When do you realize you work for free ?

[mksj]

Taxes in the US are much higher than just the 25%, Feds take 20-30% (or more), than you have state tax so add another 5-10% if you live in CA, then you have sales tax which in CA it is another 9-10%, if you work they withdrawal for social security, medicare, etc.. If you own a house then you are taxed on its value, and then they add on dozens of bonds that will not get paid off for decades. You then have medical insurance, and even if you are on Medicare you have to pay supplemental insurance to cover what they do not pay. Rent a car at an airport and 2/3rds is fees and taxes, the list goes on. My wife and I are retired, I still do some medical consulting, I figure at least 40% of what comes in goes out in taxes/fees. So one way or the other unless you are on a bare bones income, taxes take a big byte out of your income/retirement.

Primary thing for retirement is to be diversified in your income streams, the future is pretty grim with this respect even if you start at an early age. I look at my 401/403b and they haven't substantially grown through the years other than what I put in, and every time the market takes a dump you loose 20% or more of the value and then wait years for it to come back. We'll we are getting to the age where I may not be here long enough for that to happen. High yield savings accounts are a bit of a joke these days, they were at 0.5% until recently and then they turn around and charge you 20-30% on credit card debt, there is a reason why they hand credit cards out like candy.

 

[Reddinr]

Only investing in S&P 500 since 1980 would result in capturing some of the growth below. If more conservative, you would get less growth of course.
4% average growth compounded over 30 years results in over 3 times-growth of an initial investment. Even the "big" correction we are in now is small compared to the overall growth that is usual in the long haul. The sooner the investment, the longer the growth period, generally the better.

 

[MikeInOr]

Maybe teach us younger folks what we need or should do. I’m 45 put 10% into 401 no debt just try and bank everything I can. Markets scare me I work to hard for it to loose it. I’d flip seeing my saving lost to the markets. So what do I do?

I ONLY put as much into my 401K as my company will match. After that I put contributions into my Roth IRA through TDAmeritrade. I can invest in ANYTHING I want with my IRA account. With my 401K account I can ONLY buy the high load mutual funds that they authorize... and they NEVER authorize low load mutual funds like the Vanguard 500. In the past 20 years I have put more money into my 401K (because of matching) yet my IRA is worth CONSIDERABLY more. All because the Vanguard 500 has an expense ratio of .04% per year. Any mutual fund your 401K offers will have an expense ratio around 10X and higher of that. Those fractions of expense percentages REALLY add up over time.

I have heard that money invested in 401K's is referred to as "Fools Money" by Wallstreet because of the high expense ratios on the funds eating up all of the returns.

Does your 401(k) offer enough investment choices? No? Find a better home for your nest egg.

If you're not happy with the number of fund choices in your 401(k), it could pay to invest your long-term savings someplace else. Here's what to do.

www.usatoday.com

Most of us are stuck in our 401K's because of employer matching and not being able to move our retirement accounts to an IRA while we are employed at the company.
1) If you have a previous 401K from a previous job NEVER roll it over to another 401K! Always roll it over to an IRA!
2) Never put more than the matching amount in your 401K. Always put extra retirement savings in an IRA! (I put my money in a ROTH IRA and I have a separate non-ROTH IRA that I roll my old 401K's from previous employers into... this is just my preference though)
3) If you don't know what to invest your IRA into start with the Vanguard 500. I keep half of my IRA in the Vanguard 500 and half in other investments. Right now my Vanguard 500 is hurting from the current bear market. It has always bounced back to above where it was when it took the dive and I have every confidence it will this time too.

You can try to outsmart the market by selling when the market is going down and buying when the market goes back up. The experts say that on average you will never get ahead with this strategy. I have moved my retirement money from mutual funds into cash when I knew the market is going down (like right now) and bought back the mutual funds when the market is going back up. The STUPID experts are right... I have ended up loosing money over time this and do way better when I just ride out the market fluctuations.

A good chunk of the load on the 401K mutual funds goes to the company managing the 401K. Hence 401K managers have a high incentive to push the highest expense ratio funds available to the companies that they manage 401K's for. You need to be the one looking out for your best interest... no company is going to prioritize your retirement account return over their own companies profits!

 

[MikeInOr]

I look at my 401/403b and they haven't substantially grown through the years other than what I put in, and every time the market takes a dump you loose 20% or more of the value and then wait years for it to come back.

401K's are stacked against you! The only reason to have a 401K is if your employer matches your contributions. I do not believe 403b's are matched by the government as your employer? As such I would never choose a 403b over an IRA!

I know this is no consolation to you as you are nearing retirement but maybe someone else will benefit. If you had put the same money into an IRA and only bought the Vanguard 500 mutual fund you would be WAY better off than you are with your current 401k and 403b. As I stated above the expense ratio on the mutual funds offered by 401k's will pretty much ALWAYS eat up any gains that you should be seeing. They not only eat your money when they are going up in value they eat your money with "expenses" when the funds are going down in value too! 401K's/403b's were designed by very smart people to make the financial institutions rich... at your expense!

About a month ago my sister and brother in law came to visit. We started talking about retirement and I showed them how much their 401k/403b mutual funds were behind the Vanguard 500. We ended up opening a ROTH and conventional IRA for both of them on TDAmeritade in about an hour. I use TDAmeritrade, have so for 30+ years now (before they were even TD Ameritrade) and it is what I know. That doesn't mean there aren't other online investment firms that are equally as good.

 

[RJSakowski]

Here is the market performance for the past 10.5 years. Even with the brutal downturn this year, there has been appreciable growth.

 

[MikeInOr]

Here is the market performance for the past 10.5 years. Even with the brutal downturn this year, there has been appreciable growth.
View attachment 416716

Plot any one of the funds available through your 401K on the same chart against the S&P and I think you will be shocked by the actual returns!

 

[RJSakowski]

Plot any one of your 401K funds on the same chart against the S&P and I think you will be shocked by the actual returns!

I actually do plot our investments against the the index funds and yes, the yield is substantially lower. In part this is due to the diversification into bonds but some of it is due to management fees. We have no 401K funds and less than 20% of our investments are in IRA's and Roth IRA's.

Were I to do it over, I would have invested in the index funds. Although the ups and downs are greater, after a decade, the growth will exceed all but the worst of downturns. Unfortunately, to make that change at this point would incur a huge tax liability that would suck up much of the gains of the last decade.

My best investment has been in the last company I worked for. The yield on their stock is 700% over the past 10 years.

 

[pdentrem]

I have been just riding the market over the last 30 years via quality dividend paying companies and any capital gains are just a byproduct. The length of time makes all the difference on how well things turn out. Been harping that young people have the best chance to make a good to even a great plan but they are not taught how it works and not encouraged to do so. The first ten years makes all the difference. A simple $100 per month starting at 18 years old and even if stopping after 10 years makes up the majority of the funds the plan will have on retirement. It is all about compounding!
Which companies should one look at? I look at Dividend Aristocrats and selected approximately 20-25 of the top listed and a few cheap ETFs as a parking place for cash to sit while it accumulates enough to buy more for rebalancing etc. I have QQQ which has and is still one of the best to date, as RJ mentioned. MAIN should be looked at as well.
Pierre

 

[Reddinr]

Guess I got lucky with a CEO / CFO that didn't pick a bad 401K custodian / deal for the employees. I know some of them are pretty bad. Cheap for the company so they can "check the box" that says YES, we have a 401K plan. Great points RJ. KNOW THE COSTS! Also, you got lucky with your company stock. Could have gone the other way too, so congrats!

 

[7milesup]

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