Posted on 02/08/2009 8:12:37 AM PST by rellimpank
Last month, Los Angeles Times columnist Tim Rutten penned a column on the recent tumble of the nation's 401(k) tax-deferred retirement accounts.
(Since October 2007 our 401(k)s have lost a third of their value -- a cumulative $1 trillion.)
"There's been little discussion of the way in which this economic implosion has exposed the utter failure of the now-ubiquitous 401(k) retirement accounts," Mr. Rutten offered. "In fact, the entire 401(k) system looks increasingly like the sort of bait-and-switch con relished by the Bernie Madoffs of the world."
The problem, according to Mr. Rutten, is that "in 1978, when Congress amended the Internal Revenue Code to include Section 401(k), it envisioned the provision mainly as a way for workers to supplement their companies' traditional defined-benefit pension plans and Social Security. ...
"Nobody at the time envisioned the 401(k) as something on which people would rely for their retirement. But in the years that followed, more and more employers began to look for ways to get out of funding the pension and health plans that, up to then, had been regarded as part of the responsible capitalist social contract. ...
"Nobody bothered to ask employees whether they wanted to swap their pensions for choice or ownership, nor did anybody stop to notice that very few people are suited by background, ability or temperament to actively manage investments.
(Excerpt) Read more at lvrj.com ...
—better check with your tax man—
--as the saying goes, life is rough--it's even rougher if you are stupid--
The increase in value of your home for example only existed if you cashed out. The bubble was created by your government.
All of the “on paper” wealth is not all now in someone’s bank account. Some people cashed out and won, others made tremendous amounts of money betting against the bubble.
Wealth evaporated.
www.usretirementrevolution.com
I was asked the same and my answer was.... it went to money heaven.
It was imaginary money, just like Netscape's IPO that started THAT bubble.
It only existed for those people who cashed out, just like the gains on housing prices. If you didn't sell, you didn't get it.
By the time such a book would be written, it will not be allowed to be written if things go the way I think they are headed.
Yeah...self directed IRA all in cash....with an occasional day trade in SDS / SSO based on the S&P 500 going up or down.
Ric Edelman put me into the worst investment (~ 1982) I could have chosen for my first IRA. (full disclosure he did mention it wasn't appropriate for the IRA, but he still took my money). ...Recommendation: 1) stay with Fidelity, put most of your money in a Total Market ETF, and learn to 'play with' a small piece of your account to 'juice' the returns; 2) Read "The Intelligent Investor" by Benjamin Graham; 3) when you get to 'active trader' status if ever, just get Fidelity's ActiveTraderPro (or similar, if you change brokers) stock trading software. Learn discipline early!
Yes - it no longer exists. Actually, it never did. There is no pile of money associated with any investment. There's just a number on paper that shows what that investment would be worth if cashed in at that point in time.
If your 401K account showed a balance or $200,000 on March 3, 2007, and you decided to withdraw the entire amount (ignoring the legalities and penalties that might be associated), you would get a check for $200,000. If that same account had showed a balance of $140,000 on February 3, 2009 and you withdrew the entire amount, you'd only get a check for $140,000.
“Everyone should learn how to manage their 401k account.”
Max cash contributions to a Roth, in an account established as a Roth-IRA with an online broker gives ultimate and complete instantaneous control.....you can trade the stocks/whatever at will, or go to cash, in short do whatever you wish. No tax consequences whatever unless/until you make an actual withdrawal. It is unique in this way because your contributions are all in after-tax earned income.
Yes, that’s me - all cash, self-directed - some assistance from a broker friend - waiting for deals - thinking about buying some Bank of America stock.
Actually, I’m thinking that no one watches mutual funds anyway - but they still get commission, up or down.
Yeah, maybe the macro economists didn’t see it that way, but here on the ground we all saw it as our biggest chance to escape the ponzai SS scheme. IIRC, the mantra now is that SS was never intended to be the only source of income in retirement, but only a supplement. I don’t think most of the early recipients saw it that way, either.
Exactly correct. Since October I've steadied out my 401k and even though I'm not making the double digit returns I made in previous years I'm still on the plus side.
I’m with Vanguard too, for over 15 years. Very good company totally geared to the investor. It’s the “credit union” of mutual fund companies.
I get the feeling (well, more than a feeling) that the days of my parent’s retirement are OVER. Dad has Social Security, a military pension and a Federal civil service pension. Mom has Social Security and a Federal Pension as well. On top of that, their health and drug bennies are nice.
Compared to the peons in the civilian world, we’re really on our own. The 401k was suppose to be a compliment to our Social Security, but that’s gonzo now. Seeing that the economy is in the tubes and sliding towards “euro socialism” the 401k is going to end up as beer money. Life will be regimented on someone elses’ timetable.
Translation, most people (non-government workers) are going to work well into their 70’s. There will be no “retirement” per se, not until your body breaks down and you can’t work anymore. Then it’s a matter of being warehoused in a retirment death camp until you kick it.
SOIL AND GREEN!!!! SOIL AND GREEN!!!!
www.usretirementrevolution.com
You have identified a dirty little secret of 401K plans. Because of the terrible ERISA law, you cannot manage your own 401K assets. The company is forced to provide account management. Most companies charge 0.5% or so for account management. In addition, most companies only provide a very limited menu of investment choices and you are severely restricted about moving money among the choices. The combination of these restrictions is having a devasting impact on 401K assets. Companies are skimming asset charges for services duplicated by the investment companies. Many companies have even stopped matching investments. Now you have the outrageous restrictions and the company is not even providing a match.
If you want to really be outraged, compare the 401K situation to the public sector defined contribution plans (403B, 401A, ...). The public sector is not burdened with ERISA. Thus my employer provides a reasonable choice of investment companies. The contributions (employer, employee) are given to the investment company (Vanguard for me). Vanguard does impose more restrictions on these funds than it does for IRAs but the restrictions are minor. I do not pay account management charges to my employer. Even more, my employer provides a much larger match (10%) than any private employer.
If you want to be even more outraged, consider that a defined contribution plan that I have with an excellent employer contribution, no account charges, and few restrictions on asset choices is not nearly good enough for the typical public employee. The typical public employee demands a defined benefit plan with highly subsidized early retirement, inflation protection, early retiree medical care, and no social security participation. Then they gripe that they do not get Social Security. In some cases, the employer even contributes to an additional defined contribution plan. On top of everything else, the public sector is now demanding an incredible bailout of their outrageous retirement benefits.
Oh bullsh#t. Mama knows best again? Poor little peons can’t handle it? And at least I got to KEEP my 401k money when I switched jobs. Are the people with defined pensions of company after company either in or headed to bankruptcy better off?
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