4 ms·

It’s a 401(k) World

33 points by tocomment 13y ago

deleted 13y ago
[deleted]
- scarmig 13y ago
  Have to differ, there. Vanguard Index Funds of course are the best store of money. But I'd say often the best solution is forgoing the government vehicles, which effectively make your funds illiquid for decades for questionable benefit. Why? 401ks (non-Roth) are not tax-free; they're tax deferred. Which is a big difference. When you withdraw from them when you're retired, you pay income tax on them. The relevant measure then is how your marginal tax rate while working in 2013 compares to the marginal tax rate in 2050 when retired (or whenever). This is hard to calculate, but consider: 1) If you're putting in 16k/year over 40 years, you almost certainly will be hitting the top marginal tax rate.just from the required disbursements. 2) Do you expect income taxes will be higher or lower in 2050 than in 2013? Particularly note: if lots of people are using 401ks, which they are, 401k income's gonna be one pretty honeypot that can be easily hit by increasing the income tax, which already exists and would just need a rate tweak. Compare it to the alternative: invest the money outside of government vehicles, ideally in Vanguard index funds. Then you pay two taxes: the initial one on income (which is your average tax rate, not your marginal which is typically significantly higher), and the long term capital gains rate (which is much lower than either the marginal or average income tax rate). You can totally ignore capital gains if you're using Roth. Whether that is better than the 401k alternative by itself depends a lot on the particularities of your financial situation. But even for those for whom a 401k might theoretically make better financial sense, I'd argue that the greatly increased flexibility is worth the minor extra cost you might pay.
  - deleted 13y ago
    [deleted]
  - caw 13y ago
    I currently invest in a Roth 401K, and part of me is thinking that I should just be going into Vanguard Index funds since the plan my company offers me doesn't have any good low cost index funds (just targeted retirement). I've been thinking that a non-Roth 401k is ultimately a bad deal because of the tax issue, besides increasing in tax brackets generally as you get older until you retire.
  - srathbun 13y ago
    Don't forget, in a 401(k) you put up 100% of the input funds, accept 100% of the risk, and only get some percentage of the profits. See this frontline for details: http://www.pbs.org/wgbh/pages/frontline/retirement/world/401k.html http://www.pbs.org/wgbh/pages/frontline/retirement/world/401...
- deleted 13y ago
  [deleted]
- princess3000 13y ago
  This is kind of strange given that the article isn't really about investing at all. If you can cut through the Friedman word salad his point seems to be "a 401(k) world requires you to learn much more about investing in yourself." This article is, like so many of Friedman's, basically garbage. I guess he's saying that like you need to figure out what the best 401(k) investments are, so too do you need to figure out how best to shape your skillset for the market? I can barely find a thesis in this article other than "things are changing due to technology, some of this is good and some of it is bad." It's possible, though, that the next six months will be critical.
  - marcosdumay 13y ago
    I guess (but I'm still not sure) that his main point is that there is no place for somebody that doesn't "learn how to invest" himself. It used to be that people could choose to be extra flexible and get a better position because of that. Today, as he states - I'm not sure I agree, people have to be extra flexible to get anything at all.
- JoelSutherland 13y ago
  This may or may not be good advice but it has nothing to do with the article.
- deleted 13y ago
  [deleted]
ebbv 13y ago
Friedman is a hack: http://www.rollingstone.com/politics/blogs/taibblog/contest-come-up-with-the-ultimate-thomas-friedman-porn-title-20130502 http://www.rollingstone.com/politics/blogs/taibblog/contest-... TL;DR - Friedman's been doing minor variations on this "the world is increasingly hyperconnected" bullshit for years and years. It's bad writing and it means nothing.
- cwsteinbach 13y ago
  Several years ago I had the idea of using Markov chain algorithms to auto-generate Thomas Friedman articles. I was going to build a site around it called mechanicalfriedman.com. I just discovered someone else beat me to it: http://thomasfriedmanopedgenerator.com/ http://thomasfriedmanopedgenerator.com/ There goes my billion dollar exit...
- cwsteinbach 13y ago
  Matt Taibbi practically makes a living writing takedowns of Thomas Friedman's Op/Ed pieces and books. Here's a selection: http://nypress.com/flathead/ http://nypress.com/flathead/ http://nypress.com/flat-n-all-that/ http://nypress.com/flat-n-all-that/
  - ebbv 13y ago
    He likes calling bullshit on other writers, and it just so happens Friedman is an endless font of bullshit.
ttrreeww 13y ago
401k has confiscation risk.
- sev 13y ago
  Can you elaborate?
  - sliverstorm 13y ago
    I predict the reply will involve how gold is a superior investment vehicle, because the government can't take it from you.
    - Millennium 13y ago
      Never mind, of course, that this has happened. Executive Order 6102, I believe it was.
      - deleted 13y ago
        [deleted]
    - andyzweb 13y ago
      gold is a superior investment vehicle, because the government can't take it from you.
  - guylhem 13y ago
    In some countries, pensions were nationalized, the money pooled, and everyone guaranteed a "fair pension" based on social criteria. It's a risk.
    - guard-of-terra 13y ago
      "everyone guaranteed a "fair pension" based on social criteria" Let me translate it into humanspeak for you: this means existing retired, who paid low taxes, will get paid nice pensions out of your high taxes; and when you retire, you'll receive nothing and go begging, since the schema will go bankrupt. Invest in real estate and skills that let you work for long. And in USA most real estate is worthless in the long run.
cdavid 13y ago
Debunked quite convincingly there: http://blogs.reuters.com/felix-salmon/2013/05/01/the-systemic-plight-of-labor/ http://blogs.reuters.com/felix-salmon/2013/05/01/the-systemi.... (don't stop at the ad-hominem attack on Friedman, though those are fair game, given how much of an hack Friedman is).
LandoCalrissian 13y ago
In case you can't get enough of Freidman's mindbogglingly awful articles you can now generate your own! http://www.thomasfriedmanopedgenerator.com/ http://www.thomasfriedmanopedgenerator.com/
- cstavish 13y ago
  I wish the the "About" page gave the faintest of technical details about its implementation... A couple different Markov chains for varying generic topics, with buzzwords inserted to give the text a shred of focus?
eruditely 13y ago
I found it hard to understand the point he was trying to make.

It’s a 401(k) World

33 points by tocomment 13y ago

deleted 13y ago

[deleted]

scarmig 13y ago
Have to differ, there. Vanguard Index Funds of course are the best store of money. But I'd say often the best solution is forgoing the government vehicles, which effectively make your funds illiquid for decades for questionable benefit. Why? 401ks (non-Roth) are not tax-free; they're tax deferred. Which is a big difference. When you withdraw from them when you're retired, you pay income tax on them. The relevant measure then is how your marginal tax rate while working in 2013 compares to the marginal tax rate in 2050 when retired (or whenever). This is hard to calculate, but consider: 1) If you're putting in 16k/year over 40 years, you almost certainly will be hitting the top marginal tax rate.just from the required disbursements. 2) Do you expect income taxes will be higher or lower in 2050 than in 2013? Particularly note: if lots of people are using 401ks, which they are, 401k income's gonna be one pretty honeypot that can be easily hit by increasing the income tax, which already exists and would just need a rate tweak. Compare it to the alternative: invest the money outside of government vehicles, ideally in Vanguard index funds. Then you pay two taxes: the initial one on income (which is your average tax rate, not your marginal which is typically significantly higher), and the long term capital gains rate (which is much lower than either the marginal or average income tax rate). You can totally ignore capital gains if you're using Roth. Whether that is better than the 401k alternative by itself depends a lot on the particularities of your financial situation. But even for those for whom a 401k might theoretically make better financial sense, I'd argue that the greatly increased flexibility is worth the minor extra cost you might pay.
- deleted 13y ago
  [deleted]
- caw 13y ago
  I currently invest in a Roth 401K, and part of me is thinking that I should just be going into Vanguard Index funds since the plan my company offers me doesn't have any good low cost index funds (just targeted retirement). I've been thinking that a non-Roth 401k is ultimately a bad deal because of the tax issue, besides increasing in tax brackets generally as you get older until you retire.
- srathbun 13y ago
  Don't forget, in a 401(k) you put up 100% of the input funds, accept 100% of the risk, and only get some percentage of the profits. See this frontline for details: http://www.pbs.org/wgbh/pages/frontline/retirement/world/401k.html http://www.pbs.org/wgbh/pages/frontline/retirement/world/401...
deleted 13y ago
[deleted]
princess3000 13y ago
This is kind of strange given that the article isn't really about investing at all. If you can cut through the Friedman word salad his point seems to be "a 401(k) world requires you to learn much more about investing in yourself." This article is, like so many of Friedman's, basically garbage. I guess he's saying that like you need to figure out what the best 401(k) investments are, so too do you need to figure out how best to shape your skillset for the market? I can barely find a thesis in this article other than "things are changing due to technology, some of this is good and some of it is bad." It's possible, though, that the next six months will be critical.
- marcosdumay 13y ago
  I guess (but I'm still not sure) that his main point is that there is no place for somebody that doesn't "learn how to invest" himself. It used to be that people could choose to be extra flexible and get a better position because of that. Today, as he states - I'm not sure I agree, people have to be extra flexible to get anything at all.
JoelSutherland 13y ago
This may or may not be good advice but it has nothing to do with the article.
deleted 13y ago
[deleted]

ebbv 13y ago

Friedman is a hack: http://www.rollingstone.com/politics/blogs/taibblog/contest-come-up-with-the-ultimate-thomas-friedman-porn-title-20130502 http://www.rollingstone.com/politics/blogs/taibblog/contest-... TL;DR - Friedman's been doing minor variations on this "the world is increasingly hyperconnected" bullshit for years and years. It's bad writing and it means nothing.

cwsteinbach 13y ago
Several years ago I had the idea of using Markov chain algorithms to auto-generate Thomas Friedman articles. I was going to build a site around it called mechanicalfriedman.com. I just discovered someone else beat me to it: http://thomasfriedmanopedgenerator.com/ http://thomasfriedmanopedgenerator.com/ There goes my billion dollar exit...
cwsteinbach 13y ago
Matt Taibbi practically makes a living writing takedowns of Thomas Friedman's Op/Ed pieces and books. Here's a selection: http://nypress.com/flathead/ http://nypress.com/flathead/ http://nypress.com/flat-n-all-that/ http://nypress.com/flat-n-all-that/
- ebbv 13y ago
  He likes calling bullshit on other writers, and it just so happens Friedman is an endless font of bullshit.

ttrreeww 13y ago

401k has confiscation risk.

sev 13y ago
Can you elaborate?
- sliverstorm 13y ago
  I predict the reply will involve how gold is a superior investment vehicle, because the government can't take it from you.
  - Millennium 13y ago
    Never mind, of course, that this has happened. Executive Order 6102, I believe it was.
    - deleted 13y ago
      [deleted]
  - andyzweb 13y ago
    gold is a superior investment vehicle, because the government can't take it from you.
- guylhem 13y ago
  In some countries, pensions were nationalized, the money pooled, and everyone guaranteed a "fair pension" based on social criteria. It's a risk.
  - guard-of-terra 13y ago
    "everyone guaranteed a "fair pension" based on social criteria" Let me translate it into humanspeak for you: this means existing retired, who paid low taxes, will get paid nice pensions out of your high taxes; and when you retire, you'll receive nothing and go begging, since the schema will go bankrupt. Invest in real estate and skills that let you work for long. And in USA most real estate is worthless in the long run.

cdavid 13y ago

Debunked quite convincingly there: http://blogs.reuters.com/felix-salmon/2013/05/01/the-systemic-plight-of-labor/ http://blogs.reuters.com/felix-salmon/2013/05/01/the-systemi.... (don't stop at the ad-hominem attack on Friedman, though those are fair game, given how much of an hack Friedman is).

LandoCalrissian 13y ago

In case you can't get enough of Freidman's mindbogglingly awful articles you can now generate your own! http://www.thomasfriedmanopedgenerator.com/ http://www.thomasfriedmanopedgenerator.com/

cstavish 13y ago
I wish the the "About" page gave the faintest of technical details about its implementation... A couple different Markov chains for varying generic topics, with buzzwords inserted to give the text a shred of focus?

eruditely 13y ago

I found it hard to understand the point he was trying to make.