Retirement Plan????

[usedto]

Going to pick your collective brains here for some advice. Background first.

I was raised on a farm where your dirt was your retirement. I went to college, had a few jobs, then opened my own business. My home/business site was expensive at the time and took every dime. Once cash started to flow a bit, another piece of property came along. Then another. Then, kids went to college. I really don't have a mortgage any more, and my property is worth quite a bit, even in these times. So, I don't have a retirement fund. No problem.

Saturday, number one son graduates from college, and starts his new position on Monday. He has the option of a 401K where the company will match 3%. He can opt in after 90 days.

I have never been fond of letting people control my money - hence the investment in property. My son doesn't have a long list of "toys" he wants to buy with his new "affluence". Instead, he wants to buy some dirt once he's settled in with his new job. Not just a house, but some place in the country. My advice was for him to keep his money, pay the taxes on it, and save for a down payment. I called my tax lady, and she confirmed my hesitance in the 401K, given the current financial climate. We also discussed other retirement "plans", but for now, I think he'd be better off doing a real estate deal - especially in this depressed housing market. I know, you're giving away 3% free money, but I saw some people give away a whole lot more with this last downturn.

So let the games begin - what advice would you give a fresh college grad who, by the way, is very aware of where every dollar of his goes. He is currently debt free, has a car, and has just rented a house.

Thanks:thmbsp::thmbsp:

 

[RichPA]

I'd find out more about the 401K, and whether he has any control over it.

 

[usedto]

Until I find out, assume best case scenario, which I would imagine being he does have control.

 

[Andyman]

My experience with 401Ks is that you have limited investment options and become vested usually over a 5 year period in the company's matches. 20% Year 1, 40% Year 2, etc, etc. Plus 401ks often limit the corporate match. I think mine matches 50% on the first $1000, so it's really only a $500 contribution annually.

Aside from the company contribution, he'd be better off with a stand alone self directed IRA as that offers much more flexibility and investment possibilities and real time trading options.

That being said, investing early is a great idea. Land or IRA/401k getting an early start is a very smart thing to do.

 

[Andyman]

Until I find out, assume best case scenario, which I would imagine being he does have control.

Well, here's one control I don't have on my 401k, and that's the buying and selling prices. If I want to buy or sell an investment, I have to call in and place the order and it wil get executed at some price over the next day or two. And with the intra-day market fluctuations, that could cost you hundreds, even thousands of dollars.

With my IRA, I can go in and place an order with a given strike price or make a current move with the price at that second and be done with it.

That's control :yes:

 

[blhagstrom]

401k

My advise, FWIW.

Look at the 401K plan.
SOME allow just about ANY investment, including a "worm hole" to the open market where you do all the decisions and can go anywhere in the stock market.

Others, the company has a list of what it feels are good investments. They are picked by "experts" and you have to believe they are better than I at knowing what's what.

ALL of them have NO/LOW risk options. Some include CD (can't lose there) and other very low risk investments. Will you get rich quick, probably not, but you can feel some "security".

It is said that "young" investers should "go for broke" and take high risk options. That makes some sense. Long term, diversified investments should pay off...eventually.

3% out of pocket (pre-tax) for a 3% match is a cheap good deal. Low risk investment is a 'secure" way to go if you don't feel "lucky". There should still be enough left to do serious investing in other things like land.

There are good advantages. Long term savings, a private stash that you can take a loan against (home purchase, IIRC, you play banker to you and keep the interest). Worst case, you can cash out and get the money. (penalty and tax, but it is a worst case).

I personally like keeping the money from being wasted as tax dollars....

 

[Oerets]

Can he not do both?

Get into the company's plan and also save up for land/investment property. My wife's 401K has a section were you can place money that been taxed, no penalties when done.



Barney

 

[dokblues]

I would certainly find out All the particulars of his 401K before investing. I fthey do match his investmnent and he has (some) conyrol I say do it. 3% isn`t bad for a match. Now as far as land goes I`ll say it like my Grandfather " Son invest in land they aren`t making anymore and they are making more idot`s everyday". Well turns out he was correct.

 

[Andyman]

Actually, as a young man he should look into a Roth 401k where he can place after tax dollars and KEEP all the earnings tax free, as opposed to a traditional where you invest pre tax dollars and pay taxes on everything later on.

Well, at least now that's how it works. Who can say what will be going on in 30 years....

 

[usedto]

I've done some rough calculations here. Seems that all things being static (which they aren't) my real estate investments will have increased by about 33% over an interest bearing investment over the 25 years I've done this. That doesn't take into consideration the tax benefits of the interest deductions, depreciation, etc. And, the rental income from the property is taxed at a reduced rate as opposed to withdrawal from a 401K.

I guess you can manage your investment accounts, or manage your properties. Both pay dividends in the end.

 

[Jack Lord]

I am going to be very blunt.

Tell your son to get into the 401(K) ASAP and put as much as possible in it. Assuming it has at least 10 choices, pick 1 conservative, 2 moderate risk, and 2 to 4 high risk funds. If he is uncomfortable picking, call the firm who administers the plan. Or get a good financial planner.

Your son is 22 I assume. He is looking at around 45 years for his money to grow and compound- not to mention company contributions (aka FREE MONEY). He has PLENTY of time to deal with market volatility. Hell, the more he puts in now, the sooner he can retire and hit the beach.

Please dispense with the notion of somebody controlling his money. It is HE who is controlling it. He decides how much and what. Encourage him to educate himself about personal finance. I used to be dope when it came to this. I started reading books and watching Louis Rukyeser (RIP) and became conversant. Its not hard.

And with all due respect, your tax lady could not be more wrong. The current economic climate is irrelevant. Your son is saving for something that is at least 45 years away. Who cares what the economy is doing now? If the market tanks, then securities will be cheaper to buy. Does anyone object to bargains?

Finally, someone wiser than me makes a good point over and over: We all have ONE chance and ONE chance only to save for retirement. Your son's chance starts now and he has the golden opportunity to begin sooner than the vast majority of people.

Your son graduates this Saturday and has a job with a 401(K) waiting for him. This is great news. Time to celebrate.:thmbsp:

 

[finnbow]

I'm firmly with Blhagstrom and Jack Lord on this one. Foregoing 3% of income (and the opportunity for forced savings of 6%) would be a big mistake. Assuming he can control his 401K, at least to a degree (and with today's market), he could put it into something ultra-safe/conservative for the time being. Or with a 40 year time horizon, you'll rarely get burned putting it into something aggresive, even in a squirrelly market. The forced savings compels a dollar-cost-averaging acquisition methodology anyway (buying less stock when it's high, more when it's low).

3% off the top of your salary (more like 2% after taxes) is something he simply won't miss having in his paycheck. OTOH, 40 years from now, he'll be sitting on a million bucks he won't otherwise have.

As Oerets says, foregoing 2% in net salary (3% minus immediate tax benefits) should not preclude any real estate investment he could have otherwise afford. Do both.

 

[spartanmanor]

I am going to be very blunt.

Tell your son to get into the 401(K) ASAP and put as much as possible in it. Assuming it has at least 10 choices, pick 1 conservative, 2 moderate risk, and 2 to 4 high risk funds. If he is uncomfortable picking, call the firm who administers the plan. Or get a good financial planner.

Your son is 22 I assume. He is looking at around 45 years for his money to grow and compound- not to mention company contributions (aka FREE MONEY). He has PLENTY of time to deal with market volatility. Hell, the more he puts in now, the sooner he can retire and hit the beach.

Please dispense with the notion of somebody controlling his money. It is HE who is controlling it. He decides how much and what. Encourage him to educate himself about personal finance. I used to be dope when it came to this. I started reading books and watching Louis Rukyeser (RIP) and became conversant. Its not hard.

And with all due respect, your tax lady could not be more wrong. The current economic climate is irrelevant. Your son is saving for something that is at least 45 years away. Who cares what the economy is doing now? If the market tanks, then securities will be cheaper to buy. Does anyone object to bargains?

Finally, someone wiser than me makes a good point over and over: We all have ONE chance and ONE chance only to save for retirement. Your son's chance starts now and he has the golden opportunity to begin sooner than the vast majority of people.

Your son graduates this Saturday and has a job with a 401(K) waiting for him. This is great news. Time to celebrate.:thmbsp:

+1

I wish I had been offered a 401 K earlier in my carrier. I have had one for about 10 years now with matching funds. Although it may not be the best investment out there, I still think it has its merits. As others have stated if it there are matching funds why leave money on the table. Also pre-tax investments are a nice way to go. The idea is when it comes time to draw on these funds one is in a lower tax bracket.

I also believe in investment property and have a few rentals which I hope to hold onto into my retirement as additional revenue. My philosophy is put your eggs in several baskets.

 

[similost]

I say enjoy life.. spend money like you're a pimp with 1000 hookers working for you..

Then if you get too old and can't afford anything, grab your walker, head to the nearest FEDERAL savings and loan, and hand the teller a note..

All your worries will be taken care of in a federal retirement center.. three hots and a cot, along with free medical care..

 

[Jack Lord]

I say enjoy life.. spend money like you're a pimp with 1000 hookers working for you..

Then if you get too old and can't afford anything, grab your walker, head to the nearest FEDERAL savings and loan, and hand the teller a note..

All your worries will be taken care of in a federal retirement center.. three hots and a cot, along with free medical care..

Yea ya know yer right. I may as well blow my nest egg on booze and broads. Dinner is on me lads.

 

[jn229]

Bentpencil: I’m not savvy enough financially to be giving out advice, but I would like to compliment you on your parenting skills. A 22 year old son, graduating from college, with long term investment goals: You have done well!!!

 

[usedto]

And with all due respect, your tax lady could not be more wrong.

She does a few people's taxes for the fun of it. She has this thing about keeping up with the IRS regulations, and likes to do a few to keep sharp. Given her current personal financial situation, I would respectfully disagree with you. She has a knack for squeezing every dollar out of a situation, and has sent the IRS away with their tail between their legs twice on my behalf.

Mind you, she didn't TOTALLY dismiss a 401K - just thought there were better avenues that needed to be explored. Clever real estate purchases and sales were one.

Someone on another forum I occasionally drop in on started a thread similar to this. Young guy just starting out, and wanting some advice. It's a different peer group than AK, and it's surprising the different views given.

I'd like to hear from a few of you who have forgone the conventional retirement plans.

 

[spartanmanor]

I am not counting on my 401k for retirement but it will be nice to dip into it when the time comes. I have been lucky enough to purchase and hold real estate in one of the better markets in the country. At this moment in time I look at this as my retirement plan.

 

[jimbofish]

Whether it's a defined benefits pension plan, SS, 401k, IRA, real estate, gold, collectibles, bonds, bank account... nothing is guaranteed to still be there 40+ years from now. It's all a gamble. I'd tell him to go with what he feels most comfortable, remembering that those who are in the business of handling his money are more interested in what it can do for them than what will happen to him ... IME.

 

[Jack Lord]

She does a few people's taxes for the fun of it. She has this thing about keeping up with the IRS regulations, and likes to do a few to keep sharp. Given her current personal financial situation, I would respectfully disagree with you. She has a knack for squeezing every dollar out of a situation, and has sent the IRS away with their tail between their legs twice on my behalf.

Mind you, she didn't TOTALLY dismiss a 401K - just thought there were better avenues that needed to be explored. Clever real estate purchases and sales were one.

Someone on another forum I occasionally drop in on started a thread similar to this. Young guy just starting out, and wanting some advice. It's a different peer group than AK, and it's surprising the different views given.

I'd like to hear from a few of you who have forgone the conventional retirement plans.

Bent Pencil- you asked for opinions and I gave one. And I said it would be blunt. Being adept at taxes hardly makes one an expert at retirement planning. IRS regulations with regards to 401(k) plans are pretty simple.

I do not like to dismiss other folks' opinions, especially ones I do not know, but I have a hard time with the notion that "clever real estate purchases" are better than a 401(K) plan. This country is presently full of people who got burned on such transactions. If your son has or develops a knack for it, great. But it require a huge investment in time, tolerance for high risk, a disdain for diversification, and a great deal of stress.

Rather than asking this woman or your friends at AK, why don't you and your son seek the advice of a pro? Interview several financial planners and hire one.

Just my opinion. Best of luck to you son.:thmbsp: