Comments on: STICK TO YOUR GUNS, PEOPLE!

By: CMD

CMD — Tue, 13 Jan 2009 20:13:22 +0000

We all know that it is a good idea to stay put and ride this wave out. Sometimes that is easier said than done. I’m young…only 28…started my 457(b) 3 years ago. I got a pretty slow start but am now up to 15%. I’m not that worried yet but my account is down 30% in the last year…doesn’t make things easy.

I’m ok with it because I know the basics and that I have a long time left but it’s easy to understand why others aren’t so sure.

By: BankerBryan

BankerBryan — Sun, 11 Jan 2009 06:47:37 +0000

Maybe we should filter our news by age groups. Only people within 5 years of retirement get to hear about the performance of their 401(k) plans. This way, we don’t have government changes sparked by the temper tantrums of 35-year olds.

I hate to sound mean, these aren’t stupid people, they are just uneducated. A 58-year old shouldn’t be allowed to make such a stupid decision as to buy a car with 401(k) money, a 35-year old shouldn’t be freaked out about her portfolio performance and our government shouldn’t have the same types of people controlling our future finances.

Let’s get some people in there that actually know what they are talking about!

By: Traciatim

Traciatim — Fri, 09 Jan 2009 12:22:46 +0000

Hey JLP, I used FireCalc to run a scenario. I assumed that the person was putting 10% of their salary away (10K of 100K) and would spend 60K per year in retirement (60% of pre-retirement, in today dollars). FireCalc adjusts for inflation each year. I left the default investment mix (75% equities).

Here are the details:

Because you indicated a future retirement date (2039), the withdrawals won’t start until that year. Your contributions will continue until then. The tested period is 30 years of preretirement plus 20 years of retirement, or 50 years.

FIRECalc looked at the 87 possible 50 year periods in the available data, starting with a portfolio of $0 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 87 cycles. The lowest and highest portfolio balance throughout your retirement was $-1,654,611 to $835,909, with an average of $-286,448. (Note: values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 50 years. FIRECalc found that 63 cycles failed, for a success rate of 27.6%.
__________________________________________________

That Guaranteed account is looking a little better now, don’t you think?

By: Ian

Ian — Fri, 09 Jan 2009 06:47:03 +0000

JLP -
I agree with your view that individuals should remain in control of their own retirement futures. However, you might want to rethink your shock over this conversation in Congress. Even intelligent, hard-working members of our society are often clueless and intimidated when it comes to managing their money, and that’s a failure of our education system to bridge a sea change in how retirement preparations are made… not a failure of the individuals. Should we presume that Peg Kelly is lacking self-discipline when she’s clearly been trying to save for retirement? Or is it more likely that her understanding of her 401k came from woefully inadequate sources?

By: thomas

thomas — Fri, 09 Jan 2009 04:17:56 +0000

I can understand losing a job or your spouse and being forced to not contribute as much, but for those examples being so young and pulling out is down right stupid. Great example of long term investing.

By: John

John — Fri, 09 Jan 2009 02:46:26 +0000

I agree with Sam. This is further proof that converting Social Security into “private accounts” would be a disater. The only people who would make money are the investment firms who would manage the money.

When 401(k)’s were established by Congress, they were supposed to be a supplement to defined benefit pension plans, not a replacement. The corporations realized they could greatly reduce their retirement costs by eliminating pensions and giving workers 401(k)s. They promised them matching contributions, which many companies are now eliminating.

By: Lord

Lord — Thu, 08 Jan 2009 22:25:00 +0000

What? Don’t think the government could come out ahead investing it and providing the guarantee? You have already shown how profitable it can be. Imagine the government earning money instead of spending it. Just so long as it is voluntary. One might say it would be government taking advantage of people, but they already do that with the lottery.

By: David B.

David B. — Thu, 08 Jan 2009 20:45:12 +0000

My preference is for the individual to retain complete control over their 401(k). This includes, but is not limited to, investment allocation, risk, contributions, and account fiduciary responsibility. To the extent people can not deal with the swings in the market may I respectfully suggest they place their money in an FDIC-insured CD or government treasuries.

What is lacking is not oversight, but education.

Also, JLP, I suggest you read up on the flaw of averages. Depending on assumptions of future growth and expectations of market returns, your example may breakdown, videlicet percentage return, when accounting for the up-and-downs of the market and not taking the average return.

By: Adam

Adam — Thu, 08 Jan 2009 20:34:14 +0000

I love this one!

“Another proposed automatically investing contributions in an index fund that holds stocks and bonds, with the mix getting more conservative as workers approach retirement”.

Now that would not have helped “poor” Kristine Gardner because she is 35 years old. She would have had the majority of her money in equities.

I think that education is the key here. People are so brainwashed now my the media! You have no idea how many Google hits I get on my site for “heading for a depression”. That is ridiculous!

By: Mike P

Mike P — Thu, 08 Jan 2009 20:32:08 +0000

The less of my money that the government (federal or otherwise) manages, the better.

While free market systems are far from perfect, history certainly indicates that they’re more successful than government-controlled economies. And taking away retirement accounts is a BIG step in the wrong direction.