Retirement, 401Ks and the Stock Market

[Phoebe Loosinhouse]

Americans are forced into the stock market, whether they want to be there or not, by virtue of the extremely limited choices that are offered in most 401K plans. Do you want this mutual fund or that mutual fund?

I have decided for myself that I simply cannot put any more money in the Ponzi scheme we call the stock market where my investments are siphoned off and looted by an upper executive tier instead of being returned to me as dividends or re-invested back into the company in R&D for long-term growth and prosperity.

But, why do most 401Ks not offer ANY option except possibly for one low yielding crappy Money Market for people who have decided to eschew stocks and mutual funds? Why aren't there cash options like CDs or even government savings bonds? I have seen study after study showing that money invested in an S&P index fund went up and down and up and down, but remained essentially a flat line when all is said and done and a person would have made more from a passbook savings account over the same period of years.

Remember how Bush wanted to privatize Social Security? In essence they have already by forcing Americans to invest in the markets through their 401Ks whether they want to or not. The lure is the "match". People are told they are morons if they don't go into the 401K and get the "free money" that is the match.

We Americans have willingly turned over a gazillion dollars to the robber barons and looters who have an insatiable lust for our hard earned dollars. I am calling for new regulations to require viable cash, liquid options for people who want to take advantage of automatic savings and the match, but don't want to be forced into subsidizing what should be labeled a criminal conspiracy.

[customerserviceguy]

1. My employer uses Fidelity

which has a money market fund. No, I'm not making a lot of money in interest, but at least the stuff they take out of my check is safe. You can think of the employer match as the "return" on your investment, and even if it's only a 50% match, well, where are you gonna get a safe 50% return on any investment?

I used to be in the bond fund, but I was losing some value there, so I just said, screw it. There might be a time to get back in the stock market, but I sure don't see what that's going to be. Once we get a sustainable economy that has most of today's corruption rooted out of it, there might be some good places to invest money, but who knows when that is going to happen?

[Phoebe Loosinhouse]

4. I agree that the match is the allure

and I said that.

You are probably in a very tiny minority in your company for having all your contributions in the Money Market. But don't you think you should have other options that are still safe, but pay a better return than the Money market? Couldn't plain old vanilla savings accounts or government savings bonds be linked to a 401K?

[customerserviceguy]

13. Money market funds

are the only safe alternative. Savings accounts would go into institutions that would be vulnerable to a systemwide failure of the FDIC. Savings bonds sound attractive, but the typical person holds them to maturity. The Fidelity bond fund I had my 401K in was required to use accounting that reflected a fluctuating value of the underlying bonds every time interest rates went up or down, or some other events affected the market value of the bonds.

Money market funds invest in extremely short term investments. If an entity that writes the paper for those investments starts to fall off a cliff, the MMF's will know that fairly quickly, and not buy paper from such an entity. That's how they keep safety of principal.

There are not many things for very large retirement funds to invest in that are extremely safe. Most things that you and I are familiar with are only practical for individuals with more limited funds. That includes money under the mattress, you couldn't expect Fidelity to do that!

[Demobrat]

6. This is how I think about it too.

The company match is enough of a return for me. Watching my co-workers walk around with long faces has only confirmed that small returns are better than huge losses.

[Phoebe Loosinhouse]

8. It also depends WHAT the match is exactly.

Is it in company stock? Is that a good thing or a bad thing? Good in the sense that I believe in employee ownership and participation in their own company, but it can also be a very bad thing - see Enron.

I think that if the match is in company stock, there should be some way to convert it out of there at some point if that is your desire. In my latest 401K the match is in company stock, but it is walled off from any changes and re-distribution I might want to make, even the fully vested amount. The only way I can get this money out of company stock is if I leave the company and liquidate the 401K and roll it into an IRA.

[dems_rightnow]

12. There is a way out of company stock

The Pension Protection Act of 2006 made it mandatory to allow employees to disgorge themselves of company stock after 3 years of service. (Public companies only- there's no real market for non-public stocks)

[Phoebe Loosinhouse]

14. That is a really good fact to know - thanks! nt

[supernova]

2. I think a bigger problem

is that 401Ks and things like it are meant for a different job market than we have now.

Typically, whether its an old fashioned pension (very rare these days) or a 401K, you have to wait a certain number of years be fully vested, that's anywhere from five to ten *years*. Who the hell stays at a job that long anymore? I've been laid off three times in the last nine years. And these are supposed to be my prime earning years (I'm in my mid 40s). So I haven't had the luxury of even thinking about enrolling in these things.

[customerserviceguy]

15. 401K's are exactly what are needed for today's job market

Yes, it would be really nice if there were defined benefit pension plans, but those have almost disappeared. Being able to get the possibility of even a partial match from your employer (if you stay long enough) means that you stand the chance of getting SOMETHING from that employer to put towards your retirement.

Being able to have the deferral (or elimination) of income taxes is another worthwhile thing. I intend to retire in an income tax free state, that might be Florida (my lady has a condo there) or maybe I'll domicile myself back in Washington State, where I lived for thirty-seven years. The 6-7% that I save by not having NY state income taxes taken out of my 401K contributions becomes a "return" on the investment, as well. These are my higher earning years, if I compare them to my retirement years. My standard deduction might shield a greater 'proportion' of my taxable income in those years than it does now.

You've GOT to start getting into these things as soon as possible. Nobody's going to look out for you as well as you will. Even if you come on some very hard times in the future, having something set aside that you can turn to in an emergency will be good. I had a rollover IRA from a 401K that I had set up in the late 1990's. It was considerably diminished in value by the 2000-2002 stock market difficulties (thanks, ex-wife #2, who was my stockbroker!) but when I really needed it after losing a job in mid-2005, it was good to have it there. The few thousand dollars was able to tide me over until I could get another job, as my unemployment benefits were only about $125 a week.

[supernova]

22. Where did I say

that I didn't have any investments?

I didn't.

I fact, I do. Except that they are my personal investments, not company provided. In fact, they have saved my bacon on multiple occasions. And they are the reason I can now contemplate opening my own business rather than relying on an employer.

Like I said earlier, I haven't been at a place long enough to think about signing up for those in about 10 years.

"but when I really needed it after losing a job in mid-2005, it was good to have it there. The few thousand dollars was able to tide me over until I could get another job, "

Sorry for your job loss. Here's the thing. Pensions, IRAs, 401Ks, whatever you want to call them, aren't meant to "tide us over" in our working years. They are meant for RETIREMENT, IOW you aren't supposed to have to touch them until you retire. Having to use these funds during your working years is, as the rural expression goes, eating your seed corn. It's a stop gap measure, nothing more.

[customerserviceguy]

24. Sorry, I guess I implied that

incorrectly. I've just met quite a few folks who did as I did for many years, and just said, "screw it, I really don't have time for this stuff."

Glad to hear that you've been taking care of yourself. I didn't like eating my "seed corn" but when you're starving, that's what you do.

[REACTIVATED IN CT]

40. Vesting for 401(k) changed recently to maximum of 3 years

That may have been part of Pension Protection Act

[Demobrat]

3. I have absolutely no trust in mutual funds

or mutual fund companies. I fully expect that there will be a huge "mutual fund scandal" sooner or later where we find out that the money isn't really there after all. My IRAs are in CDs (bought through Fidelity) and my 401k is in a crappy fixed income fund. Any financial advisor alive would be appalled, and treat me to a stern lecture about how my earnings won't keep up with inflation, bla bla bla. But at least I have some hope that at least part of it will be there when I need it. I do have a few individual stocks, but I consider that gambling, not investing, and don't count on

[yellerpup]

5. I couldn't agree more.

Before 9/11 mr. pup was laid off from his nice dot com job. After 9/11 our life savings lost 80% in the stock market and we spent the remaining 25% to live on for the next six months until he got another job. The mutual fund that I paid $24/share in 1999 TODAY is worth under $12. Our CD only gets 2% interest, forget the money market account returns. We have been forced into the stock market (except for those few of us who refuse to go -- and I do have some in the market, but individual stocks that I manage myself) because no one wants to pay interest on savings. Yes, they are looting the market and the banks before this administration leaves office. They have been looting billions through the shell company called the Iraq War, set up specifically for the purpose of destroying the infrastructure of the USA. Nobody does a damn thing in this cartel of an administration without making sure their buddies are all lined up to make a killing. Remember when other European countries wanted to get involved in rebuilding Iraq after "Mission Accomplished" and the perverse glee that the administration exhibited when saying, "No thanks!" They didn't want to cut anyone else in. K&R! :dem:

[Phoebe Loosinhouse]

7. You mutual fund proves my point.

You paid $24 in 1999 and it's worth $12 today. The 2% interest on the CD has done MUCH better - at least you had gains and not a 50% loss.

I also think that keeping interest rates so artificially low for so long was another technique for FORCING Americans into the stock markets whether they really wanted to be there or not. If that charlatan Greenspan and slowly increased rates over a long span, we would have never had the real estate bubble and people would have been encouraged to save.

[yellerpup]

11. And if we had saved instead of placed bets in the market

we'd still have our money today. We did not become an 'ownership society' under Bushco, we became a 'casino society'.

[TahitiNut]

9. When more money chases fewer stocks, prices rise and values fall.

"Investing" in the stock market ... less than 1% actually reaches the business entity to pay employees or buy property, plant, and equipment. It goes to take a failing stock off the books of a fat cat, give the fat cat a gain and give the pensioner a loss. Fat cats use insider information, including the manipulation of corporate transactions to facilitate pump'n'dump and ISO cash-ins.

Attraction of 401K: Deductions are PRE-tax (income AND FICA) and often matched at 50% by employer. That's leverage.

Investing in bonds: More goes directly to enterprise and less to the "secondary" market (casino). Bonds are not endless enslavement/ownership - they match specific, term-limited projects. Can be more easily targeted to political preferences .. such as 'green' projects or social bootstraps.

[Phoebe Loosinhouse]

10. Total agreement but

you have to look at the bonds and bond funds very carefully. I used to consider them a lot safer, but I'm wondering if there won't be a lot of bond defaults in a next wave of horror. Specifically I am wondering how cities and towns will honor their municple bonds if the rug is pulled out from under them due to real estate foreclosures and loss of tax revenues.

[customerserviceguy]

17. Agreed

most muni bond-issuing entities are in the middle of enormous budget crises right now, and we haven't even seen the worst of it for them.

Some bonds are backed up by earmarked revenue streams, such as a toll bridge would be, but if more folks either take mass transit (or don't drive to work because of telecommuting or job loss) then those revenue streams run the risk of dropping off.

Safety of principal is going to be the most sought-after thing in investing in the next several years, when that much money is chasing so very few safe havens, you have to figure that the investment returns are going to be microscopic.

[exboyfil]

16. Alternatives to stocks in 401(k)s

I recently took all of my roll over money from a previous employer out of my current employer's 401(k) and put it into an IRA (I wish I had done this from the beginning). I then had access to direct securities. I put 40% of my retirement savings into Treasury Inflation Protected Securities with at least a 3% real rate of return (up to 3.25% if we have any sort of inflation). 401(k) Mutual funds have no option like this one. The closest thing are the inflation protected bond funds offered by Fidelity and Vanguard, but I do not like bond funds. Also these funds are not usually offered at the basic 401(k) level (you have to get into Fidelity's BrokerageLink for example to access their bond fund).

Remember that everything has a risk return associated with it. There is no free lunch. I would strongly recommend, given U.S. monetary policy, to get into something with some level of inflation protection. Congress, the Fed, and Treasury have screwed up the capital markets big time, and I do not believe we will see 6-7% real rates of return in the stock market in the future.

Remember defined benefit company pension funds are merely a reflection of the stock and bond markets. They cannot do any better in securing your retirement than you can on your own. They are not a big brother with future knowledge. Over time most companies are going to move to defined contribution plans and this is for the best. Otherwise, future companies will be saddled with the mistakes of the past (ie GM for example). I don't know about you, but I would prefer to have an account with my name on it with assets in it that I understand than some future promise from a company that may no longer be in existence or an underfunded pension trust fund that took a bath in the capital markets.

Social Security is the greatest Ponzi scheme. Since everything in the federal budget is spent which comes in (and them some), the SS trust fund is a joke until we get a handle on Federal spending. What I predict for Social Security is as follows:

1. Increasing the level to no cap max (possibly a notch between approx. $100K to $250K).
2. Increase retirement age for full benefits from 67 to 70 or beyond
3. Needs test benefits (already happening in part with the tax code on SS benefits)

SS, which was supposed to be retirement savings for everyone and was sold under that basis, will continue to morph into more of a wealth transfer program.

[customerserviceguy]

19. Numbers 1 and 3 are impossible to implement together

If you increase wage caps, then means test, you're telling the very best paid Americans: 1)We want more money from YOU to shore up your Social Security system, and 2)You won't ever get anything for it.

It will be politically undoable. A far better solution would be to figure out how to remove the non-retirement elements of Social Security over to the general fund. I believe in our society taking care of the folks that currently get Social Security Disability, but why should they be taken care of strictly by taxes on people who work, and people who pay people to work? Why shouldn't disability come out of other sources of income, such as interest, dividends, capital gains, rental profits, royalties, gambling winnings, etc.?

Under current law, the more your wage base is for Social Security, the more your benefit will be. I say, leave that intact, but add a graduated scale to Social Security taxes on the individual only. The first $10,000 or 20,000 could be taxed at the current rate, then we could add a quarter of a percent for every $10K above that. If you do it ONLY on the employee share, than you do not disincentivize employers to pay higher salaries.

Further, while #2 sounds like a good idea, I'd come up with a way to exempt some folks from that. It really is a lot easier for a person to spend from age 67 to 70 sitting at a desk, than doing backbreaking work as a food server or factory worker.

[exboyfil]

32. Increase caps and needs testing

I agree with the political issues with raising the contributions to a no cap max, but President elect Obama was elected on this premise, and I think we should take him at his word. The question is, when will, or if, Atlas Shrugs?

Needs testing will continue even if nothing is done because of the current tax code (1/2 of social security taxed after a certain income).

I prefer simplicity as much as possible. Your suggestion about graduated scales over certain income limits will need to consider the issue with multiple employers, self employment etc. It is already pretty complicated and will get worse the more it is tinkered with. Obama's plan will also introduce a lot of complexity.

I agree that it is hard to ask a 67 year old to continue to work in a factory setting. Maybe the whole system needs to be revamped?

[customerserviceguy]

39. You've hit on it

Atlas Shrugged. If we try too hard to tax the best-paid earners the most for Social Security, then means test it to the point that they will get practically nothing from it, they will find a way to simply hide from it. If that means shutting down productive activity until they can get a more favorable government, then they have the means to do it.

True, having multiple employers would complicate things. But that already happens with income tax withholding. If I work for one employer for $20K a year, part time, and work for a second employer part time for an additional $20K, each employer will take out tax as though I am only in the tax bracket for $20K earners, even though I'm really in the tax bracket for a $40K earner. I have to have more taxes taken out of the second employer to make up the difference.

That could be done for this as well, when I go to calculate my taxes, the part that is over the lowest "bracket" will incur a higher FICA tax, even though none was taken. If, in the example above, I would owe, say 0.5% of the first $10K over $20K, and 1.0% of the next $10K over $30K, then I would owe an additional 0.75% on the entire $20K from my second employer. This is merely an additional $150 for the year, and I could have that withheld by my employer at about $12 per month on my Federal Income Tax Withholding. Since it would all work out on the bottom line of my tax form, that's how I'd pay the additional tax.

The beauty of the graduated FICA tax is that it would not change the wage base upon which people's Social Security benefits are now based on. Also, there would be no "loopholes" like there are with ordinary Federal Income taxes. At some point, we're going to have to have a bipartisan commission look into ways of shoring the system up, and this is one possibility that is fair to poorer folks, but will not completely alienate the people making the most money.

[Hannah Bell]

44. Social Security Disability (SSDI) is for people who paid into SS long enough to be vested in

the system. They get it cause they paid for it.

Disabled people who didn't pay in long enough get SSI, & it comes out of the general budget, paid for by all taxes.

Both programs are administered by the SS administration, but only one comes out of SS taxes.


The progressive element in SS comes from the payouts. If you don't do well in your worklife, you get slightly more, if you do well, slightly less.

But everyone pays in the same, up to the 90th percentile of earners. So no one can say anyone's getting a free ride, welfare, etc.

Leave it alone, it's worked fine for 70 years, longer than any retirement system in the world.

[TahitiNut]

20. "Social Security is the greatest Ponzi scheme." ... complete and utter right-wing BULLSHIT.

Social Security is the ONLY system where we INVEST IN OUR CHILDREN ... work to make succeeding generations more productive, healthier, and more educated ... and make workplaces safer. Instead of burying money in a mayonaisse jar in the back yard or OWNING a plantation and living off slave labor, we invest in schools, health care, fair labor practices, safe workplaces ... productivity.

"Third world" (ancient) forms of social security revolved around having several children and hoping one or tow lived only enough to care for the parents in their old age. Even then, the (legendary) aboriginal approach to hard times was to leave the old people behind to die. Social Security essentially took the tribal communitarian approach and extended it to the "NATION" (people), making ALL children the children of all, and all parents the parents of all ... creating a greater vested interest in the health, education, and productivity of every successive generation.

Want to 'save' Social Security? Just raise the minimum wage ... perhaps to a living wage. Absolutely EVERY dollar increase in payroll at the lowest level results in more paid towards the Trust Fund and retirees.

I really get tired of the hackneyed, imbecilic, Ayn-Randian claim that SS is a "Ponzi scheme" ... it's total and utter dreck!

:grr: :grr:

[customerserviceguy]

25. It didn't start as a Ponzi scheme

but political cowardice over the decades since FDR established Social Security turned it into that. Adding people to the system that shouldn't have been in it, putting cost of living increases into Social Security (without doing that to the tax system until WAY later), and refusing to use a graduated system of FICA taxes have slowly moved it from a soundly-based system into a hand-to-mouth system.

At this point, it does resemble the classic Ponzi scheme. Only by making painful choices that we have refused to make when they were smaller, years ago, will save it from utter collapse.

[coalition_unwilling]

26. Great rant and much appreciated! Those who call

Social Security a "Ponzi Scheme" know little about SS and even less about Ponzi.

Over the last 75-odd years, SS has been a smashing success reducing poverty among the elderly. Now we need something analagous for children, a demographic in which poverty is still endemic.

[lelgt60]

34. Social Security is not a Ponzi scheme and neither is the Stock Market

Both are good ideas that have been corrupted. Rather than throw the baby out with the bath water, you need to fix them.

Social Security is a great idea. Establish a forced safety net for retirement paid for by a progressive tax system. The fact that future workers pay for past workers is in no way a Ponzi scheme unless you believe we will stop having future workers.

The concept of a stock market is a great way for people with good ideas and decent business sense to get those ideas funded. In return, the people who do the funding (who may not have good ideas or business sense) get a higher return, along with the risk of losing their investment. We went wrong when we advocated people, who have no education in investment or business, to invest in stocks as their primary source of retirement funds. Then, in typical "follow the money" fashion, corrupt people took over.

The fight against corruption has been going on for thousands of years. It's one of those "eternal vigilance" things. Hopefully the pendulum will now swing back to rational regulation, as well as investigation, and, when crimes are found, imprisonment of the corrupt.

[exboyfil]

27. It is a Ponzi Scheme

An individual owning Treasuries or Municipal bonds will give you the same effect as cited in your e-mail (investing in the community). I am not questioning the existence or need for Social Security, but what I am saying that you cannot continue to run up debt in addition to the debt contained in the Social Security trust fund without calling it a Ponzi scheme. The U.S. has the ultimate solution for this Ponzi scheme, the printing presses. This is what will happen if we don't get a handle on federal spending.

Actuarially SS is in pretty good shape (if decoupled from the Federal budget). The problem lies when we begin the great draw down in the trust fund. In addition to the revenues no longer going into the general fund, the IOUs in the trust fund will start to get collected. The only solution will be to sell additional debt outside of SS, decrease our spending, or get the printing presses rolling (which will have a positive feed back loop to SS because of COLAs).

A case can be made for increasing the minimum wage if we are prepared to deal with the consequences of such an action (ie 10% institutional unemployment like the Western Europeans).

My complaint is not with SS per se (other than the fact that it was sold as being retirement insurance for everyone to actually a wealth transfer program). Call it what it actually is and move on. My complaint is that the entire Federal budget (and the budgets of most Western European countries) are nothing more than Ponzi schemes that promise future benefits that are not actuarially sound. The sooner we deal with that fact the better off we will be as a country.

We can keep our conversation civil without resorting to profanity.

[TahitiNut]

31. Nonsense. Goobledy-gook and more Ayn-Randian crapola.

Federal budget deficits and the public debt are a separate issue from Social Security. The Trust Fund has ALWAYS been invested in Treasury instruments. When it was decided in the 80s that Baby Boomers should pay SOME of the cost of their own retirement benefits - the first (and only) generation called upon to do so - by payoll taxation in excess of that needed to pay current retirees, the trust fund grew. It's STILL less than 40% of the Public Debt ... and the EXPLOSION in that debt is a fiscal IRRESPONSIBLITY that cannot be blamed on Social Security.

Does the right wing want to KILL Social Security by running the federal budget off the cliff? Sure. They're on-track to delude total imbeciles into thinking that the 'problem' is all those 'retirees' ... those evil Social Security recipients. It's fucking bullshit. Period.

When we BORROW money, no matter from whom, we incur not only a repayment obligation but an interest obligation. It's INSANE to blame Social Security for indebtedness. Insane.

Civility lies in more than mere 'profanity' ... and the worst profanity is the total dreck you're trying to peddle.

[exboyfil]

37. Ponzi Scheme?

"the SS trust fund is a joke until we get a handle on Federal spending."

This is what I wrote in my original e-mail message. Let us not get started with Right wing or Left wing name calling. Lets discuss policy issues in a civil manner.

I never blamed SS, but I said the entire Federal system is unsustainable without massive corrections (spending reductions, revenue increases, or unprecedented GDP growth). I never stated that SS should be an individual account (even though I think such an approach might serve to keep lawmakers more honest - I know I would prefer to see at least a portion of my contribution go into a TIP instead of some future promise). The current retirees are getting a great deal on their contributions compared to future retirees - this is a fact. As we move forward the deal is going to look worse and worse for future retirees. If this is not a Ponzi scheme, then I don't know what is.

From Wikipedia:

A Ponzi scheme is a fraudulent investment operation that involves promising or paying abnormally high returns ("profits") to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business.

[lelgt60]

18. Where do you get your 1% figure?

I have been involved in a couple of sales of public stock and we actually saw checks of approximately 80%. The rest went to investment bankers as fees.

[TahitiNut]

23. AFAIK, IPOs constitute less than 1% of the dollar trading volume.

It's primarily (almost exclusively) a secondary market. Insofar as the source of that understanding, it's been something I've known for too many years to count from working in corporations (as an auditor) and friends and associates specializing in IPOs and fund management. I'd have to look around to find a reference. It'd be simple enough for a pro to compare market dollar volume to IPO dollar volume. (That part of an IPO kept in treasury reserve is merely delayed sales - i.e. 'investment' - it's still part of the IPO.)

[lelgt60]

29. Yes - it is primarily a secondary market. But...

Without that secondary market, there would probably be no significant primary market, right?

I just don't want people to conclude that actual companies (and the people that work for them) got no benefit from the existence of the stock market because of that 1% figure.

[TahitiNut]

35. The necessity for a secondary market does not mean "Casino Economics" is warranted.

What if ...

- there were a SALES TAX on the sale or exchange of corporate stock? After all, if I have to pay sales tax when I buy shoes why not when I buy a shoe company???

- there were a ROYALTY on the sale of exchange of corporate stock .. a royalty that was capital to the business?

- capital gains on equities and dividends were taxed at equal or higher rates than income from one's OWN labors? Why is the income from someone else's labor given privileged tax treatment? Indeed, long term captial gains, even in the billions, can be taxed at ZERO PERCENT this year (if the recipient has little or no 'ordinary' income.)

- derivatives were actually regulated?


Capitalism is about the "ownership of the means of production" ... and has historically been a license to steal. Whether it was monarchs/royalty claiming and enforcing a monopoly ownership of all lands and exacting a toll on those laboring on those lands to pay for the State ... or Plantation Owners enforcing a system of slavery and share-cropping ... it's about profiting from the labors of others by force of the police powers of the State.

I see a BIG difference between 'capital' in the form of a personal residence and the (so-called) capital gains from its sale or exchange ... and 'capital' in the form of OWNING ones' OWN means of production as an owner-operator of a business or trade ... and "capital' in the form of equities in some public corporation in which one does neither labor nor supervise the operation. The latter deserves a FAR different economic/tax treatment than either of the former.

[lelgt60]

38. All very good ideas worthy of serious thought n/t

[REACTIVATED IN CT]

41. 401(k ) contributions are not exempt from FICA

Only exempt from income tax.

We have an HSA at work and I'm putting my money there for now. That one is exempt from FICA (immediate 7.65% ROI) and is invested in a savings account right now. I can use it for Medigap insurance premiums when I retire in 5-7 years (I hope). I'm only putting enough in the k Plan to get the full match (100% ROI)

[slackmaster]

21. Mine has bond fund options

A "stable value" fund.

[Greyhound]

28. That would defeat the whole point of replacing pensions with the 401(k).

Raygun & Co. needed to pump a couple trillion into the market to hide the hyper-inflation he caused by maxing out the national credit card. They did it by forcing all that retirement money into their rigged game.

Next infusion is supposed to be SS, but we've been resistant to that, so we are being blackmailed to ensure our future compliance.

Just watch, sometime in the next couple of years we will be told, yet again, that SS is in trouble and the only solution will be to pump that money, that has already been spent, into to financial industry.

[kath]

30. Ours (TIAA-CREF) has 2 bond fund options, plus a money market option.

our money has been entirely in one of the bond options since 2002, the last time the stock market took a big dive.

[DU GrovelBot]

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[TheFarseer]

36. I feel for the folks that don't get a match

I get 100% up to 5% of salary so it's hard to lose with that going on. It's a bit disconcerting that the "safe" investment is made up of 60% mortgage backed securities! otoh it has returned a cool 1%. I think it might be time to switch your designation to stocks to buy up cheap stocks, but what do I know, I've been wrong in thinking that since mid-October.

As to your question about why can't we invest in CDs, I'm not sure that under normal conditions, there is enough demand for that money to be lent out from banks. If everyone had their money in 401k CDs, the rates would plummet. At least that's my take. As for T-bills, most of the other 40% of the safe account option in my 401k is T-bills and a large component of most people's safe option is T-bills.

[lostnfound]

42. The 529's, too.

A nice tax incentive, but come to think of it, why do they have to be tied to stocks and not simple savings accounts or CDs?
Because they were a way for brokerages to make some money too, and a way to expand the demand for equities.
I'm starting to think it hasn't been such a smart place for me to be saving for retirement or for my son's college.

[exboyfil]

43. 529s and investment choices - National prepaid tuition

The best vehicle I could think of for saving for a kid's college is in some sort of inflation adjusted bond (such as a TIPS). I talked to Vanguard about the the Iowa plan, and they do not offer such a plan. I am in a Conversative option age fund (gets more conservative when college gets closer) which holds stock and bond funds, but I do not like it. I use it because of the state tax deduction which is pretty good in a high marginal rate state like Iowa. Unfortunately nothing you invest in can keep up with education inflation. Vanguard does have more options (such as inflation indexed bond fund) in other state plans.

What I would like to see is some sort of national prepaid tuition plan as a long term supplement/replacement for student loans. Suggestions that I would make for the plan would be to make all earnings paid into the plan for 14-22 year olds exempt from SS, state, and federal taxes (kind of like an HSA). I would link such a plan with a federal jobs program (kind of like President Obama's proposal about public service for college). If a kid works 15 hours for 30 weeks/yr and 40 hours for 12 weeks/yr for eight years, he/she can earn $66,960 (assuming $9/hr - the 2009 minimum wage is $7.25/hr). This is enough alone to pay for 4 years at current rates for tuition, room & board, and books at a state college in Iowa with still some change left over for commuting home etc.

I wish Iowa offered a prepaid tuition plan. I understand how states can get into trouble with such plans (see Florida for example). I was ready to get into Tennessee's plan when I lived there and my kids were young, but I knew we would eventually return to Iowa. I think universities and states should have some obligation to find productivity enhancements within higher education. Having tuition growing at 2 to 3 times income growth is going to price middle class Americans out of education very quickly. I set aside 5% total of my gross pay for my two kids, and it is not nearly enough.