401k, is it still a valid method of savings considering the current economy?

[te72]

I was recently made aware that I was eligible to sign up for our company's 401k. I read through it a bit, and it seems that while, yes, they do match your contribution, up to an extent, they take that money and invest it in the stock market??? To me, that just seems absurd. If I'm going to do any sort of investing, I think I would prefer to do it on my own, for starters. Secondly, why squirrel away money given the current economy? I mean, if $1 buys me something to eat today, who's to say that it won't take $4 to buy the same meal in the near future? :nono:

Perhaps I'm looking at this from an inexperienced point of view, but the whole idea smells bad to me... hence, I've declined for the time being, based on a gut feeling.

 

[T701jz]

I was recently made aware that I was eligible to sign up for our company's 401k. I read through it a bit, and it seems that while, yes, they do match your contribution, up to an extent, they take that money and invest it in the stock market??? To me, that just seems absurd. If I'm going to do any sort of investing, I think I would prefer to do it on my own, for starters. Secondly, why squirrel away money given the current economy? I mean, if $1 buys me something to eat today, who's to say that it won't take $4 to buy the same meal in the near future? :nono:

Perhaps I'm looking at this from an inexperienced point of view, but the whole idea smells bad to me... hence, I've declined for the time being, based on a gut feeling.

YES x100000000
Been with the company for 18 yrs and now my 401K is up to $2,000,000.00+. I lost 70g when the economy hit the shit :nono: but I recovered it back :icon_wink....You just have to keep an eye on it when things are going bad then move it at the safe Investment Funds. NO BS!:icon_wink

 

[suprarx7nut]

Your 401k will likely grow at least with the rate of inflation. If your 401k doesn't do well over long periods of time something has gone very wrong. You could easily play the stock market on your own and make TONS more $$. You could also lose virtually everything. A 401k will be a steady, generally increasing account. The reason you'd let them invest it is because it is nearly a maintenance free stock for you. You do near no work and whoever manages your 401k (Vangaurd, fidelity, etc..) should provide good returns.

Another huge benefit that makes a 401k different from regular investing is that it is NOT taxed. You can contribute to your 401k PRE-TAX. This is huge. If you withdraw your 401k early(before retirement), you will incur taxes, but you're not losing anything. You just pay the taxes you would have paid to begin with had you not contributed it a 401k.

IMO, the smart thing to do is to put as much into your 401k (or other savings stock/mutual fund) as you comfortably can as early as you can. Different employers will match different amounts or allow a certain amount pre-tax, etc, etc... My company doesn't match contributions, but we get bonuses based on company performance. It's typically 10-15% of your salary. This year we got 15%. So I basically got a free $8k into my retirement. Combine that with my own 3% contribution and it's not a bad situation.

I'm still a 401k virgin so I'd love to hear some other opinions. I could put more away, but I'm young and my shopping list of toys is still very long, lol.

Very basic overview:
http://money.howstuffworks.com/personal-finance/retirement-planning/401k.htm

 

[T701jz]

Buy Low And Sell High....:icon_lol:

Here something I do monitor everyday at work computer and home. But this page does not contain the daily activity though. If the economy is doing fine and you work a lot of overtime I would suggest you put the maximum contribution. If, you are in a young stage, I would invest more at the risky funds. But, when you are close to that age :icon_bigg or retirement stay on stable funds.

 

[ForcedTorque]

The thing I really like about it, is that when you put (completely hypothetical) $20 into the fund, you only lose $17 out of your paycheck, due to the tax savings. Then, the company matches it, and you have $40 for a $17 investment. That's before it starts earning anything in the fund. A lot of people will put in whatever percentage the company will match, to get every benefit available to them. I believe in going as high as I can tolerate.

 

[te72]

See, this is what I love about this forum, there is enough of an experience factor for big decisions like this. Our company's plan is handled through The Hartford, anyone have good things to say about them? Personally I've always been frustrated at concepts like this, so much of our economy is merely based on moving money around. Not making money, just moving it from place to place... and I'm rather concerned about a total financial meltdown in our country. What good will money do us if money isn't worth anything in 5 years? That's the biggest argument I have against investing at the moment.

However, for the sake of entertaining the idea, our plan has the company matching the first 1% of the employee's contribution, and a 50% match on the next 5% of the employee's contribution, up to 6% total. Reading through the rest of this, it seems they do some sort of profit sharing thing too. Why they can't word all this in simple to fucking understand English is rather irritating too...

What I'm taking away from the details that I understand is that I stand to make an extra ~$1200 or so in company contributions to my 401k if I sign up. Now, the tax benefit side of it, I am far from understanding. Does your take home pay stay the same, or is it reduced by the amount contributed to your 401k account? That is the part that contains way too much lawyer-speak for me to follow. If the take home pay isn't taking much of a hit, you'd be a fool (assuming again, that money is going to hold some value by the time I get old) to not do this... Advice in respect to tax liability and take home pay guys?

Oh, and another thing I don't understand... do you receive any of the benefits if the money you contribute is used in the market and MAKES money, does that go into your account, or do you assume all risk here and you're SOL if whoever is handling your investment fails miserably and loses all your money? So much to follow here that I am COMPLETELY inexperienced with...

 

[T701jz]

Your contribution is taken before tax and you won't see much difference to your take home...unless your rate is at 20% like mine . Invest at Stable Funds with 6% and never look back until you're close to retirement. My company match is $ for $ up to 6%. Profit sharing is another thing and only if the company does well. We get this every quarter plus bonus at the end of the year .

 

[ForcedTorque]

Does your take home pay stay the same, or is it reduced by the amount contributed to your 401k account? That is the part that contains way too much lawyer-speak for me to follow. If the take home pay isn't taking much of a hit, you'd be a fool (assuming again, that money is going to hold some value by the time I get old) to not do this... Advice in respect to tax liability and take home pay guys?

That is what my post was about. Yes, your take home pay will go down. But, it won't go down as much as you are putting in. That is because you only pay tax on what is left after your contribution. So you get a little of your tax money you would have paid on the higher amount in your take home pay. That's why I said you contribute $20, but your take home only goes down $17 or so. You will put in most of what you are contributing, but there is a little difference.

It doesn't seem like much to begin with. But, by the time your account gets to $100,000.00, you will have only put in about $30K of your own money. The rest will be what your employer put in, your tax savings, and anything that the fund made. Everything the fund makes is added back into the account, and can then make gains again as the reinvest it. The quicker you get your money in, the quicker it starts compounding. As long as the market stays good, you just can't beat it.

The biggest mistake anybody could make, is to take their money out when it is losing money!!!!!!!!!!!!!!!!!If the money is not there when the market turns around, there is no chance to regain what you lost. Pulling out is just a guaranty of your loss.

So, your company is contributing 3.5% if you put in 6%. That does suck! But, many companies are taking away their matching all together now days. But still, think about it. ON $1000, you'll get $95 in your account. Of that $95, you will have lost about $55 of your own take home pay, not the $60 that 6% would be, because of the tax savings. Then the 401K will invest it, and make you even more on that in most cases.

 

[te72]

So, your company is contributing 3.5% if you put in 6%. That does suck! But, many companies are taking away their matching all together now days. But still, think about it. ON $1000, you'll get $95 in your account. Of that $95, you will have lost about $55 of your own take home pay, not the $60 that 6% would be, because of the tax savings. Then the 401K will invest it, and make you even more on that in most cases.

See, it would be nice if they simplified the x% of y% that you contribute, and z% of every r% that you contribute after that... and just tell me that they'll contribute up to 3.5% if I stick 6% in. Thanks for clearing that up, I kinda had a handle on it, but that helped out. They won't contribute anything past 6%, so that is the default deduction from your check. I think I'll sign up and hope for the best in the long run. I mean hell, if the market does crash and money loses all practical value, I'm not going to miss what $180 per month could have bought me anyway...

Interesting times we live in... thanks again for the advice guys, and feel free to keep this thread going, never hurts to educate each other.

 

[ForcedTorque]

Another feature I like, is after you have some money built up in it, some companies allow you to take loans from your account. The beauty of that is, you are borrowing from yourself. All interest paid on the loans goes into your account!

 

[te72]

Another feature I like, is after you have some money built up in it, some companies allow you to take loans from your account. The beauty of that is, you are borrowing from yourself. All interest paid on the loans goes into your account!

You know, the more you guys point out about this thing, the more I feel like an idiot for not being able to understand it better in the first place. The company I work for (Bishop Lifting, if anyone needs some pretty serious rigging built up), allows me to borrow against my account. Wouldn't kill them to include some of this info (in a less "lawyered" form) in the brochures.

 

[suprarx7nut]

You know, the more you guys point out about this thing, the more I feel like an idiot for not being able to understand it better in the first place. The company I work for (Bishop Lifting, if anyone needs some pretty serious rigging built up), allows me to borrow against my account. Wouldn't kill them to include some of this info (in a less "lawyered" form) in the brochures.

I know exactly what you mean. But once you understand some basic terms, its really not that complicated. Just takes some research and caring on your part. It'll all be natural language soon enough.

Sent from my ADR6400L using Tapatalk

 

[te72]

Well, I signed up, contributing the maximum 6% that I can be matched by the company on. Here's hoping the economy goes in a positive direction and this investment is meaningful in the long run.

 

[ForcedTorque]

You will learn to love it. Try to increase it to 10% over time. Then, whenever you get a raise, increase it some then. You will never notice it. Maybe increase it by the 1/2 amount of the raise, so you get a raise, and so does the fund. You usually can contribute like 6% +$20 per check, or something like that.

 

[te72]

Well, I didn't get a raise this year, so we'll see in the long run. Not a bad idea though. I am not necessarily stretched thin on finances at the moment, but I do have a Supra, and it still needs some parts to be complete in my eyes, so that is basically my #1 personal financial goal (behind paying bills, obviously). Once that is done, I can see how I'd like to handle this 401k thing. In a couple years I'll be out of any debts aside from my mortgage, so that will free up a good chunk of my paychecks. An NSX is about the only "toy" I think I'd like to have in the next 4-5 years, so we'll see how things go.