online.wsj.com — New research shows signs that a recent addition to some 401(k) plans -- known as "managed accounts" -- can provide a significant boost to workers' retirement savings. These programs are based on computer models that automatically manage portfolios tailored to match an investor's age and appetite for risk.
Aug 19, 2006 View in Crawl 4
galacticcmdrAug 19, 2006
Do you even understand what a 401(k) is? From your comment you obviously do not.
kyoung989Aug 19, 2006
@ VeamonA 401k only sucks if you're stupid. Are you trying to say that you're stupid?
clemsonAug 20, 2006
"Young people would probably be best served with a Roth IRA or a Roth 401k as the income built up in these will be tax free when you withdraw it."This is a common misconception... yes, owing no taxes on your retirement nest-egg sounds like the way to go -- but pre-tax contributions to a 401k plan amounts to years of compound interest on money otherwise coughed up to Uncle Sam.Let's do a little math:Income: $50,000Years until retirement: 30Tax Brackets: 25% (federal) + 10.6% (state - national average) + 7.65% (FICA) = 43.25% OUCH!!Investment APY: 11.5% (average return of S&P 500 over last 50 years)Scenario 1 - Roth IRA:A $4000 contribution per year (monthly installments) equates to $997,399.73 after 30 years.Scenario 2 - 401k:Assuming the tax brackets above, $4000 in after-tax money equates to $7048.46 in pre-tax money. A $7048.46 contirbution per year (monthly installments) equates to a whopping $1,837,942.54 after 30 years.Sure, the distributions are taxable in the second scenario - but assuming the same tax levels, a 5% annual distribution would still yield more after taxes ($52,151.62 vs. $49,869.99). Also, if you decide to retire in a state where there is no state income tax (retirees don't move to FL for the weather alone!), you could end up in an even better position ($61,892.72).So, while they both offer advantages, there is much to be said about the compounding interest on the tax deferred contributions to a 401k...Which ever way you decide to go - always invest the amount your employer will match into your 401k plan. This is a 100% instant return on investment!!
clemsonAug 20, 2006
kyoung989,My objective was to compare two scenarios that cost you the same amount of money. I used the ROTH IRA limit as a baseline in my calculations... I could have just as easily used some other arbitrary amount. Comparing $4000 contributions towards a 401k vs. Roth IRA doesn't make sesnse, because the contribution to the 401k only "costs" $2270.For every dollar of after tax money (Tax Brackets: 25% (federal) + 10.6% (state - national average) + 7.65% (FICA) = 43.25%), you have the option of saving $1.76 to a tax-deferred account. That extra $.76 really adds up (via compound interest), even if it will be taxed at retirement.
spkaineAug 21, 2006
@ClemsonYour math is flawed. FICA and State Tax needs to be deducted PRIOR to a 401(k) investment, so the only tax benefit is federal.By putting lots of money in your 401K, you are hoping that your (federal) tax bracket will less when you retire then it is today. Or, you can use the new Roth provision of the 401k
lilamaeJan 5, 2009
One warning. High interest rates indicate more risk. HSBC may be having some financial difficulties if it's offering significantly more interest on CDs than a similar sized bank. I would think about shorter term CDs if you invest here.
lilamaeJan 5, 2009
Of one thing you can be sure, however much you save, the government will take more than its fair share.
moneytutorJan 8, 2009
All jokes aside, you will live past 60 and you will probably be broke.Retirement is not a laughing matter or one to be taken lightly. You're probably one of the lucky ones that can start saving a tiny amount now and have a million at retirement and don't know it. <a class="user" href="http://wheretofindjoannbrown.blogspot.com.">http://wheretofindjoannbrown.blogspot.com.</a>