How did your 401k work out for you?

[AngryVanMan]

We have a employer match at work, but it's

20% Year 1
40% year 2
60% year three
80% year 4
and 100% year 5....

That's your vesting schedule for the company match portion.  You always own your share of the contributions, but they use these schedules as an incentive to stay with the company to get ownership of the full match - in this case 5 years.  All the tax advantages are still applicable regardless of the match schedule, and even a 20% match is better than no match at all if you only stay with the company for a year.

Anyone ever heard of Waddell and Reed? They had some kind of investment where you put in $1K and "Maybe" you got it back and wads more, but I wasn't too sure I'd have as much luck at the casino...

Waddell & Reed is just a multi-level marketing scheme (a "legal" pyramid scheme) like Primerica and dozens of other such companies, these are usually setup in the financial and insurance sectors as the fees and commissions are easier to disguise.  They sell 25 branded mutual funds, but nothing unique or special, they all have relatively high fees and expense ratios.  They use their "advisor" network as a cheap sales force for overpriced funds - this is common for many financial advisor companies that are not MLM-based as well.

 

[Mobilesport]

@nobodyg17
[font=Verdana, Arial, sans-serif]How did your 401k work out for you?[/font]
[font=Verdana, Arial, sans-serif]When you retire come back and let us know.[/font]

 

[DannyB1954]

withdrawl from a retirement acct affects the SS tax base.

It does if you have income, interest income etc of over (iirc) $14K per year. A percentage of your SS is taxable. The percentage increases as the other source income increases. Once you hit your full retirement age the tax increase ends.
Although they just changed something about taxing high income earners.
I can't keep up, they change tiny things that have a large effect on some people.

I just did a web search and what I gather the only way a retirement income affects your Social Security income is if you are getting a government pension.
 http://www.aarp.org/work/social-sec...ll-pension-lower-social-security-benefit.html
It would put you in a higher tax bracket, but someone said they would be taxed at 85% on their Social security. What kind of tax bracket is there that is at 85%

My State does not have income tax, so is this some sort of State thing? The highest tax bracket the FEDs have is 40% and it is for incomes over $400,000.00

Did they mean that for every $100 they got, they would only be taxed on $85 of that?

 

[Drewskers]

LadyJo (and others) ... What you're talking about here is called the social security "tax torpedo" which occurs on your Federal tax return and is ridiculously complex! I have been researching this recently, and I have not found a really clear explanation of this on the Internet! However, Jane Bryant Quinn explains it nicely on page 72 of her book, How to Make Your Money Last. Here is an explanation based on that section of her book:

1. Calculate your "Combined Income" as follows: Combined Income (CI) = (SS benefit for the tax year divided by two) + (other taxable income* for the tax year)
2. If you are single and your CI is below $25K**, none of your SS benefit is taxable. 
3. If you are single and your CI is between $25K and $34K**, half of your SS benefit is taxable.   
4. (Get ready for it, here comes the "torpedo"): If you are single and your CI is over $34K**, 85% of your SS benefit is taxable! 

Bear in mind, any of us that have an IRA will be required to start taking distributions from it at age 70 1/2 (the Required Minimum Distribution, or RMD***) and this can be enough to trigger the torpedo. (Here is an article about that: When an RMD knocks you in range of the Social Security tax torpedo, and here is a follow-up article about what to do about it: Social Security tax torpedo: How to blunt it before you turn 71).

I hope my explanation is understandable, and correct! Any errors are mine and not Jane Bryant Quinn's!

---
*For the purposes of the calculation of Combined Income, taxable income includes employment income, interest income, distributions from taxable private pensions, taxable distributions from a standard IRA and (ironically) income from tax-exempt bonds. Taxable income does not include tax-exempt government pensions or distributions from a Roth IRA.

**For married couples filing jointly, the threshold for #2 is $32K, the threshold range for #3 is $32K to $44K, and the threshold for #4 (the torpedo) is $44K.

*** Here is a calculator for the RMD: http://www.bankrate.com/calculators/retirement/ira-minimum-distribution-calculator-tool.aspx

 

[Drewskers]

This question is for those of you that have retired and cashed out.
I ask because I've always heard how such a great deal Its supposed to be but this always came from people that are still putting money in ,  not the people that have actual experience with the end result.
Also when I look online there's alot of people talking about the 401k like Its a scam.
Thanks everyone for taking the time.

The 401K worked out extremely well for me. When I was employed I put every dime I could into my 401K, took every dime of employer matching I could get, and also put every dime I could into an IRA. I also paid off my house at the same time. Lots of spaghetti dinners! After 25 years of employment I retired debt-free at age 47. The 401K and IRA investments were crucial to accomplishing this, as well as liking spaghetti!

What I wish I had done differently was learn to invest the 401k and IRA properly, I would have done a lot better. Read Jack Bogle's The Little Book of Common Sense Investing if you need to bone up on that.

 

[DannyB1954]

4. (Get ready for it, here comes the "torpedo"): If you are single and your CI is over $34K**, 85% of your SS benefit is taxable! 

If you are only being taxed on 85% of what you get, then that means 15% is tax free. I was expecting to be taxed on everything I got. 
Am I misunderstanding this? At $35,000 the tax tables for single say that you are going to pay $4,793 or 13.7% .
Your income was actually higher because only 85% of SS was taxable.

 

[Drewskers]

If you are only being taxed on 85% of what you get, then that means 15% is tax free. I was expecting to be taxed on everything I got. 
Am I misunderstanding this?

That's how I understand it too, the max percent of SS that can be taxed is 85%.

 

[gcal]

This question is for those of you that have retired and cashed out.
I ask because I've always heard how such a great deal Its supposed to be but this always came from people that are still putting money in ,  not the people that have actual experience with the end result.
Also when I look online there's alot of people talking about the 401k like Its a scam.
Thanks everyone for taking the time.

Ours worked well. The market goes up, the market goes down. The companies we worked for matched enough so that we made 50% right off the bat. The companies they had handling the funds offered investment options that did not do great, but not badly, either. We self guide our funds thru Scottrade, now, and are doing better than the previous investment firms. 

For some people, it is the only way they have the discipline to save. Pensions are not the norm like they used to be. You have to pay attention and not listen to silver tongued scam artists who promise to make you rich in 5 minutes.

You have to start early. If you start early and only draw a planned percentage every year, you can be able to make it last and add to your comfort. If you take loans and early withdrawals and buy expensive luxuries as soon as you retire "because I deserve it," you will end up in trouble. If you wait too long to start, you will find yourself working until you die or watching your lifestyle steadily drop, perhaps into poverty. If you can't find that 3 to 5% to put away, now, what are you going to do when you go on social security or disability and your income drops by 50%?

 

[gcal]

I have been retired since 1999 and also started getting SS at age 65 in 2011. Had my healthy 401k invested in the stock market mostly in mutual funds. I took a big hit in the tech bubble burst in 2003, and another hit in the depression of 2009.

If I had it to do all over again I would put the entire bundle in treasury certificates and even with the lower returns I would be a couple of hundred thousand ahead of where I am now.

One last comment: Wall Street is fast too volitale for the average person to win in the long run. Looking back on it, all I did was give some of my money away to support the corporate greed. All the investor ads on TV about being in the stock market for the long haul and protect yourself by diversifying is not proven out by my experience.

I made a bundle in the market from 1976 to 2003 when the economy was booming; since then it has been a disappointing experience.

Just my opinion . . .

The things that have done best for me is my own day trading and mutual fund which is linked to the s&p 500. In the long run, the market as a whole is going to go up. That's because the potential loss is limited to the cost of the stock, but the potential gain is almost unlimited. Some companies pingle and die, but those are cut from those funds in a timely manner. Companies on the way up ae added, and you ride their success. You won't get rich fast with those funds, but over the decades, you will come out on top.

 

[gcal]

^^^ What (s)he said.

I am 65 and receiving SS benefits on my late husband's account.  My full retirement age for SS is 66.  I will wait until then to draw on my benefit.

Here is what I have learned.  When I was young, I had plenty of deductions with house/kids/etc.  Now I have none--just the standard deductions.  I have filed the short form the past two years.  And I'm paying income tax on 35% of the Social Security benefit.  When I start taking money out of my retirement account (it's a 457b, like a 401k), it will raise my taxes to the maximum bracket and I will pay income tax on 85% of the Social Security benefit.  Also, the Medicare premium is based on the previous two years income.

I would have been better off if I had paid taxes on the income at the time I earned it instead of deferring it until now and invested it myself in blue chips or bonds, depending on the market.  Even CDs would have been better than the high fees of mutual funds available in tax deferred accounts.

And yes, when you play with the Big Dogs, you will be bitten.

If you will be paying taxes on your social security at 66, you have a very nice income, indeed. Probably more than most of the people on this board who are still working.

 

[Trebor English]

In 1961 when I first had a paying job my mother told me that I must save 10 percent so that when I got old I would have some money to live on.  In her time when pensions were common that was probably correct.  Last October I quit working and December my wife quit working and we will be OK.  For 27 years I worked at a place that matched 6%.  I put in 6%, they put in 6%, I saved 12%, more than my mother told me.  My wife has a small pension and a 403B, that's a 401k for a nonprofit employer.  
If your employer offers a Roth option, use it.  That way you pay tax on the money that goes in.  Mine is all going to be taxed on the way out, after it grows over time.  I don't think tax rates are going down.
Some rules:
Start now.  Do what my mother said.  She sure did get smart about when I turned 30.
Spend less than you earn.  Live a frugal life.  People here understand that, preaching, choir, etc.
Use your employer's 401k matching if you can, use a credit union savings account if you can't.
Don't take any out of a 401k before age 59 1/2, the penalty is a killer.
Don't take any out until you have to.  It is for old age retirement when you can't work any more.
Use CDs to save up enough to get started with fund account minimums.  
Invest in low fee index funds.  Put it in an S&P500 fund to start.  
Postpone taking social security.  I get social security, my wife gets spousal (1/2 of what I get) so hers is postponed.  Each year she postpones adds 8% to what she gets when she takes hers.
If you take out more in a year than your account makes in that year you will run out of money.
My mother in law is 93 and in an assisted living. She needs it. It costs $4,000 per month.  Her money will run out in a couple of years.  My wife and I don't want to run out.