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Old 10-14-2012, 04:06 PM   #21
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...To answer your question, I like the idea of a compulsory contribution to more rigid 410k plans, with restricted and much safer options than equities. My view only, and I know many here will disagree with me.
I kinda agree, but not exactly with 'safer options than equities'.

I think there could be some sort of basic defaults, like a 60-40 AA on a broad index of equities and fixed, or some kind of 'target fund'. If you want to go beyond that, you need to take a little test or something to acknowledge that you understand the volatility you could face, and how that relates to age.

It could work both ways - choosing a low % of equities is very risky, as we've pointed out with FIRECALC runs. You should have to prove that you understand that your returns might barely keep up with inflation.

But we shouldn't take options away from people who understand how to use the tools, just because some people might misuse those tools.

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Old 10-14-2012, 04:50 PM   #22
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I guess it boils down to the philosophical question of how much freedom we should allow the individual to have.

Do we trust them to buy only enough houses and cars that they can truly afford, eating the right food, not engaging in leisure pursuits where they can get hurt such as bike riding, skydiving, mountain climbing, driving powerful or fast cars, etc...? Quitting a safe job with a megacorp to pursue an entrepreneurial dream? Or even ER? Move to a remote valley in Colorado to be a hermit? These are all endeavors with financial risk, and often also worse risk of loss of limb or life.
I'm not feeling too smart right now. I've got all this money in a 401k and I'm ready to start spending it and ORP says I'll have to give 25% of it to Uncle Sam over the course of the next 15 years. That is unless taxes go up. Then it really gets ugly. So I'm really scratching my head about all the wisdom I heard over the last 20 years about saving in a tax-free account being the best idea. Of course, life might be rather short for a Hermit...
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Old 10-14-2012, 06:48 PM   #23
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I'm not feeling too smart right now. I've got all this money in a 401k and I'm ready to start spending it and ORP says I'll have to give 25% of it to Uncle Sam over the course of the next 15 years...
25%? I will need to sit down to figure out the tax that I myself will have to pay, but I thought it should be a lot less. Anyway, I did not pay taxes on that money when I saved it, so if I have to pay now I still consider it fair.

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Of course, life might be rather short for a Hermit...
I did not personally think that would be the case, but was just grappling for another example that some people might say about an unconventional way of living. If anything, living in a remote place outside of the city may be a lot better for an introvert's physical and mental health, in my view.

By the way, how will you have internet access? By HughesNet satellite, I suppose.
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Old 10-14-2012, 07:13 PM   #24
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The 401k has been by far the best financial windfall I've had over the years. I'd rather mange my withdrawals and taxes than have big brother dole me out a set amount each month cola'd or not.
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Old 10-14-2012, 08:03 PM   #25
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A bit dated (2009), but some median numbers on net worth, just to keep a perspective.

The Average Net Worth of Americans: Where Do You Stand? | Money Relationship (by age)
Over 65 is $232,000 including house.

Also... Family median income 2011 $51,000
and... Personal median income $26,000

401K... by age (2009)http://suite101.com/article/average-...-group-a332909
Numbers may vary depending on source... Good luck finding these numbers from BLS.
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Old 10-14-2012, 08:12 PM   #26
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It has been my misfortune to work for companies with low/no match and generally expensive fund choices in their 401k. Still, the limits being higher than IRAs and the ability to rollover to an IRA when you change employers have made 401k an excellent finance tool for me. So called "reforms" that improve fund choices (make TSP available to everyone), raise limits, encourage more matching, improve portability by allowing in service rollovers, could make it even better. But there's no one proposing any of those. Instead they are proposing mandatory enrollments at very low contribution levels, additional involvement of "professionals" who are frankly mostly salespeople (not planners) and who would be compensated in higher fees, restricted investment options possibly run by a quasi-government panel, greater restrictions on portability and rollovers, and mandatory annuitization. The more radical reformers are proposing existing 401k, IRA, 403b all get sucked into the new schemes.

I get that they are working the least common denominator and trying to make a plan that helps people who otherwise sometimes do a terrible job of helping themselves, but I hope they don't end up doing so in a way that hurts those of us who were doing a fine job of taking care of ourselves already.
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Old 10-14-2012, 08:41 PM   #27
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By the way, how will you have internet access? By HughesNet satellite, I suppose.
New satellite this year. Was called WildBllue, now Exede. 12MB down, 3MB up. That ain't bad up in the mountains.
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Old 10-14-2012, 08:49 PM   #28
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Interesting article in the NYT : ...
As is typical, short on real information. But...

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JOHN GREENE worked for 30 years at an Oscar Mayer plant in Madison, Wis., deboning hams and loading boxes of hot dogs. His 401(k) plan grew to $60,000, and soon after retiring he began withdrawing $3,600 a year from it, money that allowed him and his wife to take what he called a wondrous two-week trip to Scotland, his ancestral homeland. ....

For Mr. Greene, 77, the money he withdrew each year provided him and his wife some breathing room — and comforts — on top of the $29,000 they receive annually in Social Security and pension payments.

But though it has rebounded a little, his nest egg has declined so much that he withdraws far less than he used to. The result: “We can’t do trips like Scotland anymore,” he said.
So a guy worked for 30 years at what qualifies as a near minimum wage job. Should he really expect to be able to take multiple 'wondrous two-week trips to Scotland' in retirement? Should we feel sorry for him that he can't? Maybe if you never got beyond loading hot dogs in boxes, $29,000 is about all you should expect.

And if that $60,000 IRA was critical to him, he should have figured out how to avoid a 70% drop. It would take work to lose that much. The vanguard target fund dropped 12%, and is up 60% from 2003.

I can't imagine what he was in that dropped 70%, now THAT would be helpful info - maybe others could learn from it. And as I said earlier, you should need to pass a test to invest in anything beyond the basics. But instead, we get, well...., I don't know what they are trying to say.

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Old 10-14-2012, 09:14 PM   #29
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The 401k has been by far the best financial windfall I've had over the years. I'd rather mange my withdrawals and taxes than have big brother dole me out a set amount each month cola'd or not.
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It has been my misfortune to work for companies with low/no match and generally expensive fund choices in their 401k. Still, the limits being higher than IRAs and the ability to rollover to an IRA when you change employers have made 401k an excellent finance tool for me. So called "reforms" that improve fund choices (make TSP available to everyone), raise limits, encourage more matching, improve portability by allowing in service rollovers, could make it even better. But there's no one proposing any of those. Instead they are proposing mandatory enrollments at very low contribution levels, additional involvement of "professionals" who are frankly mostly salespeople (not planners) and who would be compensated in higher fees, restricted investment options possibly run by a quasi-government panel, greater restrictions on portability and rollovers, and mandatory annuitization. The more radical reformers are proposing existing 401k, IRA, 403b all get sucked into the new schemes.

I get that they are working the least common denominator and trying to make a plan that helps people who otherwise sometimes do a terrible job of helping themselves, but I hope they don't end up doing so in a way that hurts those of us who were doing a fine job of taking care of ourselves already.
Our 401k has also been very beneficial for us for two reasons. First, we have contributed the max 15% for years. Second, we always contributed at least enough to get all the employer match, which is very generous ($ for $ for the 1st 5% plus 2-5% profit sharing annually).
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Old 10-15-2012, 02:49 AM   #30
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As is typical, short on real information. But...



So a guy worked for 30 years at what qualifies as a near minimum wage job. Should he really expect to be able to take multiple 'wondrous two-week trips to Scotland' in retirement? Should we feel sorry for him that he can't? Maybe if you never got beyond loading hot dogs in boxes, $29,000 is about all you should expect.

And if that $60,000 IRA was critical to him, he should have figured out how to avoid a 70% drop. It would take work to lose that much. The vanguard target fund dropped 12%, and is up 60% from 2003.

I can't imagine what he was in that dropped 70%, now THAT would be helpful info - maybe others could learn from it. And as I said earlier, you should need to pass a test to invest in anything beyond the basics. But instead, we get, well...., I don't know what they are trying to say.

-ERD50
His pension has to be at least decent to end up with 29,000 per year with social security. The way I read the story he had 29,000 +6% of 60K= 32,600 after the 70% drop (how much was that because he withdrew more the trip?) he now has 29,600 + 6%*30% * 60K= $30,080 in income. So his income dropped by <8%, too bad but hardly earth shattering news and not much more than that average loss income for American families since the 2008.
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Old 10-15-2012, 05:18 AM   #31
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Read the article, and I think the gist was that he had a job which was below average. His grasp of investing seems to be poor. There's no description of the plan, but probably not lower costs. Rules have been changed for 401(k) reporting, and hopefully the next generation will have better guidance as a result.
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Old 10-15-2012, 06:04 AM   #32
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The biggest problem I see with 401Ks is usually not the plan itself or limited choices of investments but the unwillingness on the part of the participants to make an effort to understand investing.

The best plan in the world won't do much good if all the eggs are in one basket or locked up in some type of guaranteed savings paying 1%.

There should be some type of financial literacy course to educate plan participants about the fundamentals of investing, growth and diversification.
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Old 10-15-2012, 06:45 AM   #33
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If my math is right, 70% loss would leave him with $18,000 which is what he said he had at the low point after his trip to Scotland. I think he is including is withdrawls in his losses. If he continued to withdraw for a couple of years after the market declined, I am sure his resources would be limited. The article didn't really say what his current value was.
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Old 10-15-2012, 06:45 AM   #34
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The 401K and IRAs didn't fail. Where failure occurred, it was due to the participants.
Yes that's the problem with them. To ignore the participant or justify the failure of the 401k because of the savers stupidity or bad luck is just sticking one's head in the sand. Laissez faire won't help people to better plan for retirement.
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Old 10-15-2012, 06:50 AM   #35
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But we shouldn't take options away from people who understand how to use the tools, just because some people might misuse those tools.

-ERD50
I can see your point, but as the government give you the tax deferral I see no problem, in principle, in them putting rules and restrictions on the investments available in those tax deferred accounts. The big problem is deciding what those restrictions should be.
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Old 10-15-2012, 08:37 AM   #36
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Sorry for a short post, as I am volunteering at a free clinic today. To answer your question, I like the idea of a compulsory contribution to more rigid 410k plans, with restricted and much safer options than equities. My view only, and I know many here will disagree with me.
It's your business if you don't want to buy equities, but wanting to impose that on everyone else is absurd, and laughable a post or two after calling yourself libertarian inclined.

If there were to be any restrictions, I could see it done with Target retirement funds, where you are required to hold an increasing amount of bonds or cash equivalents as you get older.
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Old 10-15-2012, 08:53 AM   #37
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I can see your point, but as the government give you the tax deferral I see no problem, in principle, in them putting rules and restrictions on the investments available in those tax deferred accounts. The big problem is deciding what those restrictions should be.
Rules and restrictions are fine - I'm in favor of them (to a point). As I said earlier, some kind of low cost, index-based target fund should be the default. And that definitely does not exclude or greatly limit equities (which is what I think the OP is suggesting). Greatly restricting equities would be a travesty, that's where your long term growth comes from.

And if you can 'prove' you know a bit about investing, you should be allowed to branch out from there. But I really can't see anything wrong with a target fund - what reason would anyone have for straying from that? It would seem to be speculation at that point, not sure that is appropriate for a retirement account for more than maybe a very small minority. I pretty much kept my 401K in a 'balanced fund', and I think that was 50-50. I would have been better off with a target fund, those are weighted have to equities at that age, and I would have done even better in the 90's bull.

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Old 10-15-2012, 09:01 AM   #38
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Suppose we restrict investment choices in retirement funds to protect citizens. What about protecting them from foolish spending in the withdrawal phase?

Shouldn't we require the man in the article to justify his "wondrous vacation trip" before a committee? What if retirees go on a splurge and squander all their savings? An old man may take it all to spend on his newly found mistress, a new sport car? These tragedies do happen, and I can tell you about some stories that the press has not discovered yet.

The administrative cost of the overseeing committee can be levied as a fee on everybody's account. It is a small price to pay for everybody's protection, heh heh heh...
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Old 10-15-2012, 09:06 AM   #39
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I don't believe that we should protect people from own foolishness.
Everyone can't retire. I need people to provide goods and services for me.
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Old 10-15-2012, 09:09 AM   #40
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The problem here is that it's easy to say it's people's own fault for having little to nothing in a 401K, and perhaps sometimes -- even *usually* it is. But in reality, is it good public policy to allow them to fail and force people to work until the day they die? We just don't have enough jobs to accommodate a lot more people working until the day they die. (This is the same problem with raising the SS and Medicare eligibility age. We already don't have enough jobs for people UNDER 65-67, and we want to add more people to the pool of job seekers?)

When folks can retire, it eases the unemployment and underemployment problems, so perhaps pursuing Social Darwinist policies on retirement aren't necessarily the way to go given what it does to the employment and wage picture. (Indeed, this was one of the goals of SS -- to reduce the demand for employment by allowing those under 65+ to get out of the workforce.) Any analysis of the "public costs" of retirement security should account for reduced unemployment benefits and perhaps a tax boost from higher wages as reducing "demand" for jobs could help wages. I'm certainly not siding with Ms. Ghilarducci and her types here, but I also don't think "too bad, let 'em all work until they drop dead" is a productive socioeconomic policy, either. It may feel like a victory for the hard-core "self reliance crowd" (for lack of a better term), but its far-reaching social and economic impacts might make it a Pyrrhic victory.
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