tag:blogger.com,1999:blog-14245531.post115108524213776175..comments2023-11-18T01:21:55.631-05:00Comments on My Open Wallet: 401Ks: still unproven?Madame Xhttp://www.blogger.com/profile/11536189690094235926noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-14245531.post-1152051503739671592006-07-04T18:18:00.000-04:002006-07-04T18:18:00.000-04:00The typical 401K account has a pretty serious shor...The typical 401K account has a pretty serious shortcoming if you plan on leaving your estate to children.<BR/><BR/>If you die and leave your 401k to a non-spousal beneficiary, that beneficiary is generally required to take a full disbursement (and pay income tax on...) the entire account. Let's say you're paying a marginal 25% income tax rate while contributing to the 401k, and the person who inherits your 401k is paying a marginal 45% rate (federal + state). That's considerable value lost.<BR/><BR/>Even worse, estate taxes are determined by the pre-taxed portion of the 401k (though partially offset by an IRD deduction).<BR/><BR/>For this reason, it seems prudent to move funds from a 401k to a traditional IRA whenever the opportunity presents itself (generally when leaving a job). The traditional IRA can be passed on in a tax-advantaged fashion to beneficiaries.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151634547267960192006-06-29T22:29:00.000-04:002006-06-29T22:29:00.000-04:00"Yes, but the absence of a pension may be a contri..."Yes, but the absence of a pension may be a contributing factor to job hopping."<BR/><BR/>True. However, I would rather hop to a better job rather than being tied down to a lousy job by a pension. My father went through that.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151549493685142812006-06-28T22:51:00.000-04:002006-06-28T22:51:00.000-04:00"Average tenure at a job these days is under 3 yea..."Average tenure at a job these days is under 3 years. There is no pension plan ever built that supports this."<BR/><BR/><BR/>Yes, but the absence of a pension may be a contributing factor to job hopping.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151451447191770502006-06-27T19:37:00.000-04:002006-06-27T19:37:00.000-04:00bitty,I hope that 40% guaranteed income is indexed...bitty,<BR/>I hope that 40% guaranteed income is indexed for inflation. Otherwise, the payments will effectively decrease each year, to become virtually worthless if you end up living a long time.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151429313037872362006-06-27T13:28:00.000-04:002006-06-27T13:28:00.000-04:00When I came to work at MyU four years ago, I signe...When I came to work at MyU four years ago, I signed up for the defined benefit plan. The human resources folks kept asking if I was SURE (and apparently I still get one more chance to convert to 401k-like system if I choose), but I was very sure. <BR/><BR/>Why?<BR/><BR/>Several of my relatives lived to be quite elderly; my grandmother recently died at age 93. I may not live that long, but I doubt I could accumulate enough wealth to cover more than 20 years of retirement, so I'll happily go with a plan that will guarantee me 40% of my base income after 20 years of employment. (Unlike some other workers, my movement from job to job is behind me unless they toss me out, which is unlikely.)<BR/><BR/>Maybe this is naive. Maybe. If I die at an early stage of retirement (or pre-retirement), I suppose I blew it.<BR/><BR/>But all of life is calculated risk, yes? And we base that calculation on what we know; I know I come from hardy genes.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151213335453900622006-06-25T01:28:00.000-04:002006-06-25T01:28:00.000-04:00Vesting after 3 years, or 5 years, does not help i...Vesting after 3 years, or 5 years, does not help if the average tenure is closer to 2 years per job. That, and the amount a pension is worth after 5 years is incredibly small, given the pension math.<BR/><BR/>I'm not saying 401ks have everything solved, but the idea that pensions have any place in the modern workforce is not accepting the reality that people do not work for long stretches for the same company. Which, BTW, is a great thing for the economy, since the rapid growth of new companies is directly related to the ability of great people to switch to new companies that didn't even exist five years ago.<BR/><BR/>I think you'll find that 5 years at one place, 3 at another, 8 at another, etc would leave you with a pension that pays next to nothing.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151110955893647472006-06-23T21:02:00.000-04:002006-06-23T21:02:00.000-04:00Take a look at this interview from Brooks Hamilton...Take a look at this interview from Brooks Hamilton, who was active in promoting the swtich to 401(k)s, and now regrets it: http://www.pbs.org/wgbh/pages/frontline/retirement/interviews/hamilton.html Among many other things, he talks about the "yield disparity" between lower-paid workers and higher-paid workers. It's a fascinating and troubling read.<BR/><BR/>(It's via this post from Make Love Not Debt: http://www.makelovenotdebt.com/2006/05/are_401k_plans_discriminatory.php)<BR/><BR/>And anonymous (@ 8:38pm), pensions must be vested after no more than 5 years (if it's all at once, or partial vesting that starts at 3 years and is full by 7 years). Obviously you're not going to get as much after 5 years as you would after 30, but if you have 5 years at one place, 5 at another, 10 at another...Britthttps://www.blogger.com/profile/02936348981871298702noreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151109486346266812006-06-23T20:38:00.000-04:002006-06-23T20:38:00.000-04:00Of course, this ignores the fact that pensions onl...Of course, this ignores the fact that pensions only work if you stay at the same company for 30 years, which absolutely no company guarantees, and likely leads to less desirable career options and growth for people.<BR/><BR/>True, pulling money out of a 401k when you leave a job is dumb, but when you leave a job with a pension, for the most part, you get basically nothing, unless you were there for a very long time.<BR/><BR/>Average tenure at a job these days is under 3 years. There is no pension plan ever built that supports this.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151101379999956302006-06-23T18:23:00.000-04:002006-06-23T18:23:00.000-04:00Well, considering how irresponsible most people ar...Well, considering how irresponsible most people are with their money, I wouldn't be surprised to find that 401ks don't work as well because they require some amount of vigilance and a willingness to contribute out of one's paycheck. There many who prefer to have the money now. And let's not forget what happens when you leave a job...don't you have the option to pull out of your 401k at a penalty? Sad, but people do it.Nataliehttps://www.blogger.com/profile/04123455962036602124noreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151097364396620982006-06-23T17:16:00.000-04:002006-06-23T17:16:00.000-04:00I've been in the work force since 1976. I've been ...I've been in the work force since 1976. I've been contributing to 401k plans since around 1987. With the company matches included I have amassed a balance of about $500k in my 401k accounts. But this is only a portion of the retirement funds I think I will need before I move into the retirement phase of my life.<BR/><BR/>I also have close to the same amount in a taxable investment account.<BR/><BR/>The equity in my home and cash accounts makes up another equal chunk. My goal for retirement is a a total net worth of $2.5 million (including home equity.) When I have achieved that level for 6 months running, it will be time to retire.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-14245531.post-1151089383581726002006-06-23T15:03:00.000-04:002006-06-23T15:03:00.000-04:00I have seen people amass several hundred thousand ...I have seen people amass several hundred thousand in 401k plans. On average, of course, they were high income individuals who had maxed out their plans for at least the last 20 years or so. Even for them, it, alone, is not enough for retirement. Most have homes paid off, or significant other resources in order to retire comfortably.Anonymousnoreply@blogger.com