Are 401(k)s too risky to depend on for retirement?

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  • The Taxman Los Angeles, CA
    May 5, 2013 12:51 p.m.


    "This discussion is about the vehicle to invest more than the products."

    I could have given that deflective answer that to your 11:51 p.m. May 3, 2013 post and to the several other posts discussing insurance products, but I chose to discuss the merits/disadvantages.

    I note that you did not address the high fees and the fact that the most successful investors (like Warren Buffet) recommend equities over insurance or anything else.

  • tdwds South Jordan, UT
    May 4, 2013 8:19 p.m.


    This discussion is about the vehicle to invest more than the products. Show me a billionaire that has a 401k (vehicle).

    I'm honestly glad there are people so opposed and ignorant about these products because it doesn't draw attention to them therefore keeps the governments hands out!

  • let's roll LEHI, UT
    May 4, 2013 7:25 p.m.

    Carman, thanks for the thoughtful comments. I wasn't touting CDs as a great investment vehicle (at least not for more than 5-10% of anyone's portfolio, but only saying if market volatility is so daunting to someone that they'd not use a 401(k) at all, better to have one with CDs than not have one at all.

    BTW, I seriously doubt Zelph is a financial planner. He's worried about a retired person with a $1 Million 401(k) balance losing $200K if there's a 20% market correction? No competent financial planner would have a 100% of their client's portfolio in equities at any stage of their investment horizon, and certainly not after retirement.

    The keys to success have been mentioned in a number of posts: start early, be consistent, live below your means, take full advantage on any employer match, diversify, look for no-fee or low fee investment vehicles, and don't raid your 401(k).

    Everyone needs to take ownership of their financial well-being. Relying on the government (which you don't control) is far riskier than relying on yourself (who you can control).

  • The Taxman Los Angeles, CA
    May 4, 2013 2:57 p.m.


    I know exactly how insurance products work, which is why I warn investors from them. Insurance products carry high fees that enrich the insurance salesperson at the investor's expense.

    The following billionaires have made their fortunes investing in equities (stocks): Warren Buffett, Carl Icahn, George Soros, Leon Cooperman, Bill Ackman, Steve Mandel (the list goes on and on).

    Now please name me some billionaires who have made money investing in insurance products!

  • tdwds South Jordan, UT
    May 3, 2013 11:51 p.m.

    The taxman:

    Unfortunately that is a generalization that is not true, again, if the policy is structured correctly it outperforms traditional investments over and over. Luckily I don't have to sell you on it for it to be profiable for me.

    Insurance is the most misunderstood asset class, learn the way it really works and you'll be way ahead.

  • The Taxman Los Angeles, CA
    May 3, 2013 8:09 p.m.

    Insurance is a horrible investment because of the high (hidden) fees. A most important aspect of good investing is to minimize fees. Period.

  • lvnthedrm South Jordan, UT
    May 2, 2013 8:28 p.m.


    You give the typical, "mainstream" response that most give then someone talks about whole life insurance. I don't sell life insurance but I am a consumer 10x over. I agree that SOME whole life insurance is overpriced. What most people don't understand, is that a policy can be structured in 100's of different ways. Typical life insurance is structured so you get the most death benefit for the least premium. What if I were to reverse this? So get the least death benefit for the most premium...why? because then I dramatically accelerate my cash value and the in turn get DOZENS of HUGE advantages within this savings vehicle, tax free growth, tax free withdrawal, guarantees of no loss, tax free transfer heirs to name a few. Try passing your 401k and IRA money onto loved ones and see them enjoy maybe 25% of the money after tax.

    Most people hear a lie perpetuated by "gurus" and soak it in and run with it. Too bad life insurance is the most misunderstood asset class in this country. Dig a little deeper into this and you will be surprised what happens when people start thinking outside the box.

  • The Taxman Los Angeles, CA
    May 2, 2013 1:27 p.m.

    As a CPA/MBA/ tax processional, I have strong opinions on this subject.

    Mark's threshold question (do most people realistically have money to invest?) is a good one. But it is way beyond the scope of this 401(k) discussion. So assuming one has money, and sticking to the question of whether 401(k) plans are a good investment, I strongly recommend investing in 401(k) plans and other tax-deferred investments. When you invest your money outside a tax-deferred vehicle, the earnings are taxed each year (leaving less to compound for the future). Inside a 401k plan, the earnings compound on a pre-tax basis, which is very powerful. The tax rate can be much higher when you take money out (than they were when you put it in) and you will still probably out way ahead.

    The most important thing to watch with any investment, tax deferred or otherwise, is fees. You can't beat the market, and financial planners are for the most part frauds. The best investment, inside a 401(k) plan or not, is a no-load index fund. Watch the Frontline documentary if you can. It is excellent.

  • carman Wasatch Front, UT
    May 2, 2013 11:31 a.m.


    The "reality" is that I am slightly ahead of schedule. If I had paid off debt more slowly, I would be further ahead (but wouldn't be sleeping). We saved much more than 10% early on (with no children, low school debt), but also lived a lifestyle well below most of our peers. We at out less, borrowed movies for entertainment, took inexpensive vacations, etc. So while income was lower in my early years (below average of our peers even), the percent of income saved was much higher, resulting in similar inflation adjusted dollars being saved then and now. We save more than $700/month now, but not without sacrifices.

    Zelph has the wrong clients :). Look at the latest Forbes article (The 4 Fundamental Priorities For Financial Success). It has an example of a guy who made little, but saved/invested to prosperity.

    The problem is NOT that there aren't enough pensions or government safety nets. The problem is a lack of education about about saving, investing wisely, about avoiding debt, etc. I don't/won't rely on safety nets to solve the problem for me. I prefer things I can control, like controlling spending, saving and making wise investments.

  • mark Salt Lake City, UT
    May 2, 2013 9:50 a.m.

    Carman, I know the math. My question was, what is the reality? You have someone on this thread claiming they are a financial planner, Zelph, and he, or she, says in their experience they have only encountered one person in many many years that has been able to save a million dollars.

    That's why I was asking where you are at in your retirement savings. Are you near your three million? I wonder how many people you think make 60K a year, from the age of 24 to 67. You think there are a lot of people out there that do that? Are there many people that can put away 700 a month into their 401? (Including employee match). Can you?

    Now don't get me wrong, I think these retirement vehicles are a fine way to save money and I would recommend people take advantage of them. My beef comes with the argument that because of them we can do away with social security and Medicare. (Pensions have already been eliminated) you know, privatized Social Security accounts and vouchers for Medicare.

  • luv2organize Gainesville, VA
    May 2, 2013 9:41 a.m.

    OK Sammyg I need to comment on what you said about whole life insurance. Do you sell it my friend? Whole life is way over priced - the money you could buy term and then invest the rest would grow much much more. If you die before you cash out your policy it only pays at face value so all of the money you invested just disappears.

    Next: Yes, most lost a ton of money in 2008 but guess what? If you kept your money put you would be ahead of the game right now - no loss - just gains.

  • lost in DC West Jordan, UT
    May 2, 2013 7:46 a.m.

    through three "corrections" in the market (1994, 2002, 2008-9) my 401(k) balance has never dropped below the combined employer/employee total, let alone come anywhere near what I have contributed. I am MILES and MILES ahead of the game.

    yes, I know my tax rates will be higher when I retire (especailly with the current mistake in the WH), but you do get an extra exemption when you reach age 65. So when my wife and I reach 65, we will get two more exemptions, almost making up for losing the exemptions for my three kids.

    and yes, my mortgage will be paid off, but giving up a 25-35% deduction on the interest and not having to make mortgage payments puts me miles ahead.

    the GREATEST threat to 401(k)s in the dems' designs to steal them to fund unions' underfunded pension plans.

  • Max Charlotte, NC
    May 1, 2013 8:39 p.m.


    Yes, really! While it is very unfortunate for those who lose their jobs before they want to retire, most people have the option to work as long as they want. Because of increasing life expectancy, they would be foolish to retire before before their 70s.

  • 1aggie SALT LAKE CITY, UT
    May 1, 2013 8:27 p.m.

    "As for financial advice, Martin Smith, a correspondent for the Frontline article, said financial advisers use something called the suitability standard."

    What Frontline "article" is she (and some of you) talking about? I watched a Frontline documentary, but have not seen an article written by Frontline. I assume DN knows the difference between a documentary and an article, so please enlighten me as to where I can find the article.

    May 1, 2013 4:46 p.m.

    I would have to agree with what Carman has been saying. I would add to it this... When I meet with people to discuss their 401(k) I am often told by people that they just can't afford to save 10-15% of their pay right now. I tell them that is fine, but I tell them to start and then each year increase their deferral by 1%. If someone is able to do that consistently over 30 years they will be saving 30%+ of their pay. I always tell people to start and to stay disciplined. If they can start stay disciplined and increase their savings then they are going to be just fine in retirement. 401(k)'s are not broken they do in fact work if you are willing to be patient and not do detrimental things with them such as taking a hardship when you don't really have to or cashing it out. Start, discipline, increase saving diversify and everything will work out.

  • carman Wasatch Front, UT
    May 1, 2013 1:47 p.m.


    No need to share my retirement balance. The math is simple. If you make $60k/yr average, save $700/month including employer match (10% employee contribution + 4% employer contribution) and work from age 24 to 67 (normal working life today), your balance will compound to $3.1 million. Even if you cut the balance by 60% to adjust for inflation, that leaves $1.25MM real dollars. At 5% withdrawal rate, that is $62,650/yr income, or 4.4% more than the average income during your working life. And because retirement income is not subject to Social Security taxes like wages were, it is actually 10% more than the after-tax income you had while working.

    Obviously these are simplified assumptions, but they show the power of time and compounding. These numbers are not pipe-dream numbers, but they do require that you start early, are consistent, and make wise investment decisions. I can tell you that I know many people who have consistently saved and wisely invested, and they are nowhere near as cynical about the market as the average poster on this thread. If you invest more, or earn better returns, the results can be even better.

  • mark Salt Lake City, UT
    May 1, 2013 12:41 p.m.

    Really, Max? Work into your 70s, huh? A lot of places looking to hire 70 year old employees?

  • george of the jungle goshen, UT
    May 1, 2013 8:46 a.m.

    How much value do you have in something that you don't trust or have confidence in?

  • Max Charlotte, NC
    May 1, 2013 4:53 a.m.

    The article implies that 401(k)s are homogeneous. They are not. You can make a 401(k) as safe or as risky as you want. If you have a well thought out and diverse portfolio and save 10-15% of your money (if you start in your 20s) and work into your 70s (with life expectancy ever rising, 65 is far too young to retire) you will be just fine. It isn't the 401(k) that is the problem, it is people saving too little and not knowing how to invest their money that is the problem.

  • Sasha Pachev Provo, UT
    April 30, 2013 9:44 p.m.

    I think you are better off investing in your children, your health, and your ability to maintain the quickness of mind in your old age. So I have eight children, program computers, run, eat healthy, and play chess. Hopefully those things combined will help me achieve the target of my investment.

    I save as much as I can, I do have an employer-matched 401k, but I am not counting on it. I am planning to work until the day I die, or until I am absolutely physically incapable of doing any kind of work. Then maybe my kids can take care of me.

  • ZelphExists Salt Lake City, UT
    April 30, 2013 8:34 p.m.

    As a financial planner, I very rarely see someone that can retire off a 401k. Let's say that miraculously that you avoided a lot of market risk and you grew it to a million. I have only seen 1 client in many, many years have this amount in their 401k by the way. Any planner will tell you don't pull out more than 5% a year to live off. That number should realistically be 4%. But lets go with 5% That puts you at $50K a year to live off. ANd then you get to pay taxes! Lets say you are in the average tax bracket of 35%. That would leave you only $32,500 a year to live off. Which is not much. So what if the market drops 20% in a year which happens. That would leave your nest egg at 800K and would allow you to pull out 40k a year and after taxes on that would leave you only 26K a year. The Frontline article was right on. For those preaching that 401ks are the way yo go, you are in straight denial.

  • sammyg Springville, UT
    April 30, 2013 8:24 p.m.


    The only logical reason for anyone to consider a 401k is if they get a generous match. That's it. That's the only given that can maybe overcome all of the risk and maybe a person can come out a head.

    Most people are uninformed, never change their investment direction and hope this works out without work. They also hope that they can control when they want their money. People get sick, people get fired or loose their jobs when they have borrowed against their 401k and this causes a double wammy on taxes.

    There are just too many negatives in this volatile economy anymore to depend on something fraught with so much risk.

    YOU assume all the risk. Not your company, not the 401k administrator.

    If your bent on having one of these get an Investment Advisor and make sure you have an investment option that has a DEFENSIVE strategy that will yank your money out of the market when conditions are ripe for a plunge. They are out there.

    Paying an IAR 2-3% for watching your money daily is easier to stomach than watching your nestegg lose 50%.

    You've been warned and wisely tutored.

  • tdwds South Jordan, UT
    April 30, 2013 8:16 p.m.

    Yes they are!! Wake up people! 401K's are a very new and un-tested retirement vehicle and are proving to be a huge huge fail! Traditional financial wisdom is keeping the 99% in the 99%. If you want financial success, such as a secure retirement, look at what the 99% are doing the opposite!!

  • sammyg Springville, UT
    April 30, 2013 8:14 p.m.

    Why would anyone invest their hard earned money into a TAX-DEFERRED program when taxes are going up???

    A lot of uninformed people honestly think that investing in a 401k is tax-free, never pay taxes OR have been duped into thinking that when they retire they will be in a lower tax bracket.

    Sorry it ain't happening.

    As we get older we encourage our tax deductions to grow up and move and also we hope to have our homes paid for.

    And then let's talk about the risks and fees.

    Sorry folks... slow and steady wins the race. I get guaranteed 3.5% or more and dividends on my whole life insurance contracts... access to my money, without penalties, tax free.

    Giving your money to an institution and hoping and 'ifing' that you will get your money back when you want it, when the market is up, and when your taxes are lower is delusional thinking at best.

    And please don't tell me how Target Retirement funds lower your risk as you get nearer to your retirement age. All it takes is one bear market and you've lost 38% in the S&P like most people did in 2008.

  • Say No to BO Mapleton, UT
    April 30, 2013 7:43 p.m.

    401ks are a great idea. Like any investment you need to manage the mix and plan on holding on for decades. We took a hit but things have bounced back nicely.
    Sure, we'd like to have a pension, but there aren't many of them out there these days unless you work for government.
    So, what do you do if your company doesn't offer a pension? CDs? No. Annuities? Not likely. Reverse mortgage? Not a good deal.
    Social security? Not enough, and they keep changing the rules. I was hoping on 65 but they've moved the goal to 67.
    An IRA of balanced Muts is as good as anything out there.
    But watch greedy government that wants a piece of the action. They trashed social security and spy another pile of money they can prey on.

  • mark Salt Lake City, UT
    April 30, 2013 7:15 p.m.

    carman, can you do me a favor and tell me how much you have been able to put in your 401 or other retirement savings accounts? I know that is a personal question, but seeing as we are all anonymous here. . .

    The reason I ask is because I think a lot of people don't really understand how much it costs to retire. If 401s supplement a pension or government safety net, that's all cool. And clearly it is a good idea to take advantage of them, especially if you have employer matching.

    But there are many people that have pushed us away from pensions because they say you can save enough. And what's worse is some people also would get rid of Medicare and Social Security.

    But so lets say that a retirement account is all you have to retire on. And lets say you retire at 70 and live till 100. 30 years. How much will you need? Now remember, when you're 70 things will be more expensive. Do you know how much home health care, or nursing homes cost per month? Do you know how much an extended hospital stay is?

  • one vote Salt Lake City, UT
    April 30, 2013 7:15 p.m.

    Risk is inherent in the free market system. If you want a nanny state don't save for retirement.

  • carman Wasatch Front, UT
    April 30, 2013 7:09 p.m.

    To let's roll:

    I agree with almost all of your comment. I don't believe, however, that CDs are reasonable investments for retirement funds, in most cases. When buying a CD, the saver avoids some risk (volatility, principal risk), but takes on others (inflation risk, asset growth risk). If someone has 10+ years to retirement, they will be generally much better off owning productive assets such as stocks. Stocks are a claim on the earnings of a company. IMHO, too many people worry about price volatility of the stocks. Yes, when people/markets panick, values can fall sharply. But in the long-run, share prices should track the productivity and earnings of these companies. Owning a piece of quality companies is one of the surest ways, in the long run, to secure your financial future.

    Just my humble opinion, but I think its an opinion grounded by data and facts.

    Own a piece of America. If the best companies in the world all go belly up, the only thing that will help much is a pile of food in your basement! CDs and other stores of value won't be worth much anyway.

  • let's roll LEHI, UT
    April 30, 2013 5:32 p.m.

    The only thing more ludicrous than the headline is the fact that the majority of the commenters seem to agree with its laughable premise.

    A 401(k) is a tax-deferred savings plan. The risks discussed in the article aren't inherent in a 401(k) but in how people invest the money (risky investments, high fees), start too late to save enough for retirement, or raid their own 401(k) account by taking out loans or early withdrawals.

    If you want to be avoid all of the pitfalls mentioned in the article, start early, invest in no-fee options (you can put it in a CD, if you're completely risk averse, though the return will be pitiful) and don't take early withdrawals or loans.

    If your employer offers any match, you loose money by not contributing to a 401(k).

    Anyone who doesn't use a 401(k) or other self directed retirement vehicle puts their financial security in someone else's hands (government, employer) and that's never a good idea.

  • DN Subscriber 2 SLC, UT
    April 30, 2013 4:46 p.m.

    Okay, let's ask your question a bit more precisely:
    "Are 401(k)s too risky to depend on for retirement, compared to Social Security?"

    Given the liberal penchant for confiscating the earnings of anyone who saves, (in order to buy the votes of those who find it easier to live on the welfare plantation than to work and same themselves) it is indeed risky to save for your own retirement.

    However, it is even more risky to not be self reliant and to depend on the promises of politicians that they will take care of you, cradle to grave.

  • carman Wasatch Front, UT
    April 30, 2013 4:09 p.m.

    401(k) plans are fantastic savings vehicles for most people. Most of the negative comments on 401(k) plans likely come from folks who 1) never consistently saved 2) if they do, they often trade in-and-out of the market 3) have never made an effort to learn about the keys/risks/rewards to investing wisely, and 4) Are too often worried about the government "boogie-man".

    The fact is, 401k plans are great options for many, many people: 1) Significant matching provisions often give a 50-100% virtually risk-free up front. 2) Tax-deferred or growth tax-free (for Roth 401k) mean significant tax benefits (benefits that likely won't be significantly removed for the vast majority of savers) 3) Federally protected by ERISA laws 4) Easy access to "owning a piece" of the world's best corporations and their profitability.

    It's true that folks need to start early. I started in my 20's and, now in my 40's, my 401k is a significant part of my net worth. And even through the "lost decade" of the 2000's, the balance has grown substantially (growth, dividends, contributions and company match).

    So learn about your plan, and get started!

  • procuradorfiscal Tooele, UT
    April 30, 2013 3:40 p.m.

    Re: "Are 401(k)s too risky to depend on for retirement?"

    They are, now that the government is eying them hungrily for confiscation and inclusion in a new Social Security Ponzi scheme.

    The President is on record, saying America can no longer "afford" the "tax loss" 401(k)s pose to deranged liberal vote-buying scams.

    So, it's clear liberals have identified their target. Now they're figuring out how to get control. Next, they'll debate which giant liberal toilet to flush it down.

    It'll be the one they figure will buy off the largest low-information constituency. And, it'll be at the expense of the evil "rich."

    Cyprus -- here we come!

  • mark Salt Lake City, UT
    April 30, 2013 3:39 p.m.

    Hopefully people have started to figure out what a scam these 401s and other retirement savings accounts are. It's nice to save money, but there is no way most people will ever be able to save enough to retire on.

    You all have been sold a pack of lies.

  • Third try screen name Mapleton, UT
    April 30, 2013 2:57 p.m.

    There is a risk not covered by the article: Taxation.
    Washington has their eyes on 401Ks, changing the rules in mid-stream to get more taxes from us.
    Obama doesn't mind putting a limit on fees. That penalizes fat-cat Wall Street types.
    Watch for the administration opening up a new revenue stream at the expense of retirees.