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A Real-Life Example of People Thinking with Their Hearts and Not Their Brains

By JLP | May 16, 2012

Yesterday’s link to the article about people not saving for retirement, brought back the following memory.

I remember back when I was in high school, my dad telling me about how my cousin had withdrawn something like $30,000 out of her Walmart retirement account in order to buy a new car. I know new car prices were nowhere near $30,000 back then so I’m not sure why she took out so much unless she just cashed out. Anyway, based on 20% withholding and a 10% penalty (I believe both existed back then), she would have lost $9,000 right off the top. Then, she would have spent approximately $13,000 on a Thunderbird.

I don’t have the exact numbers or dates but let’s just assume she withdrew this money on January 2, 1987. The split adjusted price of Walmart on that day was $2.27 a share, which means she would have sold 13,215 shares.

Fast forward to Tuesday, May 15, 2012. Walmart is trading at around $59 a share.

Multiply 13,215 by $59 and you get…

$779,685!

I’m pretty sure she’s not still driving that Thunderbird.

Of course I made a lot of assumptions here. I assumed that the entire amount withdrawn would have stayed in Walmart stock the entire 25 years. And, there was no guarantee that Walmart’s stock would have performed that well over the years. It also would have been risky to keep all her money in Walmart stock (it should have been diversified, which would have most assuredly meant lower returns).

All that said, I seriously doubt my cousin did the math. Instead she went with her heart and bought a new car.

Topics: Budgeting, Cars, Retirement Planning | 12 Comments »


12 Responses to “A Real-Life Example of People Thinking with Their Hearts and Not Their Brains”

  1. BG Says:
    May 16th, 2012 at 7:04 am

    A member of my family rode their company stock to $0, being let go during the company’s bankruptcy. I personally don’t buy any stock in the company I work for, aside from whatever is typically done via index funds.

  2. Money Beagle Says:
    May 16th, 2012 at 7:39 am

    I think taking money out of my retirement account would be the very last option I’d ever use, like to the point where it would be going homeless or without food as the only other option. Certainly never to buy a car.

  3. Jack Says:
    May 16th, 2012 at 7:44 am

    I think that planning is the key.

    For instance, let us say that one is planning to buy a car. It will take a couple of years to get the money. So you put the money away FOR THAT PURPOSE.

    Now, WHERE do you put it?

    Why not a Roth IRA? Any interest you get will be tax-free forever. Mind you, do not withdraw any more than you put in (to avoid the penalties).

    Similarly, if saving for your child’s college education, if you put that into an education savings account, it hits you on the FAFSA. However, a Roth IRA does not factor into the FAFSA calculations.

  4. Evan Says:
    May 16th, 2012 at 10:00 am

    But the late 80’s thunderbird was a sweet ride lol

  5. Jack Says:
    May 16th, 2012 at 10:31 am

    Now, if the T-bird were in mint condition, how much would it be worth? :-)

  6. BG Says:
    May 16th, 2012 at 12:48 pm

    Roth’s do not count against you on the FAFSA, but 529a do? This is something I must research…

  7. JLP Says:
    May 16th, 2012 at 3:51 pm

    BG,

    Yes, it is not wise to have all your money in company stock. I think a good rule of thumb is no more than 10% of your net worth and even that may be aggressive to some people.

  8. Stacey Says:
    May 17th, 2012 at 12:15 pm

    BG: 529s count as a parental asset….weight given is somewhere around 7%. I could look it up this weekend for you…

    Key is to deplete kids’ savings first as their assets are weighted heavier/higher…

  9. BG Says:
    May 17th, 2012 at 2:54 pm

    Stacey) Thanks for checking on this. So, from a FAFSA poing of view — are there differences between 529s and Roths? Or are you saying the 529s should be in the parent’s name (not the child’s)?

    I’ve been dumping money into the kid’s 529s…

  10. Miguel Says:
    May 18th, 2012 at 7:05 pm

    I know the conventional wisdom that you should not be too vested in your employers stock, but a decent amount of my (not too shabby) NW has come from being paid in stock an warrants, and then being locked-up (i.e. forced to hold onto it) for years. Fortunately I quadrupled those investments a couple times in my younger years. And sense it was locked up, I couldn’t spend it either, so when I could finally cash in, it was like found money (which got saved and reinvested since it never factored into my lifestyle). Just saying…

  11. Deacon Says:
    May 20th, 2012 at 12:27 pm

    That is unbelieveable! I am having a hard time parting with my cash to buy a newer car. When I say newer, I mean around $5,000. I could imagine paying $30k and taking that big of a hit!

  12. Jack Says:
    May 21st, 2012 at 9:48 pm

    It just boggles my mind. A VW beetle for $20k?!

    A few month’s ago, my wife saw an ad on TV. She screamed, “An $800 a month lease!?”

    I (in the kitchen), yelled back, “How many bedrooms!?”

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