8 ways your 401k is failing you
Even with the stock market in the midst of a sustained bull run, many savers are uneasy about elements of their defined contribution retirement plans.
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The problem is that most Americans are too illiterate when it comes to investing their own money.
This is a result of our criminal public education system. Personal financing should be taught at all grade levels concentrating the most in high school.
Most Americans can't balance a check book let alone make sounds investment decisions. A good investment counselor will cost you a small fortune or he/she will just keep "investing" your money until it's all gone.
If Americans spent as much time on their investments through life as they do worrying about who will win "Idol" or "Dancing With The Stars", they would retire much wealthier.
The problem with an IRA or 401k is that your capital gains are taxed at the EARNED INCOME rate, not the lower capital gains rate.
The only ones making money on your IRA/401k are the fund managers, brokers, and the IRS.
The biggest problems with a 401k or 403b are the investments.
Most employer plans offer a limited number of mutual funds. Many of the funds are performing below average when compared to other funds within the same category. The typical plan has 15 to 20 investment options with only 2 or 3 being quality funds. The remaining funds perform at or below average and have high fees. Diversification among those funds is limited.
Employees should be allowed to go outside the 401k or 403b plan when picking their investments. Employers should also be required to provide free annual appointments with an independent investment advisor.
Am I the only one who's 401k is doing great? The stock market is at an all time high. I have kept my contributions at the max for the last 25 years. I had huge (HUGE) gains through the 90's and some big losses around 08-09 (like everybody else). Like I said the market is booming now, and if you suspended you contributions, you are crying. You lost an opportunity to buy stocks low and also you lost out on the company match.
Dollar cost averaging is the whole deal. The dips allow you to accumulate shares a lower price, that's why you buy on a weekly/monthly basis to spread the costs out. That doesn't mean you can just leave it and not pay attention. The risks you can take at 20, 30, 40 and even 50, are not the same ones you should be taking at 55-65. All funds offer lower risk, lower return options, that as you near retirement age you should move into to protect you money.
After a lifetime of plugging away, I am starting to move sizable portions into bond funds and safer bets, and will continue to until I retire. My 401 over it's life time has out paced my pension and SSI that it not even a comparison. That money is mine, and unlike my pension and SSI, I will be able to leave that to who ever I want.
Does saving and investing mean that money will be there when you need it? Absolutely not>>>>>>>>>But not doing so ensures there will be nothing.
Tax deferral can be great, but, only if you end up in a lower tax bracket when you withdraw the funds. Otherwise, your 401k can turn out to be a tax infested nightmare. That’s why I prefer a Roth IRA. Once the money is in there, earnings are tax free forever, and there are no minimum withdrawal requirements when you reach maximum retirement age. There’s a reason why our government makes it more difficult to accumulate sizable assets in a Roth IRA vs. a 401k or traditional IRA, and it’s not because they are looking out for your interests. Unless your company is giving you a significant match on your 401k contributions, I would max out savings in a Roth first, then decide what to do with anything that is left over.
Once again MSN takes a negative tone on self reliance and personal responsibility. The article points out valid risks associated with 401K's. But the title of the article should indicate that these are potential risks not that 401K's are failing for all of us. The biggest issue here is the under-educated investor. It is very unfortunate that personal finance is virtually ignored as a curriculum subject by our public education system (HS level). Many of us have done quite well with our 401K's.
Who is this article a commercial for??? Obviously someone who wants you to think they charge less fees. Plus they want to remove the cap???
There is a reason that there's a cap on investing. If you have no cap, then the government wouldn't get any taxes from the rich at all. Since it's all pre-tax the government doesn't get a cut. I put the max in for years........before I retired. The limit was $22,000 then, but if I could have I'd have put away a lot more. It's not counted as income at all, so no taxes on it. If you remove the cap, the rich will throw everything they can into it making it just another loophole.
wall street's skimming off around 1/3 of american retirees retirement money through management and assorted transaction fees.
it's a pretty good racket that's going mostly unnoticed.
index funds are one good solution.
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The underperformance of the Russell 2000 was likely owed in part to tax-loss selling, which tends to pick up this time of year. Small-caps often feel that pinch in a stronger fashion than large-cap issues since individual ... More
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