Rachel is reporting a huge truth. 401Ks are a total scam.

[onehandle]

Created to improve the bottom lines of banks and little more.

[malaise]

1. Oh yes

Great program tonight.

[Evergreen Emerald]

2. This is one of the best shows I have seen on this issue

[malaise]

3. Evvery DUer should send this video to friends and family later

tonight and tomorrow. Make it spread like wild fire

[still_one]

4. Not all 401k plans.../nt

[seabeyond]

7. how so... i didnt see the show. will catch it on the rerun. nt

[still_one]

16. The company I work for is a self-directed plan, I do not need to put it in fixed funds with hiddenn

Fees. The plan also. Allows purchase of CDs, government fixed income, stocks, bonds, or if desired funds which I choose

Problem is a lot of companies have sweet heart deals where you can only buy certain funds with fees as high as 2%

She made a good point how. Many people are encouraged to invest in companies 401ks but they are unaware of risks or fees

[seabeyond]

36. thanks for the info. nt

[Dawson Leery]

5. Only for the few that understand the complexities of the financial

markets do 401k's do any good. I assisted my parents with their retirement investments.
I also know of many who lost alot of money because they placed their retirement into high risk investments, which went under in 2008.

[flamingdem]

14. Everyone SHOULD know enough to manage their 401k

The problem is when the choices of investments offered are a scam. But many times a person is too lazy to learn the basics - they'll lose thousands that way - meanwhile they'll walk a half mile to save $3.00 parking fees..

[MindPilot]

19. No. I should not have to be an economist to retire.

I should not need to have a degree in thermodynamics to turn on my furnace. Calling people lazy because they don't understand the complexities of the the financial instruments required to survive when they're old is in the same vein as saying it's your fault there are no jobs.

[flamingdem]

20. Sorry, not buying it. It's not that hard but people have phobias about learning the basics

I'm talking basics, and holding out and refusing to learn that will mean losses of thousands if not hundreds of thousands over ones lifetime.

There's no excuse. If you can't stand it then many places offer free seminars.

I bet anyone who whines that they cannot understand basic investment is a WHIZ KID at bridge or any number of complex tasks.

[MindPilot]

22. No, my point is not that it is too hard.

It is that you shouldn't have to. Personally I have exactly zero interest (no pun intended) in that sort of thing. Although I understand probably far more complicated things, it is to me the rough equivalent of being required to write a country music song before I can go to the toilet.

[flamingdem]

28. lol

I know people like you and attempt to get them to change their ways.

[pacalo]

41. Why don't you explain it, rather than "lol-ing" as though you're the smartest person in the room?

[flamingdem]

45. Follow the conversation, the discussion is about the BASICS

That's not so hard is it?

[October]

155. Rude, much?

[bvar22]

55. Do you realize that 1/2 the population is on the low side of the Bell Curve,

and because YOU find something EasyPeasy, they may not?

According to Traditional Democratic Party Values,
Retirement in dignity & comfort is a basic Human Right,
NOT a Challenge or a Game with winners and losers.
It should be guaranteed.
(SEE: FDR, Economic Bill of Rights)


You ARE blaming the victims of a Rigged Game
designed to prey upon the Vulnerable.



You will know them by their WORKS,
not by their excuses.
Solidarity99!
--------------------------------------------------------------------------------------------------------------------------------

[Demstud]

63. +1 It's not so easy

Many of us received exactly ZERO education on personal finance growing up. While learning math, writing, sports, "science", art, and music, not a single thing was taught about personal finance. Not even the simple act of balancing a checkbook. And then when it comes to learning the basics, the market is so flooded by Mad Money style scam artists that it's difficult to find a quality source teaching what you really need to know. I'd even say that a big reason the bankers were able to cause such a massive financial disaster in 2008 was due to the extreme ignorance of financial matters myself and a large number of my fellow Americans have.

I was finally able to take a personal finance course and while the basics are not exactly super complex, it's still an intimidating and difficult wall to break through kind of like trying to learn Chinese, when you've spoken nothing but your colloquial English for 40 or 50 years.

[Common Sense Party]

123. I can't tell you how many "basic Joe"s and Jills I've met over the years

who have nothing more than a high school education, never earned more than $35 or $40K a year in their blue collar jobs, and still had hundreds of thousands of dollars saved up for retirement.

It's not common, but it's not impossible.

[me b zola]

86. Goodness I love your posts

You keep them informative, short, and to the point. There is also the "don't blow smoke up my arse" quality to them, a sentiment that I share. :thumbsup:

Oh yeah, and your veggie porn thread still rocks. :)

[pacalo]

95. I think you meant this for #45?

I'm totally in agreement with you.

[bvar22]

107. Oops.

It was meant as a response to Post # 20.

If I can't even do DU correctly,
How-the-Fuck am I supposed to manage a 401K? :shrug:

[pacalo]

115. It happens to all of us.

:)

[cui bono]

99. I LOLed too! MindPilot clearly stated they had zero interest in learning it

and said so in a funny way. I don't know where you got the idea that flamingdem, who you were responding to, thinks they're the smartest person in the room. ?

:shrug:

[mdmc]

43. Please tell me - what do I need to know?

I put my money in the most conservative fund available. I still lost money. It seemed to me that my choices were to lose a little money in the conservative fund or lose more money in one of their (Lincon / Black Rock Financial) stock fund options.

[flamingdem]

46. You missed my point, I agreed that the problem can be limited choices

but my point is many people don't even take a half hour out of their lives to learn the basics of investing.

[mdmc]

84. thanks for the reply

peace and low stress

[SomethingFishy]

97. Many people don't want to "invest".

I equate that word with "gamble". I don't want to gamble with my money and that is the scam of 401k's. You put money away and then you are forced to invest it. Then if you need it you are fined for taking back your own money.

I'm not good with economics but I know a fucking scam when I see it.

[Yupster]

143. So don't do it

What's the big deal.

I don't like soy milk. So I don't buy it.

No one is forcing anyone to invest in their 401 k.

[Occulus]

116. You don't have a point worth "getting"

WE SHOULD NOT HAVE TO LEARN EVEN THE BASICS OF INVESTING TO BE SECURE IN OUR RETIREMENTS!!!!!

[Common Sense Party]

117. How did you lose? Did you sell low?

I understand your account value went down. Whose didn't? The question is: What did you do about it? Did you sell after the fund went down? Or do you still own it?

[Yupster]

142. Every 401 k I've ever seen has a money market choice

or a fixed account if it's an annuity.

The money market may be making .01 % interest right now but it won't lose money.

[TNLib]

162. yep thats where I put mine for now. just doing it for the employer contribution.

nt

[pacalo]

40. I grasp what you're saying, MindPilot, & I do agree. To think that Bush was traveling the country

like a used-car salesman, with the fancy slogan-splashed backdrops, trying to sell the idea that people would be better off investing in the stock market for their retirement in lieu of social security.

Not everyone is savvy on the stock market & it's not because they're lazy. It's complex.

[redgiant]

65. Yes! All the important things in life...

...should be easy and effortless!

Brilliant idea! Why didn't I think of that first?

[booley]

77. wait a minute

There are people who had more then a passing knowledge of how the system worked and they also lost money.

And wasn't one of the contributers to the economic collapse that Wall Street made products so complex even they didn't really understand them? (so they could hide what they were doing it seems)

IF even those people didn't know enough to save themselves, I don't think it's unreasonable to think that people who's only real financial experience is setting up a bank account might have problems picking it up.

As to your second part, yes there are places to get free seminars. One that I went too was a pyramid scheme that used people's ignorance against them.

And yes I am sure there are legitimate seminars. I got offered one by my bank (a small community bank working with a non for profit). I was working my second job both times they were offered.

My point being is that while one should learn about investing, it's not quite so simple as you make it out to be. I especially am a bit leery of any "blame of the victim" mentality.

Isn't one of the points of OWS that Wall Street is like the Mafia controlled Vegas with out the ethics?

[October]

156. +1 So true! /nt

[Lyric]

79. Define "basics".

If you're advocating a position, you should be able to tell us, explicitly, what you mean by "basics".

[Sherman A1]

44. No you shouldn't

but it is your money & your retirement, so I think being on top of it may be in your best interest.

[polichick]

6. I really don't know what people are supposed to do with their retirement savings...

The market sucks, real estate sucks - should people pack their mattresses again?

[customerserviceguy]

26. Ever since I started contributing to my plan

in 2010, it's all been solidly in money market funds. Yes, the fund is making squat for interest, but it's safe. At my age (55), what I retire with will be determined much more by how big of a percentage of my wages can go into it than by what rate of return I can get for it, especially these days.

[polichick]

31. It's crazy these days - money market funds make so little but...

I use them too just because there's no good place.

[closeupready]

76. ditto.

nt

[pitohui]

152. it isn't safe, the money is losing buying power to inflation

this is an example of why there are no simple "basics" -- it seems like you are not losing money, but when you are getting 0.1% annual return on your money, you are losing buying power, and the money is worth less and less as time goes by

you put away money that might have bought you a couple of weeks of life if you retired today, let's say $1000, and when you do get to retirement, the price of food & gas may have increased so much that it buys one day of life in retirement

this is why money markets paying low interest are bad investments, you are losing money, maybe not on paper, but what you sacrifice by putting the money aside today is NOT gonna pay off for you

i don't really have good answers, unlike the know-it-all who thinks it's "easy" to learn the "basics," i've been investing for many years and i know that it is NOT easy, there are no "basics," a nd right now there aren't even any good choices out there

stocks have gone nowhere for a decade, real estate has crashed, money markets lose value to inflation...it's really scary

and there are NO experts, that's why we can have a bernie madoff in high position in the stock exchanges...

[customerserviceguy]

157. You have a point

But if it were in stock market funds, I would have the twin losses of inflation and market risk.

Like I said, my retirement is going to be paid for by what I don't consume today, which represents what I put away for the future. Money market funds are probably no worse than a mattress, and if I ever change my mind, I can switch into other investments pretty easily once I figure that the climate is right to do so.

My goal is to be able to put half of my earnings into the thing for a goodly number of the years I have left until retirement, which looks like anywhere from 11 to 14 such years at this point (I'm 55). Fortunately, I have a job that I can physically do for that long.

[TNLib]

163. well it's safer than in your mattress and at least you can get the employer contribution

if it's a 401k.

[madrchsod]

8. well duh...social security is a better investment.

[customerserviceguy]

27. Social Security is not an investment. n/t

[Kennah]

9. What about municipal bonds? Or other government bonds?

[madrchsod]

11. i know people who had money in my town invested in muni bonds.

of course that was a million years ago when people waited for their return on investment.

today people can`t wait.

[A HERETIC I AM]

24. What about them?

What do you want to know?

I can define terms for you, if you like. Help you understand how they work.

I won't suggest whether or not you should buy them, however. That is up to you.

[Kennah]

34. Obviously they aren't FDIC insured ...

... but how do they rank in terms of "safety"?

I ask wondering if a 401K investing in a bond mutual fund still has one futzing about in the stock market and subject to the uncertainties of what seems anymore to be high stakes gambling?

Also, is there any such thing as "The Complete Idiot's Guide To Investing" which contains really useful information?

[A HERETIC I AM]

114. OK. a few things about bonds first, then a little about Bond Mutual Funds. This is a little long!

The primary reason to invest in bonds is for the income they produce. For the most part (and when I say "for the most part" I mean basically "overwhelmingly". I am going to use that phrase several times because it means what I am saying is almost always the case, but there are exceptions, OK?) bonds issued in the USA, be they government, corporate or Municipal pay a so called "Coupon" payment that is paid bi-annually, on the date the bond will mature and 6 months later. In other words, if a bond matures on July 1st, 2025 it will pay its coupon payments every year on July 1 and February 1st. Regardless of what the coupon rate is, this payment is split into these two payments. In other words, if the coupon is 5%, you are going to get half on Feb 1st and the other half July 1st.

For the most part bonds issued in the US have a "Par" or face value of $1,000.00. Regardless of what they are purchased at, when they mature, the issuer will give the holder $1000.00 back, provided of course, that there is no default.

The coupon rate is ALWAYS figured from this par value, so if a bond has a coupon of 5% it means it pays $50.00 per year in interest split into two payments of $25.00 each paid 6 months apart.

This regular, reliable income is why bonds are often referred to as "Fixed Income investments". The amount of money you will receive on an annual basis is fixed. It doesn't change.

What CAN change with bonds is yield. What that refers to is the difference between the cost of the bonds and it's coupon payment on an annual basis.

Example;

ABC Company issues a 5% coupon bond that matures in ten years. Since ABC Co. is a well known and respectable company that pays its bills on time, its bonds are rated "Triple A". Once the bond issue is underwritten and they begin to trade, they hold their value and sell for exactly their Par value. If you bought one of these bonds, your coupon is 5% and your yield is 5%.

If these bonds FALL in price and you are able to buy them for less than Par, your yield will be higher because not only are you going to get your $50 per year in interest, you will get the grand back when they mature. If you were able to buy them for ...say $900, you will make $100 in gain when they mature, PLUS your annual interest, therefore the bond yields more than its coupon.

If the contrary is the case and the bonds are bid UP - to say $1100 and you buy them, your yield will be LESS than the coupon rate for exactly the same reasons stated above.

Clear?

The primary advantage to owning bonds is the interest payments.
The primary advantage to owning Municipal Bonds is the tax free interest.

So how do Bond Mutual funds work?

All Mutual Funds are basically a portfolio (or basket, if you like) of various stocks and/or bonds, selected by the fund manager to achieve a specific purpose. In the case of bond funds, these might be things like high income, high credit rating, overseas issues, etc., and this is stated in the fund Prospectus.

So here's a hypothetical bond fund for clarification;

ABC Mutual Fund company forms the "Steady Freddy Bond Fund". The manager purchases 100 each of 100 different bonds, all with a 5% coupon and all of them purchased at par. He has 10,000 bonds in his portfolio. 10,000 X $1000 means the "Net Asset Value" (NAV) of the fund is $10,000,000 divided by the total number of shares issued. He sells shares to investors like you and me. Lets say there are 1000 investors and each of us buys an equal number of shares. We now own an equal share of those 100 issues and therefore we each own an equal share of those 10,000 bonds. Now lets also assume that these bonds have similar maturities - ten years but they mature in different months so that there is an almost constant stream of interest payments coming in almost every month of the year. If they all have that 5% coupon then it is easy to calculate that there is $500,000 in interest payments coming in every year. This interest money is transferred directly to the shareholders. In the case of Mutual Funds, you are given the option of receiving that money as cash or having it re-invested into the mutual fund and more shares are purchased. Therefore, your initial purchase of 1000 shares grows quickly with each successive interest distribution.

Here's where the problems begin with Bond funds. For the most part, bonds trade "Over The Counter" and are priced each time they trade. Since these trades happen all the time, the market price of a given issue can and will change regularly. Since the share price of a mutual fund is valued essentially like I describe above - the aggregate value of all the issues held by the fund divided by the number of shares issued equals the NAV. This is calculated each business day for every single mutual fund out there. That means the price of your bond fund can go down or it can go up, but since ALL bonds mature at Par and their price doesn't vary that wildly on a day-to-day basis, the share price of a bond fund doesn't fluctuate nearly a much as a pure stock fund or even a blended fund. Most bond funds price between $10 and $20.00/share, typically between $12.00 & $14.00. The thing is, they just don't go up in value as a general rule. They tend to hold a steady share price, varying by only a few cents on a daily basis unless something dramatic happens in the bond market and/or with a specific issue the manager has taken a large position with. The other thing that can change is the yield, as the manager may be selling and buying various bonds in and out of the fund all the time, doing his best to keep it in line with the objective stated in the prospectus. Since he is trading bonds into and out of the fund, he is getting bonds with different coupon rates and therefore different payments. This affects the amount of income being brought in by the fund and as a consequence, the amount paid to the shareholders.

In my hypothetical fund above, the fund is receiving interest payments of $500,000 per year divided by 12 months = roughly $41,667 per month. But what happens if he sells 25 of those 5% coupon issues and buys 25 issues that have a 4.5% coupon? Now the monthly income has fallen and as a consequence, all the shareholders will get less next month than they got this month. In that scenario, 25% of the portfolio now has a 4.5% coupon and 75% of the portfolio has a 5% coupon. It lowers the funds yield a bit. Also, what if those new bonds were bought at a discount to Par? Their price is now going to drop the share price of the fund. This is a bad thing for you if you want to sell your shares now, but a good thing for new buyers, as they are getting a better price than you did for almost the same yield.

Here is the Morningstar quote page one of the largest Bond Mutual Funds in existence;

http://quote.morningstar.com/fund/f.aspx?t=abndx">American Funds Bond Fund of America

That page shows the price range per share over the last 52 weeks has only varied by $.56. Compare that to an average all stock mutual fund like American Funds http://quote.morningstar.com/fund/f.aspx?t=aivsx">Investment Company of America (one of the oldest Mutual Funds in existence, formed in 1934) whose price has varied by over $6.00 per share over the course of the last year.

BTW, all "Closed End" Mutual Funds have a 5 letter ticker symbol and it always ends in "X". You may want to bookmark that Morningstar page for future reference on funds you have in your own 401(k). If you come across a Mutual Fund with a 3 letter ticker, it is a "Closed End" fund (CEF). Also, "Exchange Traded Funds" (ETF) can also be thought of, and are sometimes referred to as Mutual Funds, but they exist under different rules and ETF's and CEF's trade on an exchange like a stock does. Open End Mutual Funds do not trade on an exchange. They are issued and redeemed strictly by the Mutual Fund company. Each time you buy a share of an open end Mutual Fund, you are essentially buying a new issue of a security. That's why you are given a prospectus.

The thing is, people tend to flee to bonds and bond funds when the market is shaky and/or falling. At times like this, bond prices are almost always higher and yields are lower (as is the case right now). This forces the manager to buy bonds at a premium to Par generally, in order to fill out the fund portfolio to accommodate the new investors. When things start looking better in the stock market, the money flows the other way, but by that time, prices for bonds have typically fallen and yields have risen. When people sell out of bonds and bond funds, it forces the manager to generally take less than he paid for the bonds and it forces the price of the fund down.

The best way to look at holding a bond fund is for the LONG TERM, much like with any Mutual Fund. Re-invest the interest and just grow the number of shares. Just don't expect to buy shares for $10 and sell them for $100. It isn't going to happen with bond funds.

As far as municipal bonds are concerned,

Since most states have a state income tax (only 7 do not, and my state (FL) is one of them), the income produced by Munis issued by OTHER states is taxable. However, it is almost always the case that interest paid by bonds issued in your home state are NOT taxable. This is, BTW, one of the small advantages of living in a state with no state income tax, as you can buy Munis issued anywhere and get the interest tax free.

There is a specific class of Municipal bonds whose interest payments ARE taxable and those are so-called "Private Use" bonds. That means things like issues for a pro sports stadium, for instance, or a road network inside an industrial park. The municipality may have a vested interest in building the stadium or those roads, but at the end of it, they are for the use of a private entity and therefore the IRS and the states don't allow the interest to be tax free.

NOW.....there is absolutely NO ADVANTAGE WHATSOEVER in owning Municipal bonds inside a 401(k) or an IRA or ANY kind of tax deferred account. It is pointless because interest paid by any bond or dividend paid by any stock held inside these types of accounts are not taxed on an annual basis anyway, so holding Munis inside these accounts makes no sense and no 401(k) provider that I am aware of offers them.

Obviously they aren't FDIC insured ...

No, not FDIC, but many if not most Municipal bonds ARE insured against default. Few do, however.

... but how do they rank in terms of "safety"?

Depending on how much faith you have in the rating agencies and the ratings they assign to bonds - there's your answer! For the most part, investing in bonds tends to be safer than investing in equities. You just get a lower return on your investment as a result.

I ask wondering if a 401K investing in a bond mutual fund still has one futzing about in the stock market and subject to the uncertainties of what seems anymore to be high stakes gambling?

No, not really. As I said above, one should think of bond funds strictly as a way to generate income. Inside a 401(k) you are going to simply re-invest the interest payments and build shares that way.

Also, is there any such thing as "The Complete Idiot's Guide To Investing" which contains really useful information?

Sure. Plenty. A visit to either Amazon or your local large bookstore will have lots of them.

Hope that wasn't too long, too boring and was at least of some help.

[mainer]

136. A terrific explanation. Have you written a book about this?

You make it really clear.

My only issue with Munis is that mine always seem to get called, and too few go to maturity.

My children are now struggling with how to invest, and unfortunately, they've seen the stock market at its most volatile and they're scared. We keep telling them to be patient, but the bad taste the market has left in their mouths has made them ask me about gold. I don't know what to tell them. They're only in their twenties!

[A HERETIC I AM]

144. LOL...no, I haven't written a book...

and thanks for the compliment. There are plenty of books out there on this subject by much better writers than me.

You can have your broker screen the issues you are interested in for being callable, or, if he/she can't, you can find out about more about them using this website;

http://investinginbonds.com/

If you hover your mouse over "Bond Markets & Prices" a drop down will appear. Click on "Municipal Markets at a Glance". On that page you can search for an issue by CUSIP as well as by state.

BTW I noticed an error in what I wrote - at the beginning of the paragraph that says "BTW, all "Closed End" Mutual Funds have a 5 letter ticker symbol and it always ends in "X"."

"Closed End" should read "Open End".

All Open end Mutual Funds have a 5 letter ticker. All Closed End funds have a 3 letter ticker.

[TexasTowelie]

29. Even muni bonds can default.

In the late 1980's the Northeast Round Rock Road District (the acronym NERRRD was an attention-getter) was near default as they expanded the infrastructure anticipating economic growth moving north from the Austin area. Unfortunately, it wasn't a situation of "if you build it, they will come". There were significant property tax increases (approaching triple-digit percentages) on the relatively small number of property owners within the district.

Like all investments, it is necessary to study the underlying situation or your money is at risk.

I wish that I could find some links to support my statements, but Al Gore was finalizing the creation of the Internet at the time. The good news is that business did eventually come and the infrastructure was complete.

[mainer]

50. Triple-A rated only. Low risk, steady but unspectacular returns.

There's still a risk a municipality will default, but munis are relatively safe. And if you buy them in your own state, they may be tax-free.

[moondust]

10. And a priceless insurance policy for Wall Street.

If the retirement security of millions of Americans is dependent on Wall Street delivering returns on investment, who would dare do anything to jeopardize Wall Street's profitability?

[PassingFair]

140. This is the TRAP.

This is partly why otherwise good democrats
continue to vote for and prop up the rip-offs
on such a scale.

[moondust]

147. Yup.

Another hostage situation.

[hedgehog]

12. Every two weeks, there's a money dump on Wall Street as everyone's

401K contribution hits. Can you say "bubble"?

[Dover]

13. Is there a link to Rachel's show (and other shows) on DU?

There used to be a list , but I can't find it.

[TexasTowelie]

30. Try these...

Nearly all of the NBC and MSNBC shows are available at http://www.msnbc.msn.com. I don't believe that they added the weekend show "Up with Chris Hayes" has been added to the list.

For Countdown with Keith Olbermann and the Young Turks with Cenk Uyger, go to http://current.com.

[Dover]

35. Thank you! ..n/t

[TexasTowelie]

93. You are welcome.

I also saw that you posted about the earthquake in south Texas this morning. I posted some links from the regional newspaper that may be of interest.

[cui bono]

100. Go to msnbc.com then in upper right click on msnbctv...

then look at list of shows on the left of the page and click on Maddow, THEN click on the top small video to the left of the big video window and hit play.

You can see the previous day's show and earlier ones.

[cbdo2007]

15. Only for those who think it is a "get rich quick" scheme....

and think they can just "invest it and forget it".

The only thing certain in the stock market is that it will go up over time. Always has and always will. Yeah...um....that's some "scam" hahahaha.

[eridani]

32. Only if the fundamental assumption underpinning the system stays in effect

That would be the that the total combined human, physical and natural capital increases over time. Not sure that this is still the case.

[SOS]

82. Over time...

Dow Jones:
January 7, 2000: 11,522
October 20, 2011: 11, 506

Nasdaq:
June 25, 1999: 2,593
October 20, 2011: 2,600

S&P:
January 2, 1999: 1229
October 20, 2011: 1214

Up 0% in 12-13 years.

Yes, over the course of the 20th Century, the general trajectory has been up.
But the advice that "stocks are best because they always go up over time" may be in the dustbin of history.

[Common Sense Party]

118. This isn't the only decade in history where stocks have gone nowhere.

10 years isn't really "long-term".

[MindPilot]

17. Except for us older workers most people don't know any different

It requires ordinary people to become financial managers or be lucky enough to know and trust someone who is. It also ties your savings up in tax-deferred accounts that essentially makes your money inaccessible until you are old enough to "qualify" to get it back. Starting some time in the early eighties, we watched our pension funds turn into lottery tickets.

[Yo_Mama_Been_Loggin]

18. The company I work for has ended pensions for new hires.

As a consolation they'll match 82 cents on the dollar for the first 6% the employee contributes on their 401K

401Ks are a mixed bag. Mine kicked ass during the Clinton years. It did so badly under GW Bush I probably could have done better stuffing the money in a mattress.

[Swede]

21. Put the money in mutual funds,then move them to something conservative

when you get nearer retirement.

[RC]

23. The stock market is a rigged game and you and I are the marks.

Look at how it is being manipulated. It goes up, everybody wins. It goes down, we lose and they still win.

The stock market was setup for investments. It is now a big gambling den with manipulators trading paper back and forth among themselves with the paper increasing value with every trade... Till the scam, like a wave, collapses, they then take the money, put it in the Cayman Islands or Switzerland, etc. and start all over again.

[Nye Bevan]

25. Not if you get a company match.

And you don't have to invest it in stocks unless you want to.

[RebelOne]

94. I started working for a publishing company in 1997

and when I started my 401K, the company matched it dollar for dollar. But after a few years, it was sold to a major media company and that policy stayed in effect. But then we were sold to another major media company and we were switched to ING, and the company only matched our 401K contributions 50 cents on the dollar. I am no longer with that company, as I was laid off in 2010, but at least, I was of retirement age and could withdraw my 401K with no penalty.

[coalition_unwilling]

33. I seldom 'unrec' a thread, but this one I feel has very little value and

actually promotes attitudes that can injure many DUers and not help any DUers

"A total scam" when you can invest earnings pre-tax and often get a free employer match? Now granted your tax bracket may have increased when you retire (although intuition says it will stay the same or decline) so you might pay more tax on those funds when you withdraw them than you would have when you had them withheld from your gross pay. BUT THEY HAVE HAD X NUMBER OF YEARS TO GROW TAX FREE.

You're going to need to explain how that's a 'total scam'

[badtoworse]

37. Rachel is wrong on this one

Many companies match substantial portions of the employee contribution for an immediate return, sometimes as high as 6 percent. Anyone who can get a deal like that and doesn't take it is a moron.

My wife and I have been regularly contributing to our 401k's for more than 25 years and our tax deferred savings are substantial, even after 2008. They're invested in conservatively managed, balanced mutual funds with about 10 percent in more aggressive funds.

It takes a bit of effort to learn investing basics and discipline to maintain your contributions to the 401k, but unless you want to mow lawns or flip burgers during your retirement, you have no choice but to save. 401k's are a great way to do that.

[Avalux]

47. That's hard to swallow when my 401K has LOST money over the past year...

and as things are, no guarantee it will get better or that when I'm ready to retire, that I'll be in the black. The stock market is like going to Vegas; it could all be gone tomorrow.

[Nye Bevan]

64. You chose to gamble in the stock market, and you lost.

You could have chosen to invest your 401k funds in the guaranteed investment contract.

[Avalux]

67. Silly me.

I guess for those of us who are not as savvy as others, don't understand how it all works - screw us. It shouldn't be that way.

[Nye Bevan]

69. It should have been explained to you better.

Every participant in a 401k should be told clearly that they do not have to invest in the stock market, and that they have the right to keep their entire investment in guaranteed investments that will never lose value. I am sorry that this was not made clear to you.

[Recursion]

74. The problem is perception -- your 401K hasn't lost money, but you think it has

That is, your 401K is worth more today than the sum of the money you have put into it, almost certainly (and if it's not, you really, really need to switch allocations).

But it's worth less than what you psychologically valued it at, which was the same-day liquidation value they showed you in the report. But you were never going to liquidate it in one day anyways, and you certainly weren't going to while you were still working.

A parable: say I bought a stock for $1. The next day, its selling price is $5. "Awesome!" I say. Then the next day it falls to $3. "Crap!" I say, "I just lost $2! Hang my fund manager from a meathook!" Except I haven't lost $2; I've made $2 -- it's still worth $2 more than what I put in.

[badtoworse]

83. Without knowing more about your specific situation, it's hard to comment

A lot depends on how old you are and what other assets you might have. If you're young, say 20's or 30's, you still have plenty of time for your investments to recover and you can afford to be more aggressive in your approach. I wouldn't worry about short term results if I'm not going to need the money for 30 years.

If you're older, you need to be more conservative with your investments and balance them between stocks and quality bonds. My sense is that you're not experienced enough to do that by yourself, so I would suggest a good balanced mutual fund do that for you. I happen to like the Vanguard Wellington Fund, but there are lots of other good funds that are similar. Morningstar is a great resource for evaluating mutual funds.

Good luck.

[Common Sense Party]

158. You mean your 401(k) has gone down in value in the last year.

Kinda like your house has lost value in the last few years.

Did you lose money on your house? No, because you didn't sell it.

If you didn't sell your fund shares, you haven't lost, either. As long as you can hold on to it and wait for it to come back, you won't lose.

[stevenleser]

59. I get what you and Coalition_Unwilling are saying, but this is no replacement for a pension

I think 401K's should exist IN ADDITION to a pension offered by the firm for whom you work.

At age 65, people should have a pension fund that guarantees them for the rest of their lives a minimum of 80% or so of the buying power they had if you average their last three years of work.

If they want to invest beyond that, that should be their business. In that sense situations where 401Ks are the only retirement plan offered is, maybe not a scam, but a wholly inadequate replacement.

[alcibiades_mystery]

38. Those of us umb enough to still be Marxists have been saying this for 30 years

The 401K and similar policies were part and parcel of the exploiter class restructuring of the late 1970's. They had two primary goals:

1) Drain household savings into the financial markets
2) Shift labor compensation from defined benefits pensions to defined contribution plans

Both of these goals are located at the heart of neoliberal restructuring. It's why you have

1) Massive decline in household savings since 1980
2) Massive growth in the financial sector since 1980
3) Collapse of the union structures that relied on solidarity and collectivity for the defined benefits plans
4) Massive shift in wealth toward the top 1%, as all the funds flowing into the financial market are expropriated and expropriated again

[badtoworse]

42. Last time I checked, my 401k's hadn't been expropriated

In fact, they were doing OK.

Just out of curiousity, how do Marxists plan on funding their retirement?

[kctim]

51. Plan?

On funding their OWN retirement?

:rofl:

[butterfly77]

39. ...

[itsallhappening]

48. Yeah, just like those giraffes and camels in Ohio.

That was just the latest example of her not doing her homework.

[Lydia Leftcoast]

49. Oh yeah, 410(k) plans are a great investment, unless, as happened to my colleagues,

your retirement comes up during a period of heavy losses.

Basically, 401(k) plans were instituted because companies want more money to pay bonuses to their CEOs and ever-increasing dividends to their shareholders, and pensions interfere with that scheme.

Same reason that companies began demanding that new hires be business majors instead of training them in-house.

Same reason that American workers are replaced by Third World workers.

[Nye Bevan]

70. Nobody forced your colleagues to gamble in the stock market.

They could have kept their entire 401k investments in guaranteed investment contracts and not lost a penny.

There seems to be some confusion in this thread; a lot of people seem to think that "saving in a 401k" is the same thing as "investing in the stock market".

[Common Sense Party]

125. 401(k)'s do not have to be invested strictly in stocks.

Many plans today have investment options that automatically get more conservative the closer you get to retirement, so that you won't be 100% in stocks at retirement and are subject to seeing your whole nest egg drop when stocks tank.

[Lydia Leftcoast]

138. No, but that's what people were told, to invest in stocks to build up a nest egg rapidly

if they were too young to be vested in the old defined-benefit plan but old enough to be within striking distance of retirement.

And my other points remain, that this was another example of being cheap toward the employees while enriching the higher-ups.

[sarcasmo]

137. +1

[Aerows]

52. I figured that out a while ago

If you aren't a trader, and aren't a big-time trader, you have NO BUSINESS having your money on Wall Street. You'd be better off burying it in jars in the backyard. No, it won't gain anything, but you won't lose anything, either.

Please come forward and scold me if you work in the financial industry and tell me why I am off base. *I* don't bury mine in the backyard, but I have far better ideas with which to do with my retirement funds than stick them in a 401K.

[Harmony Blue]

60. I concur

I have a very good understanding on how to leverage 401k's and even I have to concede that it is a scam in the long run. You are better off putting the money in a savings account of a credit union.

[Aerows]

72. I *don't* have an excellent education on finance

And I've parked mine in a credit union. :D

Thanks, Harmony Blue.

[xchrom]

53. i know some people who work @ duke -- their 401s have lost at least 2 grand.

2 friends who for the EPA -- they are close to retirement -- so have different plans & they've lost money.

so much for the idea of being in it for 'the long haul'.

[Codeine]

54. two grand?

That's normal fluctuation. Two or three thousand bucks is nothing in a retirement account.

[Lance_Boyle]

56. If they work at Duke, they have 403(b)7 plans, not 401K plans.

And if they are near retirement and still have their money invested in securities rather than stable bond funds they are doing it wrong. Duke provides many options for retirement plans (TIAA/CREF is tops in my book) and *all* of them have managed funds that allow you to select a target date for retirement and have the plan automatically reduce the risk level of investments as that date approaches. Not to mention the matching. I really do not understand people who insist that investment in one's own retirement through these vehicles (401 and 403) is bad. ESPECIALLY when there's a matching program, like at Duke.

[xchrom]

58. yes -- my point was really -- but i didn't really present it -- is that

even good programs like those offered where my friends work are going backwards.

for just 2 people it doesn't represent much -- but it's just an example of what those big numbers look like on a more personal level.

[JPZenger]

57. Vanguard - low fees, and it is actually owned by the investors

I have my retirement savings with Vanguard. They usually have much lower fees than other investment firms. Also, they have no shareholders. They are actually owned by the people who invest with them.

I will always remember during the dot.com bust circa 2000. Vanguard was constantly sending out newsletters to their investors telling them that a bust was about to happen, and to stay away from the upstart companies that everyone else was throwing their money into. Vanguard was right - it just took a couple years longer for the bust to happen than Vanguard expected.

Vanguard also stresses long-term investments. They have rules that prohibit their investors from constantly moving their money around from day to day.

[Harmony Blue]

62. Vanguard stresses to not move money around

as a business model to make it simple for the average joe. But if you want to maximize your money you have to invest time into it on a daily basis.

[mainer]

61. Index funds are best for those who don't want to pay attention

No stockbrokers needed. If you're young, at least some money should be in stocks. How much is up to your acceptance of risk.

[RobinA]

66. Scam is Not the Right Word

I'm not sure I'd say "scam." The scam is equating them to a pension, which they surely are not and never will be. I hear many people today saying, "My new job doesn't have a pension, but it has a 401K". No, no, no, no. A 401k is a way of investing with pre-tax dollars. It's got the same risks AND rewards as the market itself. Many people seem to think 401k = bad because they lost money in a down market. It's NOT SAVINGS it's an investment. Too many people don't seem to understand this.

[Gormy Cuss]

68. Except being a substitute for a defined benefit pension is how they were sold to consumers.

That is still the sales pitch, along wity "it's your money," "it's portable," blah blah blah. Meanwhile companies loved the fact that they could tout their 401K plan in lieu of a pension. That's the scam.

[Odogg]

73. 401k Scam..not

A defined contribution plan where a company contributes a certain percent of every dollar you contribute up to a certain percent is not a scam. If you leave that money on the table then you're a moron, unless due to bills or life demands you just can't contribute at that time. Learning personal finance,investing,time value of money, returns, and everything else that goes with it is intimidating but it is worth it to take the time and attempt it. If not, go find a financial planner to talk to, just do something! Is Wall Street a scam? Alot of it is, not everything, but alot. But you can follow the Warren Buffet rule of "Act like you can only make 10 trades in your life." This forces you to focus long term and only invest in solid companies that have good management and good products. You can't go wrong investing in Coca Cola, McDonalds, Exxon Mobil, big firms that are dang near recession proof. Sign up with Vanguard, which has very low management fees, and stick your money in index funds or retirement target accounts. Remember* Losses are only baked in when you sell!! You want the market low right now if you are not ready to retire since it means you buy more shares per dollar invested!! Stuffing it in your mattress is a losing man's game because you are not taking into account inflation and the time value of money rule!!

[Gormy Cuss]

87. 401K as a substitute for a defined benefit plan IS a scam.

There's nothing inherently wrong with the idea of 401Ks as a retirement savings vehicle, but as the only employer-based plan it's not always a good deal. Employer matches aren't generous in many cases --only about 40% of employers do a 100% match, and another 10% or so match at 50%; all others are sliding down that match rate all the way to zero. Speaking from personal experience, I had one fifteen year participation in a 401K where the employer matched nothing for any employee making over $20,000 and match 2-5% for those earning less than that. To their credit, there was a fair mix of investing options and in better economic times it did look like a great way to save for retirement but in times of recession, not so good. On the other hand, because a 401K is limited to the investment options offered the employee isn't able to make the choices you described unless and until s/he rolls over the money.

[Nye Bevan]

71. and many in this thread don't seem to understand that a 401k need not be in stocks (nt)

[Harmony Blue]

80. You are correct

RobinA, but I agree with the other poster that 401k's were sold as substitutes to the average jane and joe. The RW wants to sell 401k's as a substitute to social security as well which we all know is far from the truth.

[Yupster]

164. What many people don't undersdtand is that

companies don't produce a retirement plan that is best for their workers.

They produce a retirement plan that is best for their business.

Is a pension better than a 401 k for the workers? Most likely yes.

But it is not best for the business.

Picture a tire making company. They have thousands of workers and there's a downturn. The owner walks through the home office and asks someone what the people in that room do?

They process return checks from retirees he is told.

What?

Yes each month we send out 60,000 checks to our retirees. Every month we get about 100 returned because the person has died so we must settle with the executors of their eststes. We get almost another 100 back each month for divorces that we have to comply with splitting the pensions as per divorce decrees and we get over 250 change of addresses every month. Many of these requests come from Mexico, Canada, and as far away as the Philipinnes and Poland. In fact we could use a couple more people in this department as we're overworked.

The owner says, what business are we in? Making tires or the post office?

Let's just get a 401 k. When the people leave us we shake their hand and send their money to their 401 k.

You can see why companies have dropped their pensions.

[NeedleCast]

75. Rachel and many DU'ers have something in common then

A complete lack of understanding about how 401(k)s work.

[taught_me_patience]

78. Dangerous thinking and completely wrong.

A 401k is pre-tax income...thus you have a 20-40% return on investment right off the bat. Secondly, many companies match a portion of a 401k, which amounts to free money. My company matches 7%... so if I invest 7%, they contribute another 100% of that. That is a 140% return on investment, right off the top. Lastly, there are numerous no load index funds to invest in. If you're young and not investing in stocks, your return is going to be too low for your principle to grow big enough for retirement. I can't believe there are so many DUers buying into this terrible opinion of Maddow.

[Nye Bevan]

85. Not exactly.

Yes, the 401k is tax-deductible, but withdrawals are taxable. So while it is true that (assuming a 30% tax rate for simplicity) putting $100 into a 401k costs you only $70, if you then retire and withdraw that $100 (ignoring investment returns) you will only get $70 back, if your tax rate is still 30%. So you have not exactly earned a return of 30% "off the bat".

A 401k is obviously advantageous if your tax rate after retirement will be lower than your tax rate at the time of the contribution; in my example, if your tax rate has fallen to 25% you will get $75 back and you will have made $5 purely from the fall in your tax rate. Most people would hope to be in this kind of situation but of course it is not guaranteed.

A 401k will also boost your investment returns, because of the tax deferral. Let's say you have an investment that will return 10% (would be nice, wouldn't it). And say the tax rate on that investment is again 30%. And let's assume that your tax rate at the time of contribution and the time of withdrawal is still 30%. Compare the following two strategies:-

1. invest $70 of your after-tax paycheck in the investment. The investment grows to $77. Tax is 30% of $7 or $2.10, so you end up with $74.90, which is a 7% after-tax return on your $70 investment.

2. invest $100 in a 401k, which costs you $70 after the tax deduction, the same as the first strategy. The investment grows to $110. When you withdraw from the 401k you pay 30% tax on $110, which is $33, so you end up with $110-$33 = $77, which is a 10% after-tax return on your investment.

So by using the 401k you ended up with a 10% after-tax return instead of a 7% after-tax return, and you were better off by $2.10.

Of course it's more complex in real life; if we are talking about stocks the tax rate in strategy 1 is currently only 15% (assuming that your investment is taxed as a long-term capital gain). So it's quite possible in the case of stocks that you will not necessarily be better off with a 401k as the holding vehicle, unless your tax rate after retirement is quite a bit lower than your tax rate at the time you contribute. In general it's better to hold tax-disfavored investments in 401k; my 401k is exclusively in bonds, which are taxed at the full income tax rate, and I hold my equities in a separate taxable account.

And of course a company match makes a 401k even more compelling.

[taught_me_patience]

91. Good points

I guess I didn't think of the tax on the withdrawl because it is 25 years away. If you live in a high income tax state like California, you could move to Texas to avoid the 10% state income tax on withdrawl.

In my circumstance the company match makes a huge difference:

invest $100, which costs $70. Company matches $100. The $200 investment grows to $220. Pay $66 on the $220, which leaves $154, which is 120% after-tax return on investment.

I agree, though holding munis in a 401k/ira is dumb dumb dumb!

[A HERETIC I AM]

120. I read this 3 times and ...well...I don't think you really know what you're talking about.

I'm sorry to say.

A 401(k) is NOT "tax deductible". A tax deduction and pre-tax contributing to a tax deferred account ARE TWO COMPLETELY DIFFERENT THINGS.

It is really late and I have to go to bed, but suffice to say, much of what you wrote is factually incorrect.

[Nye Bevan]

127. Contributing to a 401k with pre-tax dollars is equivalent to having a tax deduction

In strategy (2) in my example, you invest $100 in a 401k. This $100 comes from pre-tax dollars. If you had not invested in the 401k this $100 would have been taxed at 30% and you would have ended up receiving $70 extra in your paycheck. This is economically equivalent to making a $100 contribution to the 401k which is tax-deductible; the tax deduction reduces your taxes by $30 which means that again the $100 contribution costs you only $70. So saying that 401k contributions are tax deductible is strictly speaking not true, but the economic outcome is exactly the same as if they were ($100 goes into your account at an after-tax cost to you of $70).

[A HERETIC I AM]

128. OK....Dammit, I'm still up! 1st of all, there is no 30% tax bracket.

http://www.taxbrackets2011.com/

To get above 25% you have to have an income above $83,600, then it's 28% to $174,400.

It isn't 33% till you are over that $174K figure.

So....who's your audience here? While I know for a fact there are plenty of DU'rs that make that kind of money, I don't think too many of them are responding to this thread.

So using your 30% rate "for simplicity" stretches the truth rather dramatically. Damned few people who take a distribution from a 401(k) are going to pay anything close to 30 % on that money.

your scenario #1;

1. invest $70 of your after-tax paycheck in the investment. The investment grows to $77. Tax is 30% of $7 or $2.10, so you end up with $74.90, which is a 7% after-tax return on your $70 investment.

Well, you admit in a lower paragraph that the 30% figure isn't how is happens in real life. So then why use such an outrageous example when reality is quite simple and easily searchable? That $7 gain is, as you said, only taxed as a long term capital gain if held for longer than a year but only if you sell! What about dividends? Capital gains are one of the best reasons to use tax deferred accounts because you don't get hit with the tax, regardless if they are short or long term gains, till you draw the money out and then it is taxed as ordinary income, NOT necessarily at the highest rate.

Your scenario #2;

2. invest $100 in a 401k, which costs you $70 after the tax deduction, the same as the first strategy. The investment grows to $110. When you withdraw from the 401k you pay 30% tax on $110, which is $33, so you end up with $110-$33 = $77, which is a 10% after-tax return on your investment.

Again, why use such an outrageous figure or calculating when you know (or claim to) it isn't the case for most people. The only way ANYONE would pay that much in taxes on money distributed from a 401(k) or an IRA is if they had other income, investment or otherwise, that was so high as to push that other income into the higher bracket. In that case, you're talking about damned few DU'rs and a select group of Americans in general.

So it's quite possible in the case of stocks that you will not necessarily be better off with a 401k as the holding vehicle, unless your tax rate after retirement is quite a bit lower than your tax rate at the time you contribute. In general it's better to hold tax-disfavored investments in 401k; my 401k is exclusively in bonds, which are taxed at the full income tax rate, and I hold my equities in a separate taxable account.

Wrong. If you have a lot of years left to retirement and you want to be an investor, a tax deferred account, be it a 401(k), a Traditional IRA or a Roth IRA are the BEST places to do stock trading because your capital gains aren't taxed on an annual basis. (yes, I know that the possibilities for "trading" in a 401(k) are limited) You are forgetting, or at least aren't mentioning that gains can be re-invested and the gains from that investment are ALSO not taxed on an annual basis, ad infinitum till you draw the money out.

This is the bit that really caught my eye;

'I hold my equities in a separate taxable account."

Why, for fucks sake? Well....while there may be numerous reasons you do this, from being forced to because your income is so high that you can't use an IRA to the fact that you received an inheritance that wasn't tax qualified money, to perhaps you like trading options, the fact is, if your equity account was a tax deferred account and you traded heavily and were any good at it, your annual tax bill would be lower. A LOT lower.

And for what it's worth, the income you receive from your bonds and/or bond funds held in your 401(k) would be treated as ordinary income if those bonds were held in a plain vanilla trading account. And unless you are making so much from those bond investments that you need the tax qualified protection (which means you have a HUGE 401(k) balance) you might have been better off using the 401(k) for equities and bought Muni bonds in your taxable account.

But hey. It's your money.

But please....use a more realistic tax rate in your examples. It's hyperbole and serves no purpose other than to scare people. No one pays 30% in these scenarios. Not even close. Certainly no one reading this thread.

[Nye Bevan]

134. I used 30% just to make the numbers simpler.

I could have used 25% or 28% or 33%; the math would have been a little trickier, but the conclusion would have been the same. A 401k provides the greatest advantage for investments whose tax treatment is the least favorable when they are held in a taxable account, namely taxable bonds. Here is a link that explains this further:

http://money.cnn.com/retirement/guide/investing_taxes.moneymag/index7.htm

What investments are best in IRAs and 401(k)s?

Your taxable bonds and taxable bond funds. Outside a retirement account, they'd be taxed much harder than your stock funds: You get taxed on bond interest as ordinary income - the federal rate can be as high as 35% - versus a capital gains rate of 15% on stocks you've held more than a year.

[Evasporque]

89. factor in what percentage of people actually can keep the money in a 401k until retirement?

A significant percentage of people are losing jobs and homes, getting sick and being forced to cashout... resulting in taxation and penalties...

If you factor in that number... (if anyone cares to research that) you will find that the 401k is a bigger gamble than it looks.


I would bet the number is somewhere for a 20 something starting a 401k now to make it all the way to retirement...probably in the single digits...

YOU DON"T KNOW what is going to happen...finance people all assume life is a born, growup, school, work, retirement...we'll that shit ain't happening anymore...it happened for maybe two generations...

401k is a bullshit scam...

[Harmony Blue]

81. Pensions > 401(k)'s

I grew up with relatives who had access to pensions, and compare to what many others receive from 401(k)'s. I have the power of being able to compare, but it seems like a generation will not be able to make such a comparison to see the differences.

[Evasporque]

88. 401k was to funnel money from working class out of union pensions into stock market

Everything goes into the stock market....

[sarcasmo]

90. Been saying this for years, Kick!

[glinda]

92. K&R nt

[crazyjoe]

96. total bullshit, 401k is a great way for the average person to

save for retirement, even in this economy. this money goes in tax free, and grows tax free. your only taxed when you withdraw.

[noiretextatique]

98. 401k hardship withdrawals near record

The numbers show that times are still tough financially.

More workers are taking money from their 401(k) accounts early and using the hardship withdrawal rules to give them access to needed cash. The lingering high unemployment rate and slew of home foreclosures have been major factors.

Companies with retirement plans are reporting a rise in the number of workers who are withdrawing money early. Last year, 6.9 percent of 401(k) account-holders made a withdrawal, near the record high of 7.1 percent in 2009. About 20 percent of the withdrawals were for hardships.

Before the 2008 economic downturn, about 5 percent of workers withdrew money from their account each year.

Some 63 percent of retirement plans experienced an increase in hardship withdrawals in the past two years, according to research by business consultant Aon Hewitt.

The most frequently cited reason for hardship withdrawals last year was to avoid a home eviction or foreclosure.

http://bangordailynews.com/2011/09/20/business/401k-hardship-withdrawals-require-serious-thought/

[hughee99]

101. And why are people able to withdraw money from 401K's?

Because they have money in there. Money that, unlike certain pension funds, will continue to be there even if the company they work for files for bankruptcy. Yes, I can lose a lot of money in my 401k depending on how I allocate my funds, (just like pension funds that were supposed to be managed by experts), but I can also take a very conservative approach. Its up to me.

[noiretextatique]

102. no...it is not "up to you" if you are losing your house

and need money. it is the only source of money to save your house if you are unemployed or underemployed, or sick or any number of other real world situations in a shitty economy. the 401k may be the only source of money to pay your bills if you exhaust your unemployment or your savings. you seem to live in a bubble that most people in the real world do not have the luxury of occupying.

my supervisor got fired without cause. she was denied unemployment for months and had to wait for an administrative hearing. she had ZERO income because of the illegal actions of the company and was forced to take money from her 401k to save her house from foreclosure. she eventually won her unemployment claim and won a settlement from the company, but that took over a year. she had no choice. given the statistics in the article i posted, her situation is not uncommon in the current economic environment. stay in your bubble, if you choose.

i also got fired...without cause...and had some expenses i had to cover, without the income and savings to cover. i will likely recoup some money because i filed a complaint with the EEOC, but i haven't been able to find a job in almost two years, and i have a M.A. and marketable skills. i can only imagine what it must be like for people with marginal skills and education. i will probably win my case, eventually and recover some of what i lost, but none of what happened was "up to me."

[hughee99]

103. It's up to you how you invest the money in your 401k.

You can be conservative or aggressive. You can lose your shirt or make modest returns. That's the part that's up to you. A person's 401k's performance isn't the reason one is unemployed or are losing their house.

[noiretextatique]

106. non-sequitur

but thanks for playing anyway :hi:

[hughee99]

109. Ridiculous

The OP is about how a 401K is a fucking for those who have them and only benefits the bank. The 1st response to which you were referring is that they disagree with this point and feel the 401k is good for workers and their retirement savings. You pointed out that people are withdrawing 401k money because they need it now. Regardless of what they're doing with the money, you've certainly help to reinforce the point that it does have value.

MY point is that the 401k certainly has value to the worker, whether used for retirement savings or emergency funds. I may have misunderstood your post, where I thought you were supporting the OP's point of view (that 401k's are a "total scam"), in which case I'm not arguing to the point you're addressing and I apologize.

[noiretextatique]

111. total scam = emergency funds + penalty + taxes

= regressive tax - pre-tax benefits = total scam.

[hughee99]

159. Granted using it as an emergency fund is not the way it was

designed to be used, however as RETIREMENT savings:

pre-tax growth + employer match (if available) + choice of investment strategies + no chance your retirement disappears because your company went under and screwed you out of your pension != total scam.

[crazyjoe]

130. So your point is 401K is a scam because the money is available

if you need it? Really?

[noiretextatique]

145. available...at a cost

given the economic crisis. it is absurd to punish people for using that money to keep themselves alive.

[crazyjoe]

161. That's a little dramatic don't you think? A 401K is a retirement

savings account, there has to be a penalty for early withdrawal or it just becomes a tax deferred savings account. What's absurd is your understanding of the issue.
If you think it's such a ripoff, don't sign up. But don't try to convince other people it's a ripoff, because it isn't, and you don't know what your talking about.
I'm interested though, what are you doing to save for retirement? What is your grand plan?

[Common Sense Party]

121. Most people who dislike 401(k)'s think employers should bring back pensions.

If you're losing your house to foreclosure, how much money do you think you can you withdraw from your company pension?

[crazyjoe]

129. +1

[Name removed]

108. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Major Hogwash]

135. Not according to Rachel, me, and about 45 million other Americans who took a bath in the last years

I swear to gawd, some people just don't get it.
Your money can be stolen "just like that" *snaps fingers* and you have absolutely no fooking recourse.

Q: If the 401K plans were so freakin' great, then why did Wall Street invent derivatives??
A: So they could gamble with the money saved up in those 401K plans!!

See Bernie Madoff for a better understanding of how financial markets work.

[noiretextatique]

146. +1000

i am almost glad i had to use all my 401k money to live...at least i didn't lose it all to enrich someone else.

[sarcasmo]

153. +1

[ecstatic]

104. Does she have one?

I don't, but it seems like everyone on TV does.

[LadyInAZ]

105. Likes this discussion...

[SixthSense]

110. I coula told you that

Any close look at a 401(k) program will leave you with the distinct - and correct - impression that it's a game of "trust us with your money".

[Turn CO Blue]

112. PBS had a special a couple of years ago about 401k vs pensions

and concluded that a pension plan manager had to do well each year to keep his/her job, and so pensioners were, of course, far better off and the money grew at faster rates and was safer, etc.

The show also went well into Nixon, the ramp up and who was involved and why 401k's were catapulted onto unsuspecting citizens.

We should find info about that show - it really, really was informative and clearly outlined what a friggin' scam it is.

[quaker bill]

113. It is actually worse than that

they were also created with the political intent of making the average worker feel he/she has a stake in the game where only the 1% really profit. In short they wanted to give us the illusion that our interests were the same as the CEO's. It was never true, CEO's have options no 401K can or will ever offer.

[Common Sense Party]

119. No, Rachel is "reporting" a huge opinion.

And an ill-informed one.

Are 401(k)'s perfect? Definitely not.

Are pensions perfect? Definitely not.

Can someone armed with some basic investment education and some patience and self-discipline do well with a 401(k) over the LONG term? Yes.

Can someone who hasn't received much education (or hasn't availed themselves of the education offered), and with little patience and little self-discipline blow themselves up with a 401(k)? Yes.

A 401(k) (or 403b or 457) is not going to be right for everyone.

But for some people they're the only likely hope of saving a significant amount for retirement.

[A HERETIC I AM]

122. Hey man! Still up?

Oh yeah...Mountain time.

2:42 Eastern time, even though I am sitting in the Central time zone. Still, been up since early. Been a long day.

Lots of typical mis-info in this thread, eh?

Ah well....perhaps we should put together a primer for DU and properly define terms for those that seem to misunderstand the basics of these types of accounts.

Hope you're well.

[Common Sense Party]

124. Acually I'm in Pacific zone tonight. Down here in Vegas, working for

the weekend. Woo hoo.

A primer might help, but I think it would be predictably thrashed by people who elieve that all investments and all corporations are eeeeeevil.

[A HERETIC I AM]

126. LOL...you're probably right.

Well....hey! Have fun in Vegas if you can.

OK...time for bed.

Be good.

[crazyjoe]

131. I recommend not getting financial advice from DU. or Rachel.

[sendero]

132. Putting your money in the stock market..

... is like taking it to a casino. There was a time when an individual could actually invest in companies and share in their success. That is no longer true. No matter how "investment savvy" you are or think you are, the stock market in America is a game rigged to give every advantage to the big players, hedge funds, high speed traders, etc - and to fleece the "retail" ( that's you ) investor.

I will never put another dime in the stock market and I frankly don't understand how anyone could fail to see that it is just rigged against them at this time and for the foreseeable future.

[rdking647]

139. if you have more than a 2 week time frame

the stock market is the way to go.. my portfolio earns nearly 7% with not a lot of risk. and some of teh stocks in it i've held since before the 2008 crash and are much higher since then..

investing in the market is fine as long as you do it yourself and dont let a full service broker do it for you

[sendero]

151. You are just like the folks....

... who were making money in 1999 and 2006. When the big boys decide it is time to get out, you will get creamed.

The stock market at this very moment is being propped up by zero interest rates and other shenanigans. If you think you are "investing", well I think you are mistaken.

[B Calm]

154. BINGO!!!

[B Calm]

133. Wall Street is milking the middle class, cont.

It doesn't matter how damn diversified you are. Americans need to face up to the fact that their 401K $20k, $100k and $500k stock investment portfolios are not going to do any thing for the economy while big companies like Microsoft are taking their profits to invest in China, India, Brazil and Eastern Europe.

The average 401K investor is subsidizing Global industrialization with no benefits for them. Once they wake up to this fact the market is going to going to get dumped big time.

[randr]

141. Best financial report of the year

This is a must see for all American's.

[Sgent]

148. Depends on the company -- A 401k by itself is not a bad thing

its just a section of the tax code which delineates certain self directed retirement accounts receive tax free treatment.

I know of employers that provide a 401k -- with matching -- IN ADDITION to a regular pension.

For those employee's, its great way to make up the third level of the three legged stool.

[Sen. Walter Sobchak]

149. 401K's aren't a scam, they were just never intended to be used this way

The purpose of the 401K (a section of the tax code) was to grandfather a common sort of employer sponsored investment plan from changes to the tax code. My dad actually has one of the pre-401k's which was in addition to his pension. They have been around since the 1950's and first caught on in Canada.

401K as the basis of a retirement system blindsided almost everyone.

An excellent article: http://www.ifebp.org/PDF/webexclusive/06feb.pdf

[mainer]

150. My dad had a "pension plan". The company stole it.

It was supposed to be a fixed benefit plan. But this was back in the 60's, before pension protections were passed. The company raided it, and in the end, after 25+ years of working for that company ( it was a defense contractor!), my dad probably got about $50 a month.

So fixed benefits sound good, but who's administering it?

[ipaint]

160. Elizabeth Warren agrees.

"Much of the law governing 401(k)s and much of the push toward 401(k)s was not driven by ordinary workers who were looking for a way to set a few dollars aside for their retirements. It was driven by CEOs who were looking for tax protection in order to maximize the value of their retirements. ... If you read the legislative history ... of the 401(k), it's clear this was a little tax break and special protection for people on a very high margin, the folks who made lots and lots of money. ... That's the irony. What it was designed for and what it's being put to use for are totally different from each other. ..."

"And what about the other experiment, which is the 401(k)? ...

The 401(k) experiment is coming into its own now. More and more, employees will be asked to cover it all themselves. That can be the good news in a rising stock market. That can be the good news if you don't get really sick when you get old. That can be the good news if you don't live very long after you retire. But all of those risks on each individual worker.

The way I look at is ... that all the little boats out in the harbor were linked to each other, and if one sprung a really bad leak, the rest of them kind of held it up. That was what defined benefit pension plans were like. Now ... all those little boats have been cut loose from each other. If one sinks here and one sinks over there, ... they just sink. If you happen to be on a boat that floats, you'll do fine, but if you're not, you drown."


http://www.pbs.org/wgbh/pages/frontline/retirement/interviews/warren.html


401k's are just another conservative attack on workers. Combined with changes to worker protections in our laws they have successfully destroyed pensions. Survival of the fittest and to hell with the losers.