401k options - more info - new questions reply #3

[mistymoney]

so - I'm trying to reduce my equities exposure prior to pulling the plug. I'll be 55 in a few months so can access current employer 4011k without any issues and want to have that be the safe funds.

Everything in my 401k is dreadful. there is no TIPS kind of thing, no money market. crappy poor performing "income" funds, that are down for the year.  One thing is like a cash - but that has lost money this year too and no discription of what is in it?

I don't seem to have an option to go to cash or anything like that. Nothing that can't lose value. That seems so terrible, you are forced into these managed income vehicles that are worst than cash, imho.


Seems like there aughta be a law. I think I thought there was one, always a cash-like option at other employers.

Kind of disgusted really.

What are you throughts?

[seattlecyclone]

Have you considered keeping equities in your 401(k) and rebalancing as needed in your other accounts? Selling $1,000 of stocks in your 401(k), withdrawing the proceeds, and then swapping $1,000 of bonds for stocks in your IRA isn't very different from selling $1,000 of bonds in your 401(k) and withdrawing the proceeds.

[mistymoney]

Have you considered keeping equities in your 401(k) and rebalancing as needed in your other accounts? Selling $1,000 of stocks in your 401(k), withdrawing the proceeds, and then swapping $1,000 of bonds for stocks in your IRA isn't very different from selling $1,000 of bonds in your 401(k) and withdrawing the proceeds.

I only have retirement funds and a modest emergency fund(~10k). This would be the one account that I can withdraw from without hassel over the next few years. It's just really disappointing that I can't even put it into cash with no interest to be sure to preserve capital.

It's kind of criminal - imo - that you get trapped into these poor vehicles with your 401k money and can't even just park your cash without them getting their fees. I've never had much luck with 401k - one job every fund had and over 4% expense and then a 5% withdrawal iirc, but I alway thought there was a money market option - maybe I was mistaken, as I didn't use them back then.

[mistymoney]

so - what they have is called "liquid Assets separate account", finally found the info on it.

It's 8% bonds, and 92% "other" - whatever that may mean. top 10 holdings look like a bunch of banks, but not their stocks. Compares to bloomberg barclays treasury bellwethers 3 month index %, consistently underperforming, and has been negative the past year, whereas the index is postive. Expenses is 0.35%.

Not sure if I should yolo and leave this in the stocks I have it in, currrently 38% large cap US, 53% mid/small cap US, 9% international. Allocation is 38/52/10% so international not doing quite as well and mid/small outperforming a bit :). Anyhoo...

If I leave this one as is, put safety into a different account, I could draw from this one if the market holds, but then would have to do something else - like the 5 years of equal withdrawals - to pull from another account without penalty.

What would you all do?

[ChpBstrd]

1) Complain to HR. Point out better 401k vendors. Raise a rabble with your coworkers and managers. This is the time of year when they'll be making renewal decisions and it'll be on autopilot unless someone complains.

2) Ask if you can transition to being an independent contractor rather than an employee. This might require you to find your own health insurance, but it would also let you roll over that crappy 401k. If your employer is willing to give you a raise in exchange for getting you off their health plan, you might be able to get a plan on an exchange for the cost of the raise and thus break even.

3) Open a ROTH IRA account with an online broker. Save $6k and put it there this year. Invest in instruments that will counteract the effect of a correction on your stock-heavy 401k. For example, buy put options on the S&P 500 that will go up if your 401k goes down. This may seem like expensive insurance, but the cost roughly approximates the long-term difference between stock and bond returns.

4) Let it ride. You're *only* 55, not 65 or 70, so if you get wiped out by a major correction you could work a couple of more years until the markets recover. And in exchange for this risk, you'll most likely hit your retirement number earlier. Keep in mind that the reason all your bond/fixed income/cash-like options are bad is because interest rates are so low that they are below the fees required to run such a fund. You would not do much better on your own, so taking a risk is your only option with an acceptable possible outcome.

5) If you have home equity, establish a plan to take out a HELOC in the event of a market correction. You could partially live off of the borrowed funds as a way to avoid selling your stocks too low. In this way, you'd shift the obligation to sell stock from the present into the future. Rates are low, and in this contingency stocks could be expected to perform better than the interest cost.

6) Switch jobs to another company. Roll the old 401k into your online brokerage.

[mistymoney]

well - that was really comprehnsive, thanks! Will cogitate on it a bit.