My son's blue collar workmates are taking what they can from their 401k's today after Bush's speech

[cyberpj]

last night freaked them out (intended purpose) with the "next great depression" phrase.

I know this is how bank runs get started (perhaps also intended by Bush to help his bailout cause) and I have told him to resist doing that since he's young and could only get a 'hardship' loan for up to half anyway but he says that would be better than nothing. I reminded him he'd have to pay back any 'loan' with interest plus pay taxes on what he got but he and his construction buds are feeling like anything they can get now will be better than losing it all.

He counts on me for financial advice and I've done well for him under normal circumstances. This whole situation has my non-economist head spinning and at this point I'm not sure how to sound rational to him next to his frightened buds.

Are people here removing funds? Letting it ride? Moving funds to money market accounts?

Any advice for my son and his boys?

[grannie4peace]

1. here we go.........................

:hide: :hide:

[DS1]

2. They'll be taxed taking it out, and taxed again as income

[Lance_Boyle]

3. DON'T TUTCH THE BUT (or the 401K)

Assuming your son and his friends are > 10 years from retirement, it's by far best to leave the 401Ks alone. Panic is bad, m'kay?

[FSogol]

4. As long as your 401k is diversified and you have over 10 -15 years until retirement, you are fine

leave the money there. Note: If he is in several mutual funds, he is probably fine. The value will take a big hit but will increase at the greater rate when the economy improves.

[Fumesucker]

15. Your advice is predicated on historical data..

We are rapidly getting into the realm of the unprecedented.

Without WWII, the Great Depression may well have lasted considerably longer than it did.

Peak oil alone makes predictions based on past history remarkably unreliable.

[dkf]

5. Why would they take it out when they can move it into money markets?

Maybe they want to take it out and feel like this might be a good excuse?

[cyberpj]

12. We're not talking about guys who even really understand 401Ks - they contibute, like many, because

they have no pension plans (like their dads did) and this is what they've been told to do for retirement money.

Most of them don't even understand the options in the plans and take a best guess at where to put their contributions based on "here's what you should do according to your age" advice from the 401k firm itself.

I believe this is not uncommon among many blue collar (I'm talking construction guys here) workers.

[ogneopasno]

21. They must be non-union.

Most union construction workers have pensions. Good thing they saved on that dues money!

[cyberpj]

27. Yes. Sadly, unions have almost been disappeared around here in the trades.

And in many other places as I understand it.

[ogneopasno]

30. Too bad they didn't organize.

What trade are they in?

[cyberpj]

33. It's a small, family-owned local construction company. Home and industrial buildings.

[Thothmes]

43. Most of those pension funds are heavily invested

in stocks and other types of financial instruments (probably some are those mortgage securities)

[screembloodymurder]

6. I moved money yesterday, ahead of the speech.

Just wanted it closer to home.

[LonelyLRLiberal]

7. A lot of people panic and lock in their losses by withdrawing investment money.

I agree with the others here that a decision needs to be made based on the time left to retirement. These guys need to get independent financial advice before doing anything. So sad.

[CoffeeCat]

8. I've been taking out a few hundred dollars...

...every day. I'm literally going to put it in my mattress.

I think it's important to have some cash on hand.

I suspect that we'll see a lot of bank failures. If anyone actually believes that the
FDIC can cover a rash of bank failures, and that it's a certainty that you can recoup
your money--well, more power to you for being optimistic.

There was all ready talk about the FDIC being stretched, with the few bank closures
that we've all ready experienced.

For me personally, I think it's good to be prepared and have some cash on hand.

[JohnnyBoots]

11. Yep, I have been making deposits in my empty coffee can for about a month now.......nt.

[cyberpj]

14. I'm not talking about withdrawals from bank accounts, this is their 401k with penalties and taxes

for withdrawals.

[rateyes]

9. They do know that doing that gives them an extra 10% tax on the earnings.

don't they?

[Aloha Spirit]

10. Don't let them do it. *

They can stop contributing as much to their 401K's (might make them feel better), but taking money out now is buying high and selling low. Mistake.
Studies show that people who try to actively manage their 401K's on average wind up with 20% or so less in their accounts when they actually retire.
As Suze Orman said, if you need the money in 10 years or more, leave it in the market because the market corrects itself. Sometimes it takes 18 months or more to do so, but it will bounce back.
If on the other hand, you think you will need that money in 5 years or less, it should not be in the stock market.

*This is free advice, and with all free advice, is worth about as much as you paid for it ;-)

[cyberpj]

17. Thanks. I agree. Was just feeling edgy myself and looking for reinforcement.

Oh. And advice advice taken. ;)

[dmallind]

29. This free advice could be worth thousands

And I echo it. Personally I would go much further. Panics are times to BUY, not times to sell. But if fear is at the heart of their decision at least make it come out as smaller payments not withdrawals. Could even reallocate funds. Most big companies have either internal or thrid party resources to help employees with those choices. But to sell now when their average cost was probably higher? Nuts.

One other thing to remember is that most employers match some part of 401K. 3% seems to be norm. So if all you do is paut in 3% and the company matches it, you are guaranteed that the market could drop by HALF before they are actually hurt - and that's not counting tax benefits!

If anybody thinks the DJIA will hit 5400 please contact me about selling me options to buy at that price.

[radfringe]

13. had 2 small 401k's last year

after being laid off, and then totaling my car - I closed them out, both less than $3k

the one I have now, at new job is less than $2k, I'll let it ride, but I won't be increasing my bi-monthly contributions

[AllieB]

16. If he's got 10-15 years or more until retirement

he should leave it in. The government will get you coming and going with taxes. It's not worth it.

[cyberpj]

22. I agree -

just needed some agreement to feel more sure.

My real question then becomes is moving it into money market funds a good idea until things level out or is it better to leave it in good diverse funds and let it shrink and then grow as things change?

[AllieB]

34. I would try to have some cash on hand. We have some in CDs.

Some expire in 6 month, 1 year, etc. They're earning crappy interest right now, but money is safe there. I'm not sure about money markets because some of them got hit in the stock market decline.

[dhpgetsit]

18. Bad idea

I'm not yanking my 401K or my IRA, even though they are patheticly small. I did re-allocate some of the 401K to a much more conservative investment. That was years ago when I sensed trouble ahead. I lost quite a bit in the "dot com bubble" and wanted to guard against that kind of thing.

I say don't panic. The aDults (capital D intended) are going to be in charge soon. We know it's time to invest in people and infrastructure. In a few years it could be a good time for people to be in construction and trades. If they are the type who sit around the swimming pool living on stock dividends, maybe not so good.

[galileoreloaded]

19. smart. I love the people here that say "don't do it".......

must have a lot to lose from people waking up to the fallacious reality of fractional banking and fiat currency. Little tip. take a yahoo chart of the Dow, overlay that against the published inflation rate, and you find that $1000.00 invested 34 YEARS ago has earned 25%. In 34 YEARS. On average, it takes two generations to forget the lessons of the past, and we are two generations away from the Depression. If you act like a sheep, you will be eaten by sheep who have discovered innumerable profit from being a wolf.

[NeedleCast]

20. My advice would be to leave their 401Ks alone

Not to make light of the situation, but for younger people, this could be the best thing that happens to their retirement accounts in their lifetimes assuming the economy recovers (and I believe it will). Stocks will be very cheap for awhile and their investments will buy more shares than it normally would. Assuming things go back up, they'll find themselves in a very happy place.

[cyberpj]

24. Thanks. I also thought leaving it diversified in stocks was better than moving to MMfunds for that

very reason.

[NeedleCast]

36. The best thing to do would be to call the 401K manager and ask them

They're the experts and all. It's not the same as having a stock broker, but my 401K is through Principal and they've always been very helpful when I've had questions. The general rule of thumb though is, the younger you are, the riskier you can be.

I did move a substantial part of my investments to safer waters recently, out of the market and what I left in the market I moved to larger cap stocks. Coca-Cola and companies like that aren't likely to see any big jumps, but at the same time, they're not likely to collapse either.

[galileoreloaded]

23. and not only that....

but exercising the conscious of your convictions is a direct assault to the naysayers vested interest. See, if you withdraw, they lose money in the 401k THEY own, so of course that is "stupid" or "Panic", or my favorite "locking in the loss". Tell you what, before anyone is allowed to answer a post regarding this, we should demand disclosure just like a financial commentator. I will go first. Cash.

[slackmaster]

25. Advice? They're adults, and will have to accept the consequences of their decisions.

Personally I think cashing out of a 401k prematurely would be foolish because of the tax consequences. I do not believe the sky is falling. I doubt the existence of God. I put my pants on both legs at the same time.

He counts on me for financial advice and I've done well for him under normal circumstances.

My advice for YOU as a parent is to allow that dependence to die.

Your son needs to grow up. If all of his good financial decisions are based on your advice, he has no reason to learn to think things through on his own. If you give him advice that turns out to be bad, he will have the luxury of blaming it on you rather than taking responsibility for it on his own.

[cyberpj]

32. I'm educating him in the process not just making his decisions for him. You don't know our

situation and why that is best for us at this time so please withhold judging. I understand your thoughts but there are some special circumstances here that are none of your business.

[slackmaster]

35. OK

I was brought up with a sort of "tough love" model of finance.

My mom has a knack for it. I ask her general questions about processes and such, but she has always flatly refused to give me any kind of specific advice.

Good luck to you and your son.

[RebelOne]

26. I moved an old 401K into my savings.

I was steadily losing money. So, I felt at least it would be safe in savings. Might not be earning much interest, but it wouldn't be declining in value.

[NeedleCast]

37. Unless you're close to retirement

it doesn't really matter if a 401K is losing money over a short period of time (and defining short period of time as 12-18 months). It's also possible you were invested in the wrong areas.

[King Coal]

28. Now is the time to buy, not sell.

[slackmaster]

31. I'm 50 and I agree with King Coal

Unless you are very close to retirement (in which case you should have already moved away from stocks in general), there is no reason not to keep contributing to a 401k. The market will hit bottom at some point, and I want to be buying when that happens.

Doing what everybody else appears to be doing is usually the worst strategy.

[LiberalEsto]

38. Fannie Mae is sending us what's left of my DH's 401K

All that Fannie Mae stock in his 401K is practically worthless -- he worked there for 17 years and took an early buyout last year. I'm sure the IRS will tax the daylights out of whatever Fannie's sending us.

So we might be able to buy a couple of cans of cheap dog food with whatever is left, to save and eat when we retire.

[slackmaster]

39. I learned that lesson the hard way in the S&L crisis

Buying a lot of stock in the company you work for is like putting all your eggs in the same basket.

I worked for an S&L for eight years. In my second year there, the company went public. Being young and inexperienced, I bought lots of company stock.

That stock went from $14 per share to zero in the blink of an eye. I think I lost close to $20 K. One month after that, I was laid off.

The next hard lesson in that regard concerned stock options. That is another story.

[cyberpj]

40. Wow. Hard lessons indeed.

I have a hard lesson stock option story of my own. One reason I decided to read more and learn some fundamentals myself. Now I'm try to teach as I advise so he can move on with some intelligence without me but this constant use of the words crisis and panic and people saying we don't know what will happen either way regarding the bailout makes things a little tougher - well, added to the accumulated knowledge of just what BushCo is capable of when it comes to lieing, cheating and stealing.

Hope things settle - for all of us.

[lunatica]

41. I took out what I needed to get as much out of debt as possible

It was a tough decision because it means my 'nest egg' is smaller, but I realized that with all the credit card payments and the car payment I would never get out of debt and my 'nest egg' would eventually all be spent on my debts anyway.

So I paid off the balance on my car (a 2006 Accord Honda) so that whatever happens I can keep the car and this reduced my monthly debt by the amount of the car payments I was paying. I did the same with my credit cards. So now my monthly debts are reduced considerably and my future isn't locked into paying off the debts till I die.

I will have to pay taxes on what I took out of my 401k (I'm 60 years old so I didn't have to pay a 10% penalty) but when I weigh that against having to make endless payments on the car and the credit cards it's cheaper to pay. Once I got over the fear of using the 401k it made sense, and I don't stay up nights in deep worry and fear about what's going to happen.

I also have a job which I believe won't go away in administration in the University of California and I'm still accruing retirement benefits with it. I probably won't be able to retire, but I think most of us won't either because we're all in this mess. At least I still have the 401k so I feel lucky.

I also did this because if I use the money now it's worth something because it could easily become worthless or simply drop in value so much that I wouldn't be able to use it. I've been doing this for a year because I listened and watched. But I think the money I have left in the 401k is like seed money. When the economy starts to grow again (maybe years away) it will also grow. The hard times will pass and that must be kept in mind.

edited to add the last paragraph

[tammywammy]

42. If he has over 10 years left to retirement, he should leave his 401k alone

I'm young and I'm not messing with what I have in, but then again I have 30+ years until retirement.

[greguganus]

44. I agree with most everyone else on here. If you got 10+ years to retire, ride it out. n/t