401K's a sinking ship? Options Anyone?

[ultrarunner]

I've almost always worked for myself and still do to a lesser degree.

About 10 years ago, I was offered a benefited employee position at the Hospital where I had been doing a lot of work.

In exchange for a pay cut, I would receive paid vacation, profit sharing, 401k, Employee Stock Bonus Plan and health insurance... Never had a job with paid vacation or paid medical... it was a hard concept for me to grasp...

I still have paid vacation, but all of the other benefits have been reduced or eliminated.

The 401K no longer has a match and 5 years of gains have been wiped out ALONG WITH 5 YEARS OF MY BI-WEEKLY PAYROLL DEDUCTIONS and my employer's match contributions.

Intellectually, I know the "Experts" say to ride out the storm... My fear is the 401K ship IS sinking AND taking me down with it...

The plan administrator has changed several times and is now Hartford. I called Hartford and after 5 calls was actually able to reach the person administering my facility... I told her to Cash me out... something is better than nothing...

She said what I'm asking isn't possible and will meet with me next week to explain my options.

Any advice on what I should be asking and what I should expect?

I don't understand how the Bank CD I opened in November can yield 4.75% and my closest 401K money option yielded 1.2% at that time. The Mutual Fund disclosure lists Fund costs of 2%, on average...

Hartford makes money, irregardless of what happens to my money and without risk.

My parents and grandparents are products of the Depression and they never had any money in the Market period... for them the Depression was all to real and they had plenty of stories of folks and neighbors living high on the hog and then loosing everything.

Hartford continually advises us to Max Out our 401K's so that we will have more for retirement.

I don't know about the rest of you, but the more money I put in my 401K, the less money I have.

5 years of Salary Deferral would have more than paid for that shiny new Kubota b26 I've had my eye on... and implements to boot!

 

[Travelover]

Ultrarunner, don't panic! We are going through one of the deepest recessions in the last 75 years. Once you sell your stock funds, you are locking in your losses. I know that it is hard to believe right now, but things will get better and those that hang tight will be OK. Those that convert to cash will take years to get back to even, if they ever do.

You are right to be concerned about fund expenses and 2% is excessive. Talk with your 401(k) representative and see if they have index funds that are less than 1%. If not, you may want to save in the future in IRAs at a low cost fund company like Vanguard for Fidelity.

Here is how I look at it. Historically, stock funds have paid out about 10% per year, on average. CDs and bonds paid half that or less. Why the difference? Because stocks go up and down, often dramatically.

Hold on, you'll be glad that you did in a few years.

 

[SnowRidge]

Isn't there a penalty for cashing out at 401K? Don't do anything without talking to a good tax person and an independent financial advisor.

Don't be the person who buys high, sells low, and makes up the difference in volume.

 

[ultrarunner]

My background is engineering and people come to me and expect precision...

I find it interesting that the entire 401k industry seems to be built on faith and each presentation starts and ends by saying there are no guarantees... and then they bring out all the charts and graphs and proceed to tell us what we should be doing.

I double checked my company 401k investment options...

The fund fees range from a low of 1.75% for the PIMCO Bond Fund to 2.16% Fidelity Mid Cap Fund...

More questions...

Is there any reason to continue with the company plan now that my employer match is gone? They previously matched .25 for each dollar I put in up to 3% of my wages.

Wouldn't I be better with an IRA or something through Schwab? Plan fees would be significantly less and investment options greatly increased.

Turns out my plan has a secret Stable Value 3% Money Market Option that is NOT listed anywhere in print... it is only available if requested... seems Unethical at the least and Fraudulent at the worst to with hold this knowledge?

 

[ultrarunner]

Isn't there a penalty for cashing out at 401K? Don't do anything without talking to a good tax person and an independent financial advisor.

Don't be the person who buys high, sells low, and makes up the difference in volume.

I'm told I can't cash out, unless I'm no longer employed or hardship and then I would be subject to a 10% penalty... I'm already down 50%... the 10% is looking good.

 

[SnowRidge]

I'm told I can't cash out, unless I'm no longer employed or hardship and then I would be subject to a 10% penalty... I'm already down 50%... the 10% is looking good.

The 10% is on top of the 50%. Virtually everyone in the country with a 401K is in the same boat. IRAs too. As was pointed out, if you get out now, you will lock in your losses and be required to pay income tax on the entire amount plus a penalty. As far as the statements that nothing is guaranteed, they are required by law.

Again, talk to tax and financial advisers before jumping. You don't even have to pay anyone to get general advice on this subject. There is a ton of stuff on the web from experts with no financial axe to grind.

 

[scott_vt]

I'm told I can't cash out, unless I'm no longer employed or hardship and then I would be subject to a 10% penalty... I'm already down 50%... the 10% is looking good.

Good Afternoon Ultraunner,
If you recall I was laid off from Pitney Bowes back in Nov of 2007. I was a modelmaker for them for almost 20 years and in the trade for 35 at that time. My 401K was with TRowe Price through Pitney Bowes. In January of 2008 I was able to roll my 401K funds into a defined IRA. I had another retirement account through Oppenhiemer, and choose that company to roll over those funds. I ended up putting most of the money into fairly secure money market funds, through ING. Looking back on it I wish I had just put all the money in FDIC insured CD's. I lost some money, but I got out of the market when it was close to 14,000 and we all know where it is now ! I do have some other retirement money in some Alger mutual funds, and i have lost a fair amount of money in those accounts ! At this point I think Im committed to riding out the storm with those funds, even though I have lost a bunch allready ! In the end, if your to the point where you cant sleep because of the present situation, then maybe its time to put it to a close ! It really boils down to what your tolerance level is ! I wish I could offer more help than that, but unfortunately I cant !

 

[bhostasa]

Don't forget about the taxes that you'll have to pay (at your current income level) on top of your 10% penalty and the losses you've already taken.

I have lost about the same percentage on my holdings. If you're close to retirement, then cashing out is an option. If retirement is still a ways off, you should be able to make back your losses and hopefully even gain some over time. As everyone knows, the economy is cyclical and will come back. You just have to decide if you have the time to wait it out.

That said, good luck to everyone in 2009. America is going through a major struggle right now but we have always fought back to even greater levels of prosperity.

 

[LMTC]

I too "wish" I had the foresight to get out when the DOW was above 14,000, but I didn't. Now losing it all is still a secondary concern for me (if that happens, we're all in it so deep the part I could salvage by selling now really wouldn't make much difference), and my main concern remains being IN the market when it does begin to recover. I believe even the beginning of recovery could be 3-5 years, but I am not willing to lock in a 50%+ loss. I honestly think the last 2 thousand or so of loss was due to the folks who simply didn't have the stomach to stay invested any longer. I simply don't believe I can predict when it will turn up for the next several year bull market, and missing it by even 6 months could mean more than what I could earn in CDs for 5 years or so. Thus I sit. Not comfortably, but I sit nonetheless.

 

[Travelover]

My background is engineering and people come to me and expect precision...

I'm an engineer too, but you must realize that markets are driven by psychology, not rational thought

I find it interesting that the entire 401k industry seems to be built on faith and each presentation starts and ends by saying there are no guarantees... and then they bring out all the charts and graphs and proceed to tell us what we should be doing.

You need to determine your own asset allocation strategy - % Stock / % Bonds and follow it faithfully. You should have roughly your age in bonds as a percentage. There are some great books out there to help you. I like the Bogleheads Guide to Investment

I double checked my company 401k investment options...

The fund fees range from a low of 1.75% for the PIMCO Bond Fund to 2.16% Fidelity Mid Cap Fund...

These charges are excessive, but you may be stuck now

More questions...

Is there any reason to continue with the company plan now that my employer match is gone? They previously matched .25 for each dollar I put in up to 3% of my wages.

No. I'd max out my Roth options before I put another dime in the 401(k)

Wouldn't I be better with an IRA or something through Schwab? Plan fees would be significantly less and investment options greatly increased.

Yes, also look at Vanguard and Fidelity. The Target Retirement Funds are excellent for a novice investor as they automatically allocate stocks and bonds per your planned retirement date.

Turns out my plan has a secret Stable Value 3% Money Market Option that is NOT listed anywhere in print... it is only available if requested... seems Unethical at the least and Fraudulent at the worst to with hold this knowledge?

You may want to put money there in the future, but I wouldn't trade my stocks in for cash now. Remember inflation is the other edge of the sword and it is typically 3%, so a guaranteed 3% will put you behind other investments in the future.

 

[ultrarunner]

I try to read the Wall Street Journal during the week...

It was a surprise that some very large companies are curtailing 401K's... Sears, Motorola, AMD and Starbucks, among others, announced suspension of employer contributions. Other print stories question whether the day of company sponsored 401(k) is over.

It also concerns me that Treasury nominee Timothy Geithner evaded paying income tax for years on a portion of his salary and that no one seems to care? Hardly inspires confidence.

Less 401k money going into equities certainly has to have a downward effect.

I'm in uncharted waters... just trying to apply a little common sense to things I can do little about that effect me.

The account advisor compared the present market to Real Estate by saying everything is down... which I found interesting, since I own some income property that I built or renovated... I bought based on income and not speculation. A property's value is secondary to the income it produces... she didn't say anymore.

PS Scott, I remember what you went though with the plant closing... I learned a lot from reading your posts.

PPS... I guess one thing I did right was buy US Gold Coins to give to my young Nieces and Nephew... I just couldn't see myself buying more made in China Plastic for the kids birthdays and Christmas... and you know what... the kids really enjoy them and they remember they are from me.

 

[McCaskey]

I don't understand how the Bank CD I opened in November can yield 4.75% and my closest 401K money option yielded 1.2% at that time.

Be wary of banks with CD rates that are higher than average. Its a good indication they might be in trouble. They offer CD rates that are above average just to get new deposits to forestall bankruptcy. CD rates are a warning sign to the FDIC.

 

[kenmac]

In my case shrinking is an understatment ! I have been on the phone with my adviser several times & he tells me that there is a hugh sale going on now & to buy all I can afford to buy. I guess he is the expert in this field ( if there is 1) I'll have to admit, the loss is hard to take ! I'am still in

 

[IH3444]

Ultra, becareful, you may be entering what is called a "beartrap". Where panic and fear settle in, you sell low, the market recovers abit and you have missed out on that, and lose your investment. The strength you have now in in the number of shares you own. When the market begins to recover, the upward swings at first my be as steep as some of the drops we have already experienced. This is historical, and mostly all 401's are beatened down. If you have a 5-15, maybe 20 year to retirement, then you should do fine. I do know of two people who cashed out at the high, and they both now don't know when to jump back in. They now have the when do I reinvest scares... Tho both are better off than most now.

 

[jones6780]

I am a federal employee with a 401k style savings plan. We have the option to move money between different risk levels. Stocks are for long term growth. The longer you have to retirement the higher risk options are better. The closer you are to retirement the more you should move to safer, lower risk funds as you have less time to recoup and loss.

Russell

 

[ultrarunner]

Be wary of banks with CD rates that are higher than average. Its a good indication they might be in trouble. They offer CD rates that are above average just to get new deposits to forestall bankruptcy. CD rates are a warning sign to the FDIC.

I thought about that... but, isn't the playing field level when it comes to FDIC insurance? In fact they raised the coverage to 250k for 2009... not that I have that kind of money sitting around anyway.

I remember back in the 80's?? when Bank of America was about to go under and my Grandmother cashed in her CD (at maturity)

The smart money guys I know were opening up B of A high rate CD's left and right by using different combinations of family members... they all did very well and it was insured.

One of these same Smart Money Guys, a retired CPA/Controller now in his late 70's, sold all his equities and went to CD's last summer... I talked to him today and he said he hasn't had any trouble sleeping... his philosophy is investing for dividends and he said the market no longer made sense to him.

IH3444... Good Point about the Bear Trap... I also know folks that bought tech at the height of the market in the 90's and bailed when the funds tanked... loosing 40% in a short time.

 

[SnowRidge]

The smart money guys I know were opening up B of A high rate CD's left and right by using different combinations of family members... they all did very well and it was insured.

Your account, your wife's account, and your joint account are separate entities, and each gets the maximum insurance, which is currently $250K. However, last I heard, that is a temporary ceiling, which will drop back down to $100k shortly. Someone correct me if I am wrong.

 

[mjarrels]

Best place to put your money now is under the mattress... I opened a money market account about two years ago paying 3% ($40,000 deposit)... Feds cut interest rates, now I get 2.5%, Feds cut interest rates again, I get 2%, Feds cut interest rates again and I get 1.5%... Feds cut interest rates a few more times and I pay $10.00 a month to maintain this account! I still think that most bank baleout money is going to Swiss and other offshore bank accounts!

mark

 

[escavader]

Heck,i aint pulling out .Stocks are selling cheap right now .Even thoughthe ones i already got arent worth much,they will recover...might take a year or two.The people on wallstreet are too greedy for them not to go back up.And ill be sitting on all these i bought dirt cheap.Thinking of having MORE deducted from my pay
ALAN