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Fundamental question: Are 401Ks really safe?

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DaveJ Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-12-08 10:04 PM
Original message
Fundamental question: Are 401Ks really safe?
I don't have an article to cut and paste. Just my instinct. During the late 90's 401ks proved to make great profit, so they got that reputation or 'brand' of being safe, and now most jobs are promoting them as great retirement funds. But I don't get it. I'm putting 6% into a 401K but I think that the powers that be will take advantage of ANY way to rip me off. I mean, retirement funds are not sacrosanct to them -- if anyone can think of a way to steal it, they will. So, does anyone really feel that's a proper investment technique for retirement, and if not what's better?
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Trillo Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-12-08 10:19 PM
Response to Original message
1. I don't mean to be glib,
Edited on Fri Sep-12-08 10:20 PM by SimpleTrend
but IF we could get the federal government to bring inflation to zero, then the safest place would likely be a hole dug in a location only you know.

"I think that the powers that be will take advantage of ANY way to rip me off"

Yep. Sad, isn't it? Just remember, it's not really your money, you're only allowed to borrow it, in exchange for some labor, for a short amount of time. This is directed at the highest levels. Essentially it means your labor isn't really yours. It wouldn't surprise me to find out that when we're born, a certificate for our future labor value is n't sold to investors somewhere.
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SheilaT Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-12-08 10:27 PM
Response to Original message
2. A 401k is as safe as whatever it is
invested in. If you worked for Enron a while back and had all of your 401k in Enron stock you wound up doing very badly. Of course, it's always been a Very Bad Idea to have more than 5% or so of your 401k in your company's stock, although that's advice that is widely ignored.

What it comes down to is that historically, ever since about 1920, the stock market has, when averaged out over the long term, returned about 10% on an annualized basis. The problem with putting money under the mattress or in ordinary savings which is paying, what, 2% these days? is that inflation, even at very low rates, will steadily erode purchasing power. In the long run a diversified portfolio really is your best bet.
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notadmblnd Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-12-08 10:32 PM
Response to Original message
3. I never had mine in the company stock. always contributed cash to a cash account.
when I stopped working for my company, they told me I could leave it with them. But my financial guy told me that if I left it with then they never had to pay me another dime in interest. When I left the company, I rolled it over into an annuity.
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scarletwoman Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-12-08 10:34 PM
Response to Original message
4. I never enrolled in a 401K, because I refuse to give any aid to Wall Street.
I don't believe in getting something for nothing. So when someone tells me that giving them my money will "earn" me more money, it's always sounded like bullshit to me.

They just want my money so that THEY can "earn" more money. They don't give a shit about me.

Capitalism is a con game. Unless you own the capital, you lose. Period.

No war but the Class War.

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A HERETIC I AM Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Sep-12-08 11:21 PM
Response to Original message
5. A 401(K) is simply an account. Most plans have a variety of investment choices.
Your question "Are 401Ks really safe?" really depends on exactly what investment choices you have made.

The account itself is perfectly safe, but if you invested every penny you contribute as well as the company match in a 100% stock fund, your balance has probably gone down over the last 12 months or at least doesn't seem to ever go up even as you put money in it. If you are invested in a Money Market fund or a Stable Value fund and you won't see the balance change nearly as much.

401(K) plans are perfectly suitable investment and savings vehicles for almost everyone. Their biggest advantage over an Individual Retirement Account (IRA) is the larger amount of allowed annual contribution. You can put up to $15,500 this year into a 401(K). The contribution limit for a traditional IRA is $5000 this year. (If you are older than 50, the IRS allows a "catch-up" contribution level of $20,500 for 401(K)'s and $6,000 for IRA's)

The money does not have to be invested in a stock fund. Almost without exception, these plans will offer either a "cash" fund (which might be FDIC Insured and basically places your money in a Bank savings account), a Money Market fund or a Stable Value fund as well as 100% Bond funds and blended funds.

If you have not already gotten access to your 401(K) plan providers website, do it soon. You can find out the needed log-on info from your HR person or if you have your last statement from them you can easily do it yourself. Have your last statement handy when you log on. The web address will most certainly be on there somewhere.

Find the list of funds available in your plan and learn about them. Check where your money is and if you want or need to be more conservative, most of these websites make it very easy for you to change how much is in which fund. is a good source for fairly detailed reports on Mutual Funds and many of these websites use their reports. All you need is the fund name or 5 letter "ticker". Not all funds offered through 401(K) plans are covered by Morningstar but they have reports on the overwhelming majority of them.

You should only be invested in a way that you are comfortable with. But remember, if you have a long time until your retirement, markets like this are when the long term money is made. "Buy low, sell high" is just as true now as it ever was. You are buying a little at a time with every paycheck and in a market environment like this, your average cost per share will tend to be lower.

Seek the advice of a properly licensed Financial Consultant or Advisor. The plan provider has at least one if not several of these individuals that will take your call if you have questions. Someone at your work has their cards.
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stpalmer Donating Member (111 posts) Send PM | Profile | Ignore Sun Sep-14-08 09:26 PM
Response to Reply #5
8. Please answer this, knowledgeable one
My friend will not vote for Barack Obama because she says he vows to tax her parent's IRA, which is their entire retirement fund. They do not receive Soc. Sec. because they owned their own business (and never paid into ss), sold it, put the money in the IRA to last their elder years. She claims Obama's website says he'll tax it if they use it. Is that true?
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A HERETIC I AM Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-14-08 10:07 PM
Response to Reply #8
9. Your friends parents IRA money is already taxed as soon as they pull it out of the account...
but a quick look at Barack does not indicate Obama plans any drastic changes that would affect the current tax situation in an adverse way.

Nothing on the Social Security page that suggests any such thing. Ditto the Fiscal Policy page or the Economy page. In fact, the last page mentions he would eliminate income taxes for seniors making less than $50,000/yr.

Provide Middle Class Americans Tax Relief

Obama will cut income taxes by $1,000 for working families to offset the payroll tax they pay.

* Provide a Tax Cut for Working Families: Obama will restore fairness to the tax code and provide 150 million workers the tax relief they need. Obama will create a new "Making Work Pay" tax credit of up to $500 per person, or $1,000 per working family. The "Making Work Pay" tax credit will completely eliminate income taxes for 10 million Americans.
* Eliminate Income Taxes for Seniors Making Less than $50,000: Barack Obama will eliminate all income taxation of seniors making less than $50,000 per year. This proposal will eliminate income taxes for 7 million seniors and provide these seniors with an average savings of $1,400 each year. Under the Obama plan, 27 million American seniors will also not need to file an income tax return.
* Simplify Tax Filings for Middle Class Americans: Obama will dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes. Obama will ensure that the IRS uses the information it already gets from banks and employers to give taxpayers the option of pre-filled tax forms to verify, sign and return. Experts estimate that the Obama proposal will save Americans up to 200 million total hours of work and aggravation and up to $2 billion in tax preparer fees.

It is presently the case that when someone older than 59 1/2 pulls money out of a Traditional, a SEP or a SIMPLE IRA, the money is treated as regular income and is taxed at their marginal rate. IRA money has yet to be taxed (Roth IRA's on the other hand are funded with money that has already been taxed and comes out tax free). The gains are not taxed in the way they would be if it were in a normal investment account. Whatever money they pull out, they will get a 1099-R showing how much it was. That amount is taxed as ordinary income. If what I read in the snippet above goes into effect and they pull less than fifty grand out a year, they will pay no income tax.

Tell your Friend to read Obama's website.

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sendero Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Sep-13-08 02:41 PM
Response to Original message
6. If you have it in equities..
... like a stock mutual fund , well you could call it "safe" but the downside potential is, right now, much much greater than any uupside.

Lots of stock funds are down 20% + on the year, and the bottom is no where in sight.
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leftofthedial Donating Member (1000+ posts) Send PM | Profile | Ignore Sun Sep-14-08 02:42 PM
Response to Original message
7. NOTHING that depends on capitalism is safe
there is always a predator who is smarter and more ruthless than you.
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