403B/401K (I Hate Long Posts)

[halflife]

First, let me get this out:

Please excuse the recent 'radio silence' -- haven't been well. I do read the postings here most every day on my mobile, but writing, I can only pull off in fits & spurts, very slowly. And it has to be on what passes for a good day to complete a substantial post. In fact, it took me several sessions over a couple of days to pen this.

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As I do too often here, I need something -- advice.

Perhaps Mr. Jewbacca or 1 of our many other smart members could offer their opinions. I'll just post the facts:

Wife & I disabled. My wife got SSDI for back problems first application a few years back, I'm still fighting somehow -- just being looked at now by an ALJ after 2 years + (applied 12/2011)

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My question already!

Just a few years we were doing pretty darn well $$ -- I didn't always make smart $$ decisions though.

Then, healthwise we went south -- neither could work. Pure co-incidence we got sick the same year. My wife had a decent private disability policy. Self-employed, I had no backup -- never dreamed I'd lose my beloved 'net & PCs as a means of making $$ so abruptly.

Hopefully, my endless wait for SSDI will end shortly (my wife got SSDI first time out, about 6 weeks after appl!).

Got good people helping us too. Multiple Drs. readily state I'm fully disabled; it's obvious to a child even. Once I have a hearing, I can't imagine another denial!

But the caprices of the disability process do scare me...

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We live off my wife's disability, our savings & gifts from Mom when things are tough.

About 80k in consumer debt. Right now we make onerous payments each month. I know I'm a fool -- we had some great vacations in the decade preceding illness though /default_smile.png

FYI; S-Y was never part of the problem.

Never a late payment though now we're paying many bills from savings rather than from earnings as we easily did for 35 years or more.

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In-Law Solution

My BIL & SIL are all but insisting we file bankrupctly to "erase" the debts & not pay them.

We still have a fairly decent amount of seizable assets which the BIL advised us to spend first. Many are Blue Chip stocks which have done quite well of late. What would we even spend it on? Well, suppose I could become a VIP at OF /default_smile.png

Would give some to nieces/nephews of course. However, we're only mid-fifties & obviously in a precarious state now.

BTW, I'm aware most retirement vehichles are protected from seizure.

My Take

Why not use those assets for the debt you may ask? Well, this may be dumb but right now, given our very precarious state (other legal issues in our life...), I'd rather have $$$ close at hand until I have SSDI income coming in.

Bankcruptcy at this stage of life is personally humiliating. The inconveniences of entering older age both disabled & financial pariahs is less than appealing in this brave new world we've found ourselves in.

BTW, as we pay down credit cards, they reduce our credit limit proportionably. Therefore, if we spend our remaining savings & either file bankruptcy (or use the $$ to pay off debt), we'll truly be living hand to mouth with nothing to fall back on regardless of how much we are willing to 'pay' for $

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My Solution

Hang in there a couple of months, I say. Once I'm on SSDI, a 401k can be partially tapped without the severe tax penalties as I understand it.

Right now, there is about 350k in 401/403 plans.

I could live with taking 80k out of 401ks rather than be paying this miserable interest.

We still have reasonable 401k balances by US standards as sadly I've read average 401 accounts are woefully underfunded & overborrowed by employees -- often for good reasons.

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My Conclusion

I will bring in a fairly healthy SSDI monthly stipend soon enough. Between that & my wife's plan, we could live quiet, more stable middle-class lives again.

We'd still have a fair amount of savings left.

My accountant agrees with my proposal, BTW & he's a smart, honest man.

We'd have our pride...

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Would truly, truly appreciate anyone's thoughts on the 2 solutions to eliminating a large debt!

Feel free to be frank!

Thanks

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[halflife]

Pardon my premature, albeit gentle, *bump*

I rambled before

In a nutshell:

80k in consumer debt

Disabled middle-aged couple

After an arduous, Kafkaesque battle, it's very likely I'll finally get an SSDI award shortly.

Without the 80k debt, we could enjoy a relatively adequate financial existence.

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BIL/MIL are aggressively pushing us to file bankruptcy via ch. 11 so we can walk away from the debt. As we do have a fair deal of unprotected $$ assets, we're being advised to spend and/or give the $$ away first.

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Me, I'd rather fix my mess by taking the 80k from 401k plans once I get my SSDI award. The worst of the tax penalties won't apply as I understand it.

That involves taking roughly 80k of c. 320k in 401ks & we're debt free & still proud. We still have our hard, unprotected assets too.

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Sorry to b a pest about this 2 my friends here but I'll need to make a decision quick.

Thanks!

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[Smokeyjoe]

It's tough to say what someone should do with their retirement.

But my two cents is use the money from your 401k now. That whole BS thing of 100 k growing to 1.8 million is a joke, that's only with 12% returns. With fees and current conditions your getting 2% maybe.

And 401 k's were created in the 70's for two specific individuals at the Kodak company so they could avoid prosecution for bonuses or something. And that turned into a very unfair retirement system for younger people somehow.

Try to explain to an older boomer that their pension is a far better thing and they don't get it, they don't realize pension is free money and 401 k Is your money. Remember when bush changed the law in 2006 and said companies must shore up ther pensions or get rid of them. There were no penalties if companies just closed the pensions instead of fixing them so there went mine from the company I was at.

Anyway, if the retirement money can help you now, use It. What you mention is not enough to retire on fully anyway and by using some now to fix problems, the problems won't get bigger and more expensive. I hate to say it, but it does seem bankruptcy is best in some cases too.

 

[halflife]

Well, love your spot-on advice which means I agree 100% which of course makes you right /default_smile.png

What a sneaky way to cheat workers out of a reward (pension) that has been used in many areas for over a century.

The average worker should not be expected to understand exchanges, mutual funds, the prospecti few can make sense of, let alone discern the subtleties between investments & types & relative risks -- worrying about what's going on across the world that may impact your "involuntary" portfolio.

It's tough to say what someone should do with their retirement.

But my two cents is use the money from your 401k now. That whole BS thing of 100 k growing to 1.8 million is a joke, that's only with 12% returns. With fees and current conditions your getting 2% maybe.

Or with 15% -- ahh, the miracle of compounding. $$ doubles every 5 years.

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Of course I'm not retiring in the trad sense. I got SSDI. BTW distributions can be made penalty free regardless of age if one becomes forever disabled.

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Anyway, if the retirement money can help you now, use It. What you mention is not enough to retire on fully anyway and by using some now to fix problems, the problems won't get bigger and more expensive. I hate to say it, but it does seem bankruptcy is best in some cases too.

I'll add that ckeck mark to my side, thank you!

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Like anyone else in the BB gen, they didn't have enough time to ride the ebbs & flows of the market over a long enough span. You need 40 years over the long haul to amass enough from the upticks over decades.

Taking a 40+ worker & saying if we're kind we'll convert your pension accruals using some complex formula & we'll seed your 401k with it. After that, you're on your own. BTW, here are some ads touting your fund choices. Also, we're having a slide show at 11:00AM.

Of course people watched these mind-numbing "classes' yearly. See a few charts with tall green piles of cash & wondered...

That's all most of us did -- wonder.....

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I concur with you also Sneazel. That's in addition to my tax guy -- and also this strange 7' hairy man/beast also offered that same sensible opinion as you.

Also, just before the day my SSDI was approved, I found a huge retroactive award for the roughly 30 months while being approved.

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So we suddenly have a whole new, abliet modest, life starting.

$$$ for our freedom wiil likely be taken from variety of sources, including a 401k.

Thanks!

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[Smokeyjoe]

That's good news, i hope it all works out for the best for you.

I also forgot to mention that most feel the tax rate now will be going up a lot over the next decade or so, so the penalty now for taking money out of the 401k might not be much over the taxes when taking the same money out for retirement 10 years from now.

Invest in individual dividend providing stocks of companies that make things we all need and use, no yearly or monthly management fees this way. Reinvest the dividends in the stocks until you retire and need the money.

Take advantage of the ROTH if you can and select individual dividend stocks for it. You can take out ROTH principal at any time before retirement with no fees to use in emergency situations. And they are tax free when you take money out.

Consider this. In 1988 I went back to school (community college) and I had saved $500 and decided to put it into 10 shares of Microsoft stock. At one point my stock was worth 100K and it was over 1000 shares. I sold some and paid taxes and used the money and I still have some now, but I will pay taxes if I ever sell more of it. If that same stock was in a ROTH all the gain could have been used by me without taxes or penalties when I retire. Its a great way to let a stock investment grow and then be able to take the profits tax free in retirement.

 

[halflife]

Hi Sneazel,

My wife has spoken of Roth IRA's often -- but that is all we did -- talk.

Now might be the time....

You are investment savvy, I'm just sorry when it comes to me & $$$$

Like, I sold my MSFT for 1/2 what we paid -- and used it to pay some threatening creditor.

I could go on, but won't

BTW, 401ks are useable without penalty if you become disabled.

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We all (all of us here!) need a break sometimes. I have not been able to do my work for 3 years, my wife 2 years. And I loved my work, never felt like work.

Obviously, we have both have suffered our share of illness as have most here.

Our only income during that time was my wife's private disability policy she had bought through her union a long time ago.

Ironically, I had gone to an insurance agent at age 45 to inquire about getting a long term disability policy. The agent told me to wait until I'm 55 else I'd be wasting thousands of $$

Well, he was honest & well-meaning but WRONG.

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I wonder what % of the US population is preparing for retirement sufficiently in this 401k era?

The only financial planning my Dad ever did was playing a few horses at OTB (never serious $$)

Yet at 55, he retired with a generous, mostly tax free pension that didn't even end with his passing -- my Mom's continues to receive that full pension to this day. That includes medical insurance & my Dad also received a 100k cash payment at retirement.

My Mom lives comfortably & the large amount of $$ she's been giving me for bills, Mom always refers to it as "Daddy's money -- he wants you to have it". I'm trying to pay her back, of course she won't take it. Better think of something nice to do for her.

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Thanks for the advice -- it will be studied carefully by someone smarter than me -- my wife /default_smile.png

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[Smokeyjoe]

How did they live well? You mentioned it, they both had a Pension.

A Pension is money your company puts into an account each month for you, say $100. That grows and when you retire the pension starts to pay you. So you can use your money on horses or vacations when working and have easy retirement with full social security and Medicare.

A 401k is money YOU must take out of your monthly salary and put aside into what now is basically a hedge fund controlled las Vegas style game that has no guarantee it will go up and not go down. So you have no money to play on horses or vacations because you had to lower you own monthly salary to pay into your 401k and your 401k can go down or have fees and you must take an active role to manage it. And when me and the rest of us behind the boomers start to retire with social security depleted by what amounts to locus in their appetite For cheap consumer goods and no Medicare and a 401k that you saw go down more then up, most will have a bad retirement.

Funny thing is, some people don't understand the difference. It's a huge difference. Imagine having a pension and also setting monthly money aside, and having social security and Medicare, how easy retirement would be.

And the argument some use of "we didn't have 401k"' is weak. All a 401k does is let you lock you money in a bank account with a minor tax benefit at best, anyone can set aside monthly money but the older pensioners never HAD to as we do now unless you feed off the tit of the govt. So most younger people who can't find jobs in this over outsourced economy to buy a cheap starter house at a price your parents would choke on can hardly save anything for retirement. If pensions were still the norm so many would be better off.

 

[jthompson27566]

Investing in an art form at best! 401k's in the general sense of the word are good for only one reason, put in what your employer will only match! For example, my employer will only match 4% so I put it in the 4 and they match it with 4. Now I have had employers that would match the 6 if I put in 6%, I did that until it changed. A pension is nice but they are falling by the wayside and will continue to do so. I have always feel this way and told my children this, stay involved in your finances, know what you make and what it is in, don't be afraid to move it around. Right now I have approximately 7 different investments accounts, all in different things. Some in dividend paying stocks, some in aggressive growth mutual funds, some in foreign investments and some in cash. I manage my own, it's more of a hobby of mine but in all honesty I'd be better off working with a professional, just haven't found one that seems to value my interest as much as I do. All in all my avg return is between 12 and 15% so I'm hanging tough for now. If you're a novice or very little experience, seek someone you can trust but do your homework. Pay particular attention to the management fees. Last but not least a lot of us missed some wonderful opportunities to convert pre tax 401K's in 2008 bottom to Roth. The lost in the value of the fund at this time would have helped tremendously with the cost basis and resulting capital gain or loss. Had a few friends that took this plan paid some in upfront taxes and have come roaring back, now without the tax implications that they once had. Should have listen. Live and learn!

 

[Smokeyjoe]

Investing in an art form at best! 401k's in the general sense of the word are good for only one reason, put in what your employer will only match! For example, my employer will only match 4% so I put it in the 4 and they match it with 4. Now I have had employers that would match the 6 if I put in 6%, I did that until it changed. A pension is nice but they are falling by the wayside and will continue to do so. I have always feel this way and told my children this, stay involved in your finances, know what you make and what it is in, don't be afraid to move it around. Right now I have approximately 7 different investments accounts, all in different things. Some in dividend paying stocks, some in aggressive growth mutual funds, some in foreign investments and some in cash. I manage my own, it's more of a hobby of mine but in all honesty I'd be better off working with a professional, just haven't found one that seems to value my interest as much as I do. All in all my avg return is between 12 and 15% so I'm hanging tough for now. If you're a novice or very little experience, seek someone you can trust but do your homework. Pay particular attention to the management fees. Last but not least a lot of us missed some wonderful opportunities to convert pre tax 401K's in 2008 bottom to Roth. The lost in the value of the fund at this time would have helped tremendously with the cost basis and resulting capital gain or loss. Had a few friends that took this plan paid some in upfront taxes and have come roaring back, now without the tax implications that they once had. Should have listen. Live and learn!

X 1000

Well written and spot on.

401k left to their own devices are a joke. Investing in art or classic cars or property or farmland are all much better then a 401k.

Many people don't understand where 401k's came from and why. It should not be for retirement, it was a loophole created for two people at Kodak on the 70s so they would not be breaking the law for money they recieved. That became the basis of our retirement system???? WOW.

 

[happypappy]

So I've read this thread and I don't have an understanding of the difference of a 403b and 401k. My crruent employment I have a phenominal pension and annuity that my employer pays for. I recently was offered a job which would be an extra 30,000 a year but they only have a 403b. They will put in 7% up to 40,000 then they bump it to 10%. This is what is holding me back. If anyone could give me some feedback that would be great. I just don't know if its worth dropping my pension and annuity and just have a 403b. Thank you to whomever responds with insight to my dilemma!

 

[happypappy]

Oh yea plus with the new job I would get 6 weeks vacation that I don't currently have a long with a week sick time also.

 

[happypappy]

What to do what to do...... did I mention I hate change!!

 

[bluesman008]

My experiences and my opinions:

Firstly: 80K out of 350K and the phone never rings?  You don't really need credit.  I have proven that.  One will never heal with that kind of stress (Sword of Damocles) over head.

Secondly: The only true investment in this world at this time is one that creates cash flow.  Savings?  Portfolios?  only paper for so many...no interest on money that's decreasing in value daily..  Property values plummet daily.  Still!  

I am disabled.  I did Bankruptcy, though cleverly, live on cash and 2 annuity checks from accidents and my dead end job.  I don't see that for you...my OPINION.