Author Topic: Shame, Shame  (Read 8274 times)

BCBiker

  • Stubble
  • **
  • Posts: 187
  • Location: Colorado
    • Business Casual Biker - Health, Wealth, and Mental Stealth BTYB Bicycle Commuting
Shame, Shame
« on: October 25, 2014, 10:41:17 AM »
http://www.nytimes.com/2014/10/25/your-money/401ks-and-similar-plans/combating-a-flood-of-early-401-k-withdrawals.html?hp&action=click&pgtype=Homepage&version=HpSumSmallMediaHigh&module=second-column-region&region=top-news&WT.nav=top-news&_r=0

I thought this would be a fun topic to be discussed here.

Not only are people not saving but whatever they do save gets pillaged when they change jobs. What is worse is the folks who do this are so naive that they don't even realize how expensive this bad decision is...

Shamefully Antimustachian. :)

MrsPete

  • Magnum Stache
  • ******
  • Posts: 3519
Re: Shame, Shame
« Reply #1 on: October 27, 2014, 04:29:10 PM »
I know a couple of stories about people pulling money out of the 401K early -- all of them bad stories:

- When I was in college I occasionally "temped" for a small company.  I can't really remember what they made, but they hired lots of manual laborers.  One of the benefits the company offered was a 401K plan . . . and somehow 100% of the employees built up funds -- perhaps the company was automatically depositing for them, or perhaps they automatically deducted a portion of the employee's pay?  Anyway, the company was forced to provide a statement to the employees every so often . . . and EVERY TIME they did that, a bunch of employees would see the number and decide to retire.  Example:  "Wow, I have $3000!  I'm going to retire!"  They'd blow through the money in a month or two, and then they'd be back knocking on the company's door.  The boss must've been frugal, and he was sooo upset by this.  He lectured me on it, and it was one of the things that made me start reading about investments when I was still in college.

- After I finished my first degree, I worked for a short time in the office of a construction company.  They started pushing 401Ks to the employees, and a few of them signed up.  They were VERY CAREFUL to explain that this was money set aside for retirement, you can't get it out for a while, etc., etc., etc.  Well, sure enough, a year or so later one of the crew chiefs decided he wanted to build a garage . . . and he asked for his money.  He was ROYALLY PISSED that he couldn't just deduct it as if it were in a savings account.  Even when showed where he'd signed off saying that he understood the purpose, he just kept yelling, "It's my money!  Why can't I have it when I want it?" 

- A casual friend told me that he took money out of his 401K to pay for his son's college expenses.  He warned me very seriously NOT to do it, explaining that not only did he have to pay a fine to take the money out, but the money counted as income . . . and it bumped her up to a higher tax bracket.  Apparently it cost her BIG to send him to college.  I sat there and listened very politely -- as if this were all news to me -- and I didn't mention that we SAVED AHEAD OF TIME and didn't need to worry about where our kids' college expenses would come from.

- A girl I used to work with taught in another state for a pretty good amount of time -- I'll say 10 years.  And when she left, she cashed out all her retirement.  Now she's started "from scratch" here in our state, and she realizes that she's essentially getting a late start -- it's as if she didn't start saving until her mid-30s. 

Pooperman

  • Magnum Stache
  • ******
  • Posts: 2955
  • Age: 29
  • Location: North Carolina
Re: Shame, Shame
« Reply #2 on: October 28, 2014, 05:42:51 AM »
I've done this. Thankfully I'm 24 and it was 3 months of contributions. I moved it to a taxable account (fp I know). Rationale at the time was that even with the penalty and taxes, I came out ahead because of the matching. Stupid I know. I will report that the money has already paid for the penalty so there's that... I've learned a lot in the last 9 months (including finding MMM).

In my defense, I knew nothing about the laws surrounding 401ks. It was my first job out of college. If I could redo it, I would have moved it to a vanguard IRA, but alas, I cannot.

Louis the Cat

  • Stubble
  • **
  • Posts: 109
  • Age: 37
  • Location: Front Range Area, CO
Re: Shame, Shame
« Reply #3 on: October 28, 2014, 12:04:42 PM »
..."Wow, I have $3000!  I'm going to retire!"... 

Umm...on what planet is $3000 enough to retire?! Unless you have been diagnosed with a terminal illness and given one month to live, you would have to be genuinely, IQ under 60 STUPID to think that was going to work...

frugalnacho

  • Magnum Stache
  • ******
  • Posts: 3324
  • Age: 36
  • Location: Madison Heights, Michigan
Re: Shame, Shame
« Reply #4 on: October 28, 2014, 01:09:03 PM »
..."Wow, I have $3000!  I'm going to retire!"... 

Umm...on what planet is $3000 enough to retire?! Unless you have been diagnosed with a terminal illness and given one month to live, you would have to be genuinely, IQ under 60 STUPID to think that was going to work...

A lot of financially impaired people can't think more than a month in advance.  So for their foreseeable future they were all set.

fantabulous

  • Bristles
  • ***
  • Posts: 283
    • My Crappy Little Blog
Re: Shame, Shame
« Reply #5 on: October 28, 2014, 02:12:50 PM »
..."Wow, I have $3000!  I'm going to retire!"... 

Umm...on what planet is $3000 enough to retire?! Unless you have been diagnosed with a terminal illness and given one month to live, you would have to be genuinely, IQ under 60 STUPID to think that was going to work...

$3,000 is plenty of money for me to retire to a life of crime. Or throw a month long bum wine party that reduces my life expectancy to about one month.

Bobberth

  • Bristles
  • ***
  • Posts: 301
Re: Shame, Shame
« Reply #6 on: October 28, 2014, 03:18:43 PM »
I have an aunt that did actually retire so there was no penalty, but was bragging one Christmas by showing off their new bed, big screen tv and new front door that they bought with the 401k money they cashed out.  TV has since been replaced as it wasn't flat screen and the door was attached to the house they lost in foreclosure.  I'm not sure how the bed is doing.

That uncle just retired last year and he cashed in his 401k to purchase a horse trailer that has living quarters in the front so they can take it to rodeos and save money on hotels.


neophyte

  • Pencil Stache
  • ****
  • Posts: 554
  • Location: A wretched hive of scum and villainy
Re: Shame, Shame
« Reply #7 on: October 28, 2014, 08:50:33 PM »
Stories like this make me worried that so many people will be reaching normal retirement age destitute that the government will decide Americans are too idiotic to be trusted to save for their own retirement and that 401ks and IRAs and the like should be done away with and social security vastly expanded.

I shouldn't read this stuff.

Zamboni

  • Handlebar Stache
  • *****
  • Posts: 2256
Re: Shame, Shame
« Reply #8 on: October 28, 2014, 09:13:43 PM »
Quote
the government will decide Americans are too idiotic to be trusted to save for their own retirement

Based upon the stats I have read, in the majority of cases the govt would be right if they reached that conclusion. 

At my first job out of college, nearly everyone seemed to cash out their retirement when they left for a new job.  Especially the people under 30.  Thankfully I rolled mine into an IRA (initially with Edward Jones, which was stupid, but it's now well over $100K just from that one job that I wouldn't have if I'd followed the logic of most of my peers at that time.)

auntie_betty

  • Bristles
  • ***
  • Posts: 297
Re: Shame, Shame
« Reply #9 on: October 28, 2014, 11:56:25 PM »
Stories like this make me worried that so many people will be reaching normal retirement age destitute that the government will decide Americans are too idiotic to be trusted to save for their own retirement and that 401ks and IRAs and the like should be done away with and social security vastly expanded.

I shouldn't read this stuff.

Same in the UK. Pension rules are changing to make the whole pot available at 55. I should be retiring from full time work shortly, at 53, but shouldn't need access to pension funds for a good few years. However my plan is to empty the pot ASAP, without paying any tax on it, so when the government change their mind I've already got my hands on it.

I can envisage horror stories of people blowing tens of thousands. And withdrawing whole pot and being landed with a massive tax bill.

rocksinmyhead

  • Handlebar Stache
  • *****
  • Posts: 1491
  • Location: Oklahoma
Re: Shame, Shame
« Reply #10 on: October 29, 2014, 06:27:05 AM »
Stories like this make me worried that so many people will be reaching normal retirement age destitute that the government will decide Americans are too idiotic to be trusted to save for their own retirement and that 401ks and IRAs and the like should be done away with and social security vastly expanded.

I shouldn't read this stuff.

Arrgghhh I know. I just don't get it. Do people not think they're going to get old?!? Like, look around you! There are people out there TOO OLD to work! Aging is real!

Elderwood17

  • Pencil Stache
  • ****
  • Posts: 525
  • Location: Western North Carolina
Re: Shame, Shame
« Reply #11 on: October 29, 2014, 07:33:02 AM »
..."Wow, I have $3000!  I'm going to retire!"... 

Umm...on what planet is $3000 enough to retire?! Unless you have been diagnosed with a terminal illness and given one month to live, you would have to be genuinely, IQ under 60 STUPID to think that was going to work...

$3,000 is plenty of money for me to retire to a life of crime. Or throw a month long bum wine party that reduces my life expectancy to about one month.
Surely if you invest $3,000 in the lottery that is enough to win and be set for life, correct?

MrsPete

  • Magnum Stache
  • ******
  • Posts: 3519
Re: Shame, Shame
« Reply #12 on: November 06, 2014, 06:04:13 AM »
Stories like this make me worried that so many people will be reaching normal retirement age destitute that the government will decide Americans are too idiotic to be trusted to save for their own retirement and that 401ks and IRAs and the like should be done away with and social security vastly expanded.
That's a scary thought, but I could imagine it coming to pass.  While I personally would like the government's hands out of my pocket, not everyone agrees. 
Based upon the stats I have read, in the majority of cases the govt would be right if they reached that conclusion. 
In all fairness, I don't think I have a good sense of what "everyone" is doing with is or her 401K.  I know a few horror stories that come to mind when the subject comes up, but MOST of the people I know personally do grasp the concept that 401Ks aren't savings accounts.  And we all know that the stories we read in the news are chosen for their sensationalism, not because they accurately reflect the behavior or the average American. 

The real test would be how comfortably the average retiree is able to live on his or her 401K. 

robotclown

  • Stubble
  • **
  • Posts: 152
Re: Shame, Shame
« Reply #13 on: November 06, 2014, 11:31:04 AM »

Surely if you invest $3,000 in the lottery that is enough to win and be set for life, correct?

Oh, how I wish there was a way to invest in something that runs a lottery.  But they're all state-owned.  Those would be the most satisfying dividends ever.

gimp

  • Handlebar Stache
  • *****
  • Posts: 2348
Re: Shame, Shame
« Reply #14 on: November 06, 2014, 12:04:26 PM »

Surely if you invest $3,000 in the lottery that is enough to win and be set for life, correct?

Oh, how I wish there was a way to invest in something that runs a lottery.  But they're all state-owned.  Those would be the most satisfying dividends ever.

Casinos exist, you know.

dragoncar

  • Walrus Stache
  • *******
  • Posts: 8464
  • Registered member
Re: Shame, Shame
« Reply #15 on: November 06, 2014, 02:20:36 PM »
Stories like this make me worried that so many people will be reaching normal retirement age destitute that the government will decide Americans are too idiotic to be trusted to save for their own retirement and that 401ks and IRAs and the like should be done away with and social security vastly expanded.
That's a scary thought, but I could imagine it coming to pass.  While I personally would like the government's hands out of my pocket, not everyone agrees. 

What are you guys talking about?  This is the very reason SS was established: to prevent people too old to work from becoming destitute.

MrsPete

  • Magnum Stache
  • ******
  • Posts: 3519
Re: Shame, Shame
« Reply #16 on: November 07, 2014, 05:40:55 AM »
Stories like this make me worried that so many people will be reaching normal retirement age destitute that the government will decide Americans are too idiotic to be trusted to save for their own retirement and that 401ks and IRAs and the like should be done away with and social security vastly expanded.
That's a scary thought, but I could imagine it coming to pass.  While I personally would like the government's hands out of my pocket, not everyone agrees. 

What are you guys talking about?  This is the very reason SS was established: to prevent people too old to work from becoming destitute.
We're talking about -- hypothetically, not serious at all -- the possibility that the government could say, "The concepts of 401Ks and savings on your own just aren't working.  We're going to expand Social Security so it will be enough for a comfortable retirement -- not just a safety net." 

I personally would not like to put more money into Social Security. 

hernandz

  • 5 O'Clock Shadow
  • *
  • Posts: 92
Re: Shame, Shame
« Reply #17 on: November 09, 2014, 09:06:38 PM »
Quote
We're talking about -- hypothetically, not serious at all -- the possibility that the government could say, "The concepts of 401Ks and savings on your own just aren't working.  We're going to expand Social Security so it will be enough for a comfortable retirement -- not just a safety net." 

I personally would not like to put more money into Social Security.

Since the projections indicate that we don't have the political will to expand SS to ensure 100% solvency post-2033 for safety net levels, I don't think it very likely that we would expand SS to "comfortable retirement" levels. 

The most common proposal I've seen on the left to keep benefits at "current" levels (i.e., 100% solvency) is to maintain the 12.4% rate intact, but change the ceiling on which contributions are charged. 

For those on the left asking for a rate increase to ensure solvency, I've seen proposals for an increase in rate (but not changing the ceiling limit) adding 2.5% combined -- that would be the self-employed who must cover both employee and employer contributions.


RetiredAt63

  • Senior Mustachian
  • ********
  • Posts: 10572
  • Location: Eastern Ontario, Canada
Re: Shame, Shame
« Reply #18 on: November 17, 2014, 07:14:38 AM »
It can be done if the political will is there - the Canada Pension Plan (= SS) has increased its contribution rates gradually and is expected to be fully funded for the foreseeable future.

dude

  • Handlebar Stache
  • *****
  • Posts: 2350
Re: Shame, Shame
« Reply #19 on: November 17, 2014, 08:08:57 AM »
Stories like this make me worried that so many people will be reaching normal retirement age destitute that the government will decide Americans are too idiotic to be trusted to save for their own retirement and that 401ks and IRAs and the like should be done away with and social security vastly expanded.

I shouldn't read this stuff.

On the contrary, they will come after us Savers to bail out the Spenders, with things like means-testing and higher taxes.  We don't want anybody being deprived of cable TV in old age.