401k wtf?

[Day]

Ah okay thanks everyone, this doesn't sound so bad then. Getting signed up for something without my knowledge and having it suddenly alerted to me just naturally made me assume "shit is going down". Thank you very much for the patient advice! ^^

Just keep in mind: It's your money. If you really hate the fact that it's in there, take it out. You'll get hit with a 10% penalty, but keep in mind that your employer matched your contribution so you still have more than you would have had if you declined.

Although I'd just keep it in, and roll it over into your next job's 401k plan. It's never too early to start saving up.

I just wanted to point out that not all companies match what you put in. The company I work for didn't match until this year. They also do the force enroll thing, like someone else said, they probably sent an Open enrollment notice, and unless you say otherwise they enroll you in whatever the default is.

[Demosthenes]

I put 10% of my pay in, and my company matches it. It's rather fuckwin!

[Brill Weave]

In short, get in your 401k as soon as possible. Like everyone else has said, it's basically free money. I'm lucky, my company matches me dollar for dollar up to 7%. Most companies will give you a pamphlet that has a few questions for you to answer. Depending on how you answer the questions it will outline the type of investments you would possibly want to pursue.

But it's your money. You don't have to enroll into the 401k. It's just a smart thing to do.

[sunb1ind]

It is also good to save up some money in like a savings account.

SS is predicting that they will be exhausted by 2041. Currently in order to get the full benefits of SS most of us would have to work til we're 67. The world wants you to work til you literally die on the job anyway. So you have to prevent this yourself.

QFT

Relying on your 401k to retire on is a joke, I don't care how much money you think you're going to save.

Here's a good video I remember watching a couple years back. The idea of never having a retirement is just something most of us will have to accept.

http://www.pbs.org/wgbh/pages/frontline ... ment/view/

[Ksandra]

It is also good to save up some money in like a savings account.

SS is predicting that they will be exhausted by 2041. Currently in order to get the full benefits of SS most of us would have to work til we're 67. The world wants you to work til you literally die on the job anyway. So you have to prevent this yourself.

QFT

Relying on your 401k to retire on is a joke, I don't care how much money you think you're going to save.

Here's a good video I remember watching a couple years back. The idea of never having a retirement is just something most of us will have to accept.

http://www.pbs.org/wgbh/pages/frontline ... ment/view/

401k =/= social security. While it is true you shouldn't "only rely on your 401k", it IS a good way to start saving something for retirement because as terra said you're SS isn't going to exist by the time you retire, but your 401k will. And considering as everyone said it is free money, why wouldn't you want to use that towards retirement?

[Serif]

I think there was another investment thread a while back.

If you don't invest into a 401k, you are pretty much stupid seeing how it is free money.

The way I am doing it is:

Max out my 401k
Max out my RothIRA
Invest the rest into a well diversified stock portfolio

[finale23]

Max out my 401k
Max out my RothIRA
Invest the rest into a well diversified stock portfolio

QFT. that's what every average investor should be doing. don't speculate because not even pros on wallstreet can beat the market consistently, and they aren't playing with their own money. "the market will stay irrational longer than you can stay solvent." investing in a mutual fund or an index fund that has low maintenance costs and a good reputation is the best strategy you can possibly have toward saving up for retirement.

[sunb1ind]

That Frontline special was not about SS btw, I was just agreeing with terranova about SS.

The reality is: your chances of retiring off your 401k is about as likely as living your whole life without ever having any major health problems before you die. Its great to have something like a 401k to help invest in your future with little or no effort on your part, but its just not enough to secure your future. And whoever said its "free money" is already using bad judgement. No matter how little you put into your 401k, its still your money you're investing. Anything could happen, you are taking a risk just like an investment on wallstreet.

Watch that video I posted, its super-relevant to the OP and will probably motivate you even more to think about how you can plan for your future better.

[finale23]

The reality is: your chances of retiring off your 401k is about as likely as living your whole life without ever having any major health problems before you die. Its great to have something like a 401k to help invest in your future with little or no effort on your part, but its just not enough to secure your future.

that's why ppl contribute to their 401k account for 30-40 years and only withdraw either during a hardship or after retirement. what other alternatives are there, besides IRARoth, mutual funds? a trip to Vegas?

And whoever said its "free money" is already using bad judgement. No matter how little you put into your 401k, its still your money you're investing. Anything could happen, you are taking a risk just like an investment on wallstreet.

hah, it really shows how little you know about investment. your employer promises to match 6% (or whatever the amount) that you contribute to your 401k, that's 100% return on investment. 6% guaranteed for 6%, how is that bad judgment? do you know any investment that will guarantee a 100% return year after year? if you do, i have a bridge i would like to sell you. also, an investor can always invest in an index fund that will yield above 8% return over a span of 50 years, (since 1970-now, the S&P500's average return is about 10%), and saying all investments on wallstreet are equally risky is just that, it shows you know nothing about investment.

[Azkarin]

And whoever said its "free money" is already using bad judgement. No matter how little you put into your 401k, its still your money you're investing. Anything could happen, you are taking a risk just like an investment on wallstreet.

hah, it really shows how little you know about investment. your employer promises to match 6% (or whatever the amount) that you contribute to your 401k, that's 100% return on investment. 6% guaranteed for 6%, how is that bad judgment? do you know any investment that will guarantee a 100% return year after year? if you do, i have a bridge i would like to sell you. also, an investor can always invest in an index fund that will yield above 8% return over a span of 50 years, (since 1970-now, the S&P500's average return is about 10%), and saying all investments on wallstreet are equally risky is just that, it shows you know nothing about investment.

You are right that its dumb not to take advantage of employer matching. But I took sunbl1nd's "free money" comment as him saying "its still your money you are investing, so its not exactly free (you are giving up the % of your salary)". I may be wrong but I think he wasn't referring to the employer's contribution, he was just trying to say that you are giving up some of your money.

Either way, 401k's rock for retirement. My past internships have given 401k's to interns and I always tried to max out my contribution. Its not a lot of money but its something. I also choose the riskiest/reward fund because I got a few decades to ride out any ups and downs.

[finale23]

Watch that video I posted, its super-relevant to the OP and will probably motivate you even more to think about how you can plan for your future better.

i just watched the video you posted. it's saying that 401k funds are probably too late for many of the baby boomers who didn't save until it was too late, and most of them are worried because they are rapidly approaching retirement. this helps my, and many other posters' argument that we should start investing in 401k as soon as possible.

haha, Jack Vanderhei, the guy who work for Employees Benefit Research Institute in the third video (11:05), was actually one of my college professors, and i took one of his classes on retirement account before he left Penn for temple university.

[Ksandra]

You are right that its dumb not to take advantage of employer matching. But I took sunbl1nd's "free money" comment as him saying "its still your money you are investing, so its not exactly free (you are giving up the % of your salary)". I may be wrong but I think he wasn't referring to the employer's contribution, he was just trying to say that you are giving up some of your money.

the "giving" up your money part would be like putting it in a safe at home. You still own it, it's just not in your wallet. And when you open up that safe there's more money than you started with. I still wouldn't consider that "giving up your money", but I guess that's just semantics.

[Khamsin]

You are right that its dumb not to take advantage of employer matching. But I took sunbl1nd's "free money" comment as him saying "its still your money you are investing, so its not exactly free (you are giving up the % of your salary)". I may be wrong but I think he wasn't referring to the employer's contribution, he was just trying to say that you are giving up some of your money.

the "giving" up your money part would be like putting it in a safe at home. You still own it, it's just not in your wallet. And when you open up that safe there's more money than you started with. I still wouldn't consider that "giving up your money", but I guess that's just semantics.

Besides, "saving up" is pretty much the opposite of "giving up" your money.

[Azkarin]

You are right that its dumb not to take advantage of employer matching. But I took sunbl1nd's "free money" comment as him saying "its still your money you are investing, so its not exactly free (you are giving up the % of your salary)". I may be wrong but I think he wasn't referring to the employer's contribution, he was just trying to say that you are giving up some of your money.

the "giving" up your money part would be like putting it in a safe at home. You still own it, it's just not in your wallet. And when you open up that safe there's more money than you started with. I still wouldn't consider that "giving up your money", but I guess that's just semantics.

True, but its like a safe that you have to pay to open for the first 30 years (early withdrawal penalties). Your "giving" it away for awhile just to get more back in the future. Semantics though is right.

[MikedeeFenrir]

Use you're 401k for a house or something. You can't retire on it, plan to work till your 95.

There are rules to them, I wanted to use it on an apartment, can't, has to be a condo or better. Also, 2% is nothing, I'm doing 12%, while saving on the side

It's a good investment, but usually after a year of working somewhere they automatically enlist you into a 401k plan (well at least where I work)

[Darus Grey]

It's worth clarifying that this isn't "free" money. It's "free" in the same way that work sponsored health care is. I.e. is figured into your pay before you ever took the job, and is money you've already earned.

The reason companies do these 401ks and do dollar matching is a clever accounting trick(or scam...depending on your view) in which your monetary value stays the same but they don't have to actually pay you that much, it certainly isn't because they're nice people.

It's basically a portion of your pay where you have to sacrifice a portion of your pay in order to claim it.

They rely on suckers NOT doing this, so that they get to keep money that would otherwise be in your pay.

So yeah, max out your 401k if there is any kind of matching, it's stupid not to.

[kyod]

Max out my 401k
Max out my RothIRA
Invest the rest into a well diversified stock portfolio

Best advice in this entire thread. This is how you keep your financial security for the rest of your life.

[Melena]

It's worth clarifying that this isn't "free" money. It's "free" in the same way that work sponsored health care is. I.e. is figured into your pay before you ever took the job, and is money you've already earned.

The reason companies do these 401ks and do dollar matching is a clever accounting trick(or scam...depending on your view) in which your monetary value stays the same but they don't have to actually pay you that much, it certainly isn't because they're nice people.

It's basically a portion of your pay where you have to sacrifice a portion of your pay in order to claim it.

They rely on suckers NOT doing this, so that they get to keep money that would otherwise be in your pay.

So yeah, max out your 401k if there is any kind of matching, it's stupid not to.

how are they keeping money if the money is being re-routed into an investment firm. Unless your one of those morons that tosses your own 401k into your employee's stock (whyhellothereenron), both you and the employer don't get to touch that money. If anything, your legally dicking the government since it's pretax dollars, so you have slightly less taken from taxes.

[Darus Grey]

how are they keeping money if the money is being re-routed into an investment firm. Unless your one of those morons that tosses your own 401k into your employee's stock (whyhellothereenron), both you and the employer don't get to touch that money. If anything, your legally dicking the government since it's pretax dollars, so you have slightly less taken from taxes.

If you don't put anything in your 401k, the company doesn't match anything, and that's more money for them because at the upper level that "matching" was already figured into your pay-scale. Like I said, the reason corporate 401ks became popular is because it's a way to pay people 5-10% less under pretense they can get it back by sacrificing an equal amount of their pay for a long-term period of time.

Like most things that are opt-in a certain(likely large) percentage of people won't bother putting in anything, or at least won't cap it out, and that's money your company gets to keep that you already earned.

[Azkarin]

how are they keeping money if the money is being re-routed into an investment firm. Unless your one of those morons that tosses your own 401k into your employee's stock (whyhellothereenron), both you and the employer don't get to touch that money. If anything, your legally dicking the government since it's pretax dollars, so you have slightly less taken from taxes.

I think I can explain it with an example. Suppose Company A pays employees 100 dollars a year with no 401k plan. Company B wants to offer a 401k plan with matching up to 5%. To make this plan affordable, they only pay their employees 95 dollars a year. So Company B is not better off if all employees max out their 401k (pay employees 95 and then have to match $5 to the 401k so $100 spent overall). But Company B is better off is employees don't max our 401k or don't do it at all (they only pay $95 and part of the $5 matching).

That's what I took from his post. Since nearly everyone wants a 401k plan you don't see many opportunities to get the higher-salary-no-401k job so you don't see the decrease in annual salary.