 50s who unless they plan on working into their 70s will need all the money they can put their hands on to supplement their meager Social Security pensions.
This is a poor strategy even for younger workers. If a 25-year-old with $2,000 in a 401(k) would leave the money alone, he reasonably could expect to have nearly $50,000 when he turns 65, thanks to the miracle of compound interest.
Three-quarters of job-changers with 401(k) balances of $10,000 or less also take the cash. However, $10,000 would grow tax deferred to $22,000 in 10 years, $49,200 in 20, and $109,300 in 30, presuming an easily attainable 8 percent annual return. That would be in addition to whatever Social Security benefit they might get, plus 401(k) payouts from their other jobs.
Unfortunately, too many Americans still operate under the reckless assumption that government will take care of them in their old age. The best they can expect, however, is for the government to hand them a paltry Social Security check every month and say, "Take care!"
The trouble with freedom is, that the idiots are entitled to exercise it no questions asked. And they permanently remember that the right to send us the bill for the consequences, never goes away.
Those tapping into their 401k may have already decided that when Socialistic Security really starts to go bankrupt, the Govt. will confiscate all those funds anyway to try to "balance" their ponzi scheme.
As long as they don't find a way to tax it. I've been deducting 8% for the last 14 years, and I think 401K is a total godsend.
That's about how long I did it. I rode the tech stock boom of the 90s and retired in Dec '99 and put my money in safer stocks just before the bust.
I had no great insights that made me avoid the bust, I was just following conventional wisdom that you get more conservative with investments when you retire. Keep up your investment strategy, you will never regret it.
I lost a small fortune a couple years ago investing in single stocks. 401K means that at least I didn't lose my retirement.
I do wonder if when I start drawing from my 401K if the tax rate will be 70% or something like that to support SS.
My advice to a young person is have a 401K AND a Roth IRA. Whatever the SOB are taxing at, your Roth will be yours.
>>>>As long as they don't find a way to tax it. I've been deducting 8% for the last 14 years, and I think 401K is a total godsend.
They tax it when you pull the money out. 401K and IRA are only a tax deferral thing. That compares to the Roth IRA, in which you pay taxes now before you put the money in, but won't pay them when you withdraw it.
patent
If I got compound interest in my 401k, I'd be retiring early.
My advice to a young person is to have no faith in the tax shelter that the Roth IRA provides. This is why I refused to roll my traditional IRA into a Roth IRA back when the Roth was first introduced and people were given the option of paying the tax on the IRA and rolling it over. There is absolutely nothing that prevents Congress from coming back in 20 years and deciding to that the "tax exempt" Roth IRA should be taxable.
I explained this to the broker who manages my company's 401(k) plan, and after giving it some thought he agreed with me. After that, he began advising his clients NOT to roll over their traditional IRAs into Roth IRAs.
When I was out of work in 91 I cashed out my 401K.
Back to normal now.
>>>> There is absolutely nothing that prevents Congress from coming back in 20 years and deciding to that the "tax exempt" Roth IRA should be taxable.
The only thing preventing it would be the potential political backlash. If 60% of the voters have Roths, it will become more entrenched than social security. If 1% of the voters have Roths, kiss them goodbye.
patent
Meanwhile, your apparent paranoia is keeping you from the benefits, if there are any in your particular situation. There may not be.
It irks me when reporters refer to this as a "miracle". It's just math!
Congress could just as easily make all of your deductible IRA expenses invalid retroactively, and make you pay tax on that income.
Or, aliens could invade and vaporize all of our financial records.
Anything is possible, but the Roth IRA has enormous advantages and not including it in a retirement portfolio is unwise.
The taxes on the money have already been paid. You're saying that the gov could come back and say the money will be taxed twice. While they generally do whatever they please, I doubt this would happen. Too brazen.
Anyway, no drug, not even alcohol, causes the fundamental ills of society. If we're looking for the source of our troubles, we shouldn't test people for drugs, we should test them for stupidity, ignorance, greed and love of power.
P. J. O'Rourke
Anyone recall that kookie "advisor" Clinton had early in his regime? They floated the idea of a "one time" 25% levy on the principal of privately held retirement funds as a way of balancing the budget and "paying down" the national debt. When I saw that I was incredulous. No enemy could destroy our nation so effectively.
Think about it: the government makes an "assessment" of the value of your retirement fund, say at $100,000. And perhaps it is the fair market value at the time. They say "pony up $25,000." OK, you don't want to sell off 25% of your stocks, but if you are told to do so....
But wait...EVERYONE ELSE HAS TO DO THE SAME THING!!! Go ask your stockbroker or fund manager what that does to the market when everyone shows up to sell and no one is there to buy. You got it; MAJOR crash.
Your 25% isn't selling for $25,000; it's selling for maybe $5,000. Meanwhile, you still owe the government $20,000 because that's what they assessed your portfolio at. And the rest of your retirement fund is worthless, while our economy is in the toilet.
Trust me; when the dems get back in power, and SS hits the wall, that's what they will do. They've floated it before and they will float it again.
The whole scheme is based on getting a reasonable rate of return. Mutual funds by and large have been terrible re. rate of returns. There is no guarantee that you will get 8 or 10 or even 5 % interest on your money. I have an IRA that has the same amount that I invested over 10 years ago. Who has the time or know how to track the market - these funds are supceptable to crashing at anytime.
Good point. Unfortunately almost every politician that sees a large pile of money, starts dreaming of ways to take that money and spend it as they want to.
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