The Champions of the 401(k) Lament the Revolution They Started

[UKGrad93]

I've read several articles about this. The creators of the 401k apparently knew nothing about human behavior. The 401k/403b system works just fine for people that choose delayed rewards. It doesn't work for instant gratification, which is most people.

Having said that, letting the average Joe or Jane manage a big chunk of money over a long period of time is a recipe for disaster.

 

[Perrin75]

FYI, I changed the link to the one in Yahoo Finance. Wall Street Journal wasn't blocking it when I created the link

 

[crazyqx83_rivals88013]

IMO, crazyqx's issues run far deeper than not having a retirement account to fund.

I actually do have a retirement account, so I guess by default my issues do run deeper than that.

 

[LineSkiCat14]

I've read several articles about this. The creators of the 401k apparently knew nothing about human behavior. The 401k/403b system works just fine for people that choose delayed rewards. It doesn't work for instant gratification, which is most people.

Having said that, letting the average Joe or Jane manage a big chunk of money over a long period of time is a recipe for disaster.

I've had a few friends borrow against theirs or even take the hit and pull from it. I tried to tell them that's not what it's for. You just have to let it sit there. Yes, it relies on the economy and if you're younger, could be heavily tied to the stock market. So it's volatile. But it seems to be the safest bet. Chances are you're gonna have a few hundred thousand by the time your 50.. it's so easy. Takes no effort. And I can't imagine are more "sure" way to set yourself up for the future.

 

[CatsFanGG24]

^ In a lot of situations you cant pull from it even if you wanted to.

 

[Perrin75]

There really shouldn't be any situations where you can take money from a Retirement account before you've met the criteria for retirement. This Week Tonight actually did a pretty good episode on how to choose a Retirement Account and some important things to look for. The clip has some good advice in it.

 

[Supreme Lord Z]

Saw this article in the Wall Street Journal today and thought I would share. It looks like we are heading into a massive financial problem as the first generations of 401K retirees hit. Add this into a job market that will be shedding a huge percentage of jobs due to automation over the next 5 to 10 years and it could be the perfect storm for Depression Level financial collapse.

The article points out that the 401(K) was never designed to replace a traditional pension program, and its short comings are becoming very apparent. It also talks about current proposed solutions which include "a mandated, government-run savings system that would be administered by the Social Security Administration and managed by investment professionals" or "a national mandate on savings or requiring companies to automatically enroll participants at 6% of pay."

Both of these proposals sound like they will go nowhere in congress, and even if they did they would probably end up botched beyond all belief like our latest efforts to reform healthcare. This is already a serious problem, that has the potential to be catastrophic in a decade. Anyone out there getting near retirement age and wondering how they are going to make it happen?

The biggest golden egg in Washington that all the crooks have been after the longest is the desire to completely loot Social Security. That is the biggest pie in town that they are itching to cut up and add to their sloth. Free money from stupid people that don't know they've even been robbed.

 

[DSmith21]

About 40% of the people who have access to 401ks at work, don't participate. That is a huge problem. Who do those people think is going to support them in their retirement/old age?

 

[crazyqx83_rivals88013]

About 40% of the people who have access to 401ks at work, don't participate. That is a huge problem. Who do those people think is going to support them in their retirement/old age?

The gubmint.

 

[CatsFanGG24]

There really shouldn't be any situations where you can take money from a Retirement account before you've met the criteria for retirement. This Week Tonight actually did a pretty good episode on how to choose a Retirement Account and some important things to look for. The clip has some good advice in it.

Have to disagree with that - hardship withdrawals using the safe harbor regulations are pretty reasonable.

 

[LineSkiCat14]

^ In a lot of situations you cant pull from it even if you wanted to.

That's basically determined by the financial institution, correct?

I know a few scenarios, that I thought applied to all, but maybe just some: You can borrow against your 401k with no penalty, provided that you pay it back at a certain point. I think you just deduct part of your salary as means of payback. Bad for two reasons: 1. your income just dropped and 2. you're not maximizing your earnings. If you take 30k out for a DP on a house (a friend did this), then you can't make money on that 30k, and it could cost you much more down the road.

You can also take it out for any reason, such as a medical emergency, but you're going to get hit with pretty bad fees. This is a worse deal than above.

Either scenario you really should avoid. But pretty sure they don't stop this.

 

[LineSkiCat14]

I don't know much about investing, but I'm sure there are some scenarios out there, if you're so lucky to stumble upon them, that putting your 401k into a different investment could be a better deal in the long run. Maybe a business opportunity. But again, it's tough to beat, especially companies that match 4%+

 

[CatsFanGG24]

That's basically determined by the financial institution, correct?

I know a few scenarios, that I thought applied to all, but maybe just some: You can borrow against your 401k with no penalty, provided that you pay it back at a certain point. I think you just deduct part of your salary as means of payback. Bad for two reasons: 1. your income just dropped and 2. you're not maximizing your earnings. If you take 30k out for a DP on a house (a friend did this), then you can't make money on that 30k, and it could cost you much more down the road.

You can also take it out for any reason, such as a medical emergency, but you're going to get hit with pretty bad fees. This is a worse deal than above.

Either scenario you really should avoid. But pretty sure they don't stop this.

Determined by the plan document//employer when they set the plan.

Some plans permit loans from 401k - pay yourself back w/interest pretty much.

Hardship withdrawals are the ones you are speaking about such as medical emergency - if permitted by the plan they can cover costs that insurance didn't take care of - but there are specific guidelines and not too many reasonings to be able to take the hardships.

 

[DSmith21]

That's basically determined by the financial institution, correct?

I know a few scenarios, that I thought applied to all, but maybe just some: You can borrow against your 401k with no penalty, provided that you pay it back at a certain point. I think you just deduct part of your salary as means of payback. Bad for two reasons: 1. your income just dropped and 2. you're not maximizing your earnings. If you take 30k out for a DP on a house (a friend did this), then you can't make money on that 30k, and it could cost you much more down the road.

You can also take it out for any reason, such as a medical emergency, but you're going to get hit with pretty bad fees. This is a worse deal than above.

Either scenario you really should avoid. But pretty sure they don't stop this.

There are several universal government mandated reasons that you can take a hardship withdraw from your 401k. Also 401k plans can have loan provisions if your employer so chooses to offer a loan option. So hardships provisions are determined by the government and loans by your employer.

 

[LineSkiCat14]

Ah gotcha. Yeah, I think I can borrow against mine. Still don't like the idea.

Can't you take the money at any time for any reason though, with the stipulation being that you're going to take a BIG penalty. I was kind of under the impression you could do what you want with it, but they are making sure "they get theirs".

 

[DSmith21]

Ah gotcha. Yeah, I think I can borrow against mine. Still don't like the idea.

Can't you take the money at any time for any reason though, with the stipulation being that you're going to take a BIG penalty. I was kind of under the impression you could do what you want with it, but they are making sure "they get theirs".

If you switch jobs, you can raid your 401k by taking possession of the money rather than rolling it into another retirement vehicle. Typically you are going to need a hardship reason defined by the IRS to take out money without having to pay it back while with the same employer. If you take a hardship under age 59 1/2, you will owe a 10% penalty plus all the money you take out will also be taxable at your marginal rate. So if you are in a 25% bracket you will pay 35% (25% tax rate + 10% penalty) of your hardship withdraw to the government.

From the IRS:

For a distribution from a 401(k) plan to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee's spouse or dependent. (Reg. §1.401(k)-1(d)(3)(i))

Whether a need is immediate and heavy depends on the facts and circumstances. Certain expenses are deemed to be immediate and heavy, including: (1) certain medical expenses; (2) costs relating to the purchase of a principal residence; (3) tuition and related educational fees and expenses; (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence; (5) burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee's principal residence.

 

[crazyqx83_rivals88013]

I don't know much about investing, but I'm sure there are some scenarios out there, if you're so lucky to stumble upon them, that putting your 401k into a different investment could be a better deal in the long run. Maybe a business opportunity. But again, it's tough to beat, especially companies that match 4%+

How would this even work?

There is a reason that pretty much all 401k plans are in stock/security type investments and if you think it's to benefit the employee, I have some beachfront property in tennessee to sell you.

 

[KopiKat]

If Roth and 401's aren't the answer, then what??

Owning a home free and clear prior to the age of 40
living in a completely paid for home for a majority of your working life
having absolutely NO DEBT going into retirement or in the years approaching retirement
having never missed out on all employer 401k matching dollars nor maxing out Roth IRAs. . . . every year.
never co-signing for another person's loan . . . never
never, ever, never, ever carrying over credit card debt . . . pay it off every single month as the bill comes due. It is a convenience card that those financial institutions WANT you to use as a credit card. Difficult to do without, particularly if you travel for work out of the country.
automobile purchases and vacations . . . these two things compound themselves over the course of a lifetime with the ability to STEAL for an entire retirement savings when the total and potential compounded interest are considered. NO F'KING LIE !!
Watch your expenses . . every single day that you live. Save money at every possible turn. If you like to buy new stuff from time to time, make sure it holds value, and can be sold for that value if you so need.

 

[mdlUK.1]

One thing people don't know (and it may have changed), you can start taking money from a 401k at any time without penalty.

But the rule is, you have to take a fixed amount for 5 years or until you are 59 1/2, WHICHEVER IS LONGEST.

If you have to change the amount for any reason, THEN you have to go back and pay the penalty on all of the money you received.

So, for most people, it is not worth the risk. I did it but I was already 58. So, I had to take the 5 year option.

 

[LineSkiCat14]

If you switch jobs, you can raid your 401k by taking possession of the money rather than rolling it into another retirement vehicle. Typically you are going to need a hardship reason defined by the IRS to take out money without having to pay it back while with the same employer. If you take a hardship under age 59 1/2, you will owe a 10% penalty plus all the money you take out will also be taxable at your marginal rate. So if you are in a 25% bracket you will pay 35% (25% tax rate + 10% penalty) of your hardship withdraw to the government.

From the IRS:

For a distribution from a 401(k) plan to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee's spouse or dependent. (Reg. §1.401(k)-1(d)(3)(i))

Whether a need is immediate and heavy depends on the facts and circumstances. Certain expenses are deemed to be immediate and heavy, including: (1) certain medical expenses; (2) costs relating to the purchase of a principal residence; (3) tuition and related educational fees and expenses; (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence; (5) burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee's principal residence.

Hoya! Yeah I figured it was something like this. Just not worth it unless it's a true "hardship"

 

[LineSkiCat14]

How would this even work?

There is a reason that pretty much all 401k plans are in stock/security type investments and if you think it's to benefit the employee, I have some beachfront property in tennessee to sell you.

I'm not arguing who it benefits. TBH, I;ve never even thought of what this means for the employer until now.

As for better options, think of any business, really. Anything that could potentially make you a millionaire in 10-20 years. Maybe you own a few bars, maybe a lot of apartment buildings. Or just some money making idea, that could get you enough money to cover the potential of a $1-2mil retirement fund.

My 30th was at a local bar the other night. He owns two bars and a row of apartments, for sale right now for $3.5 million, There's his retirement.

 

[UKserialkiller]

Hoya! Yeah I figured it was something like this. Just not worth it unless it's a true "hardship"

Basically, if you lose your job on the same day that your wife, who's employed, is brutally murdered on the street. Then, that will kick in the hardship waiver. IRS knows that you have to take care of your kids.

 

[LineSkiCat14]

Owning a home free and clear prior to the age of 40
living in a completely paid for home for a majority of your working life
having absolutely NO DEBT going into retirement or in the years approaching retirement
having never missed out on all employer 401k matching dollars nor maxing out Roth IRAs. . . . every year.
never co-signing for another person's loan . . . never
never, ever, never, ever carrying over credit card debt . . . pay it off every single month as the bill comes due. It is a convenience card that those financial institutions WANT you to use as a credit card. Difficult to do without, particularly if you travel for work out of the country.
automobile purchases and vacations . . . these two things compound themselves over the course of a lifetime with the ability to STEAL for an entire retirement savings when the total and potential compounded interest are considered. NO F'KING LIE !!
Watch your expenses . . every single day that you live. Save money at every possible turn. If you like to buy new stuff from time to time, make sure it holds value, and can be sold for that value if you so need.

This is great stuff. Most people my age don't/won't do a quarter of it.

Maxing out the Roth IRA is difficult for me. It's just one of those things I can't really afford right now. 6% 401, 5% stock purchase program, 15% into savings for a two-family home so I can start living for close-to-free by having a tenant in the other half. I only get about $1,200 a year into my Roth IRA through vangaurd, but I plan on upping it close to half the max contribution.

I even decided that I'm going to hold onto my car for as long as possible so I can get a few years with no car payment.

Student loans paid off. Living with a friend for only $450/month rent. I sometimes steal food from my mom's house.

I might as well be Maury Goldstein from the Great Depression era..

 

[Supreme Lord Z]

Live like a miser and die with money in the bank. You guys are really onto something. Just eat bark and toast with a nice glass of warm water. Live in a fungal growth. Never spend a penny. Eat the free samples at Sams. Never give a Christmas gift. Yep, you guys have all the answers to a happy life if playing virtual monopoly is your idea of "living". Wait till you're so old you can't even take a step outside then count your money. Woo Hoo! I won! MONOPOLY!

 

[mdlUK.1]

Live like a miser and die with money in the bank. You guys are really onto something. Just eat bark and toast with a nice glass of warm water. Live in a fungal growth. Never spend a penny. Eat the free samples at Sams. Never give a Christmas gift. Yep, you guys have all the answers to a happy life if playing virtual monopoly is your idea of "living". Wait till you're so old you can't even take a step outside then count your money. Woo Hoo! I won! MONOPOLY!

Never did any of those things but was still able to fund a 401k.

 

[Supreme Lord Z]

Well anyone that turns down matching contributions should have their head examined. A few years ago I had a 30+ year employee retire and tell me they never contributed to the plan. I, of course, quickly calculated how much they lost and then showed them... you should have seen the look on their face.

It's basically a raise. Turning that down is the surest sign of stupidity there is.

 

[LineSkiCat14]

Live like a miser and die with money in the bank. You guys are really onto something. Just eat bark and toast with a nice glass of warm water. Live in a fungal growth. Never spend a penny. Eat the free samples at Sams. Never give a Christmas gift. Yep, you guys have all the answers to a happy life if playing virtual monopoly is your idea of "living". Wait till you're so old you can't even take a step outside then count your money. Woo Hoo! I won! MONOPOLY!

Or a different take: living above your means but often times paycheck to paycheck, getting into debt, not affording medical bills that pile up and continuing this vicious cycle until it kills you because of poor health and money stress.. But hey, that Beamer 3 series with zero money down for 7 years was a lot of fun, right!

I prefer taking 1 step back to take 5 steps forward. I'll sacrifice a new car, that extra vacation and thousands on new "toys" every year.. so I can put a few tens of thousands of dollars towards an investment, that adds to my income.

May not have the 3 series now, but I'll own my own 7 series down the road.

 

[KopiKat]

Most people my age don't/won't do a quarter of it...

exactly what will separate you from the pack. Something always does. Keep making yourself #1 and those that depend on you. Life will be great.

And don't be afraid of market over the next few years that performs like meh and blah. That is disappointment for me, but great news for you, as it only increases the amount of buying power of whatever amounts you may have. All the more reason to keep doing as much as you can. Good job, btw.

 

[Supreme Lord Z]

Or a different take: living above your means but often times paycheck to paycheck, getting into debt, not affording medical bills that pile up and continuing this vicious cycle until it kills you because of poor health and money stress.. But hey, that Beamer 3 series with zero money down for 7 years was a lot of fun, right!

I prefer taking 1 step back to take 5 steps forward. I'll sacrifice a new car, that extra vacation and thousands on new "toys" every year.. so I can put a few tens of thousands of dollars towards an investment, that adds to my income.

May not have the 3 series now, but I'll own my own 7 series down the road.

You aren't guaranteed a "down the road" there partner. I will die, we all will, but not today baby.

 

[crazyqx83_rivals88013]

If you switch jobs, you can raid your 401k by taking possession of the money rather than rolling it into another retirement vehicle. Typically you are going to need a hardship reason defined by the IRS to take out money without having to pay it back while with the same employer. If you take a hardship under age 59 1/2, you will owe a 10% penalty plus all the money you take out will also be taxable at your marginal rate. So if you are in a 25% bracket you will pay 35% (25% tax rate + 10% penalty) of your hardship withdraw to the government.

From the IRS:

For a distribution from a 401(k) plan to be on account of hardship, it must be made on account of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need. The need of the employee includes the need of the employee's spouse or dependent. (Reg. §1.401(k)-1(d)(3)(i))

Whether a need is immediate and heavy depends on the facts and circumstances. Certain expenses are deemed to be immediate and heavy, including: (1) certain medical expenses; (2) costs relating to the purchase of a principal residence; (3) tuition and related educational fees and expenses; (4) payments necessary to prevent eviction from, or foreclosure on, a principal residence; (5) burial or funeral expenses; and (6) certain expenses for the repair of damage to the employee's principal residence.

You can't take possession of your 401k money even if you leave a job. If you don't roll it to a traditioanl ira or another 401k then you are hit with the same taxes and penalties.

 

[KopiKat]

A few years ago I had a 30+ year employee retire and tell me they never contributed to the plan. I, of course, quickly calculated how much they lost and then showed them... you should have seen the look on their face..

quickly? Really? so you were aware of what that employee had earned in each of those 30 years, in order to be able to "quickly" calculate what portions of his pay were available for 401k inclusion / matching.

 

[crazyqx83_rivals88013]

I'm not arguing who it benefits. TBH, I;ve never even thought of what this means for the employer until now.

As for better options, think of any business, really. Anything that could potentially make you a millionaire in 10-20 years. Maybe you own a few bars, maybe a lot of apartment buildings. Or just some money making idea, that could get you enough money to cover the potential of a $1-2mil retirement fund.

My 30th was at a local bar the other night. He owns two bars and a row of apartments, for sale right now for $3.5 million, There's his retirement.

You can do a self directed ira for that stuff. It's just not feasible in a 401k.

 

[joeyrupption]

IMO, crazyqx's issues run far deeper than not having a retirement account to fund.

His first problem was getting drafted to work for a micro-firm instead of a corporation. That is not his fault, it was just the luck of the ping pong ball in the great day job draft of 2011 or so. You should thank your lucky stars that your number wasn't called. It is unavoidable, he is a modern day slave.

 

[crazyqx83_rivals88013]

His first problem was getting drafted to work for a micro-firm instead of a corporation. That is not his fault, it was just the luck of the ping pong ball in the great day job draft of 2011 or so. You should thank your lucky stars that your number wasn't called. It is unavoidable, he is a modern day slave.

I don't want to work for a corporation, you twit. I want the government to stop predetermining winners by stacking tax advantages in different corners. Geez you all are dense.

Why can't we just all ******* work for wages instead of the government making us dependent on them for healthcare and retirement? Why is that so incredibly ******* difficult for you troglodytes to understand?

 

[joeyrupption]

I can put 18k in my 401k along with my 6% (no match) from my "Safe Harbor" setup provided by my corporation. You're a draftsman for a guy who hung out his own shingle.

Who's the twit?

 

[TortElvisII]

Live like a miser and die with money in the bank. You guys are really onto something. Just eat bark and toast with a nice glass of warm water. Live in a fungal growth. Never spend a penny. Eat the free samples at Sams. Never give a Christmas gift. Yep, you guys have all the answers to a happy life if playing virtual monopoly is your idea of "living". Wait till you're so old you can't even take a step outside then count your money. Woo Hoo! I won! MONOPOLY!

I knew a guy that would go to Sam's for lunch. One time he brought a coupon to buy one get one free sandwich at some fast food joint. He had co-worker buy the sandwich and he took the free one. I could not believe he was too tight to pay for half.

 

[crazyqx83_rivals88013]

I can put 18k in my 401k along with my 6% (no match) from my "Safe Harbor" setup provided by my corporation. You're a draftsman for a guy who hung out his own shingle.

Who's the twit?

Calling me a draftsman when you failed out of the profession. Cute take, wanker.

 

[joeyrupption]

Calling me a draftsman when you failed out of the profession. Cute take, wanker.

Actually, I messed around and got a new PA job with a 50% raise this past Spring. It's been great.

 

[CatsFanGG24]

Thread conclusions - 401ks will be fine.

Crazyq needs to talk to his partners about starting up a 401k plan.

 

[roguemocha]

New message in geriatrics education being taught. Don't retire.

I'm never retiring. I'm gonna keep on working and shitposting till the day I die.

Honestly, I wouldn't want to retire. I'd have to do something. I wonder if society will be so effed up someone will pay me to hologram myself rubbing one out..

Both of these. Im the same way. I need to work, I like having something to do especially since I enjoy it. I'll probably bartend forever even alongside an advanced nursing degree just because it's good money and I really like it.

I have SOOOO many people come into the bar and the first thing they talk about is how they retired at "X" age and then proceed to ask the price of everything on the menu. What's the point of retiring if you can't just buy what you want? If every day is a budgeted excursion then how is that fun? I save money, buy what I want (which isn't much) but enjoy the hell out of whatever I do. If you only have a certain amount to spend that isn't ridiculous, then why retire? So you can say you retired but have little money? And how much do those type people depend on government programs to boot?

I just feel like retirement should be a "man I can do whatever I want within reason", not a "well I don't have to go to work today but I can only spend $150" type situation.

Why be retired if you have to count the change?