Retirement question. How does one retire?

In My Humble Opinion
21

Most 401K, and other, programs have different mutual funds available that are managed to provide different levels of risk vs reward. Everyone has a different comfort level with different levels of risk. As you get closer to retirement, it’s a good idea to shift from more risky to less risky funds. That way you (probably) won’t loose value right when you’re retiring. Your company may only add shares to a fund that they have approved or contracted with.

The lowest risk fund in our 457 contract is a money market fund. It’s different from a stock fund or a bond fund. The city I work for had just signed a 5-year contract with a guaranteed 4% return to a money market fund when the housing bubble broke. Four percent was small compared to the 10% or more that folks had been expecting from their stock funds. But when the stock funds tanked, it was pretty much the only fund that wasn’t losing value per share.

I’m wondering how your 401K account can have gotten down to $0. I haven’t heard of mutual funds falling to zero.

When stocks were falling in 2008, I kept contributing even though the value per share of the mutual funds were falling. I was a good distance from retiring and considered it to be “buying low”. The value of my accounts went down for a couple of years even though I kept up my contributions. My contributions bought more shares of shares that were falling in value.

When the stock marked revived, those additional shares expanded like flat dinosaur-shaped sponges. Now I’m closer to retirement and this is a good reminder that I need to shift more to less risky funds. I should contact the customer service person assigned to the city’s contract and make the shift.

22

Absolutely and I can relate. Retirement in the U.S. feels far too uncertain, so any degree of certainty and stability is comforting.

(Bold emphasis mine.) Great point. This is sadly true and a serious problem in America.

Good point for tax deferred investments like 401ks and traditional IRAs. And capital gains on stocks, bonds, etc. For Roth IRAs and typical savings accounts, though, there are no taxes on withdrawal. This is why it’s important to consider whether one expects to be in a higher or lower tax bracket after retirement.

23

However bad your situation is, it’s not too late to improve it. I don’t know what point you are in your life but the time to start saving for retirement is now. If you don’t know much about finance, then learn at least some. You don’t have to be an expert. You just need a basic understanding. You can type a coherent message on this board so I’m certain you are smart enough to learn what you need to know to save for retirement.

Live beneath your means so you have some money to save. Pay your bills (which you are doing). Save some money for emergencies. Invest some money for long term term goals. If you can do that, you will be a lot more financially secure in the future. If you need some advice on some of these steps, ask questions one at a time. We’ll be here to help.

24

I don’t really understand how you and everyone in your family lost your entire 401(k) accounts. Was it 100% invested in your employer’s stock? Did you work for Enron?

25

This just leaves me gob-smacked. A pension plan is also a gamble: just ask the huge number of people who have been left with their dicks in their hands when their pension funds went bust. What a moronic thing to preach and believe.

26

100% into a profit-sharing program is my guess as well (and possibly some hyperbole - lots of people substitute “I lost it all in my 401k!” for “I never put a dime in my 401k!”).

There are a lot of Muslim groups that cannot participate in traditional 401k plans, and have to have special brokerage windows to allow them to invest in halal options. I saw a couple websites suggesting that there are Mormon groups who equate the stock market with gambling (it certainly can be), and prohibit any involvement.

27

I thought after the Enron collapse, laws were changed to prevent over investing in comany stock.

28

I retired last year just before my 56th birthday. I have a relatively generous pension. Unfortunately COLA is probably never coming back and I don’t get social security. I really wish I put a lot more into my deferred comp over the years. I would have been much better off. I still think I’ll be ok.

29

I had never heard of either of these. Interesting.

There should still be non-stock options (e.g. money market funds) which might be acceptable.

The OP’s 401(k) ripoff tale is horrifying. That suggests to me that the company did NOT have an independent company managing its employees’ funds, and that the money was forcibly invested into company stock. As @Dewey_Finn mentioned, I had thought that this sort of thing had gone by the wayside due to the Enron debacle (friends of ours lost a good chunk of their retirement money due to that).

In any case: whatever your situation is, START SAVING NOW. Assuming you’re 50ish, you still have 10+ years to save something. Even 5,000 a year will add up. That’s 50-75K more you’ll have then, than if you didn’t do anything.

If your jobs offer a 401(k) or similar, take advantage. The employer should NOT have any opportunity to get their hands on your money, assuming it’s managed by an outside firm. If they offer any matching, you need to be vested in that, or it goes away when you leave - but vesting rules are a lot more liberal than they were 30 years ago when you often had to work somewhere for 10 years to get any of their money.

But note that is only the COMPANY’s money. Your contributions are yours, and they cannot touch them.

This is mind-boggling. The Fidelity person had no business telling you that you’d never be able to retire. People can and do retire, whatever their income level. This person should have been counseling you on options. Imagine if you’d put 1% of your income away every year starting then, 15 years ago. If you were earning 30,000 a year, that’s 300 dollars, times 15 = 4500. Not a fortune, but better than nothing. And it would have grown.

Life insurance: Well, that’s one option, but a better choice would be to save the cost of the premiums, into a retirement account. Yes, if you die young, your wife would get more money, but you didn’t. Also, as you get older, a term life policy gets prohibitively expensive, so you’d have needed to go with a whole life policy (which starts OUT expensive). As I once read somewhere, life insurance is like making a bet. If you die, you win!.

30

Earning interest is actually one of the things (some) Muslims avoid. There are specific mutual funds available that offer halal investments, they avoid the things you would expect - alcohol companies, pork companies, pornography, etc.

I work with charitable remainder trusts. We have a number of clients who have to make specific adjustments to their trusts each year to comply with sharia law (usually carving out a chunk of the corpus to donate to charity). It’s fascinating.

31

Hello Machine_Elf,

I’m 40. I’ll be honest, I don’t know anything about money. I mean I can do a personal budget, but as far as banking type stuff, I don’t know anything.

This whole retirement business got brought up initially because everyone where I work is older than I am. We transferred here from across the country because I have a this weird rare particiular skillset that was needed where I work. This retirement business blew up and freaked everyone out. It was quite the event up here and people are still fuming. I don’t know anything about what they are talking about, and if I brink it up and ask questions the veins on their forheads and necks just swell like Lou Ferrigno. These dudes are in their 60’s and I don’t want them to code out at their desk.

I have this plan to talk to a financial advisor, but I feel like I don’t know enough about what we are going to to be talking about to not know if I am getting taken for a ride. I’ve been ripped off in the past dealing with banks and financial instruments. This Fidelity letter that showed the two months of money dwindle to zero I can’t really make heads or tails out of.

I tried to talk to the HR people to figure out what this stuff means, but they tell me that they can’t help with it and I need to talk to Fidelity. Fidelity has no record that I exist when I called them.

When we moved here, we had been moving across the country and barely scrapping by for about 15 years. We would have to move for my work, I would get going, get settled, catch up from the 10k in debt to move, start to save, get laid off, move along again. We were able to buy a house because of money that was passed onto me in the move. Our rent went from 1800 to 800 a month due to this, so we have been paying off all of our debts from moving and have finally caught up. I have money left over now for the first time in my adult life since the 2008 economic thing where I got laid off and lost my first house (and everything, crack heads broke into it when I was out of town looking for work and stripped it down to the PVC in the wall).

I am starting to realize that the people in my life that gave me financial advice when I was young probably weren’t giving me the best advice.

The insurance plan is not uncommon where I grew up. When I was small, I thought “retired” meant to pass away. Its more socially accepted than it should be. I am happily married and I would rather enjoy getting old and retiring one day if its possible.

I’m the accident of the family, most everyone else in my “generation” of the family was born in the early 70s. We buried the grandparent generation about 10 years ago, and now the parent generation is starting to pass on. They are all still working and are the first ones that couldn’t retire in my family. They are where the “you won’t retire” stuff comes from. Honestly I used to think they were pretty smart. I am not so sure thats the case now.

32

Hello Munch.

I am not sure what a 401k is. I looked it up but don’t really understand what I was reading. The 401k is why everyone is losing their minds up here at work. Apparently there was some other form of that, and our company was bought and sold a few times since I have been hired and the new version of that is what lost everyone their money. Once guy up here said his tanked in half. He was set to retire next year and now will have to work for another 5 years. I have no idea how he came up with that determination.

What is an employer putting in money into someone’s 401k for? Are they trying to cover fees or some cost of it? I wouldn’t think that where I work puts money in 401k accounts for people because mine dropped to 0.00 three months or so after they quit garnishing my check for it. Did it drop because they weren’t covering a fee of some kind?

The amount of money people need to retire is $1,400,000? So, being 40, I need to save 46,667 a year to retire by 70? Thats more than my wife makes a year. I know its an estimate, but is the 1.4m for a couple or just per person.

I feel pretty damn dumb. I got really good a treading water for the last 15 years, but it has not prepared me for this kind of thing.

33

Hello Carrps.

What is the matching you mean?

34

@Translucent_Daydream - It’s hard to say what happened to your and your colleagues’ 401k accounts without more info but it certainly sounds like there may have been fraud or mismanagement. You may want to contact the Dept of Labor’s hotline. They can both answer questions and refer matters involving misconduct for further inquiry. Your state of residence may also have an agency that can assist.

ETA: If you do, consider requesting confidentiality. If DOL conducts (or refers to DOJ) an inquiry, you may not want to risk retaliation by your employer.

35

Hello Carvaise.

I’m originally from the south. I don’t know what people’s specific religions are, but essentially what I gathered from them is that the stock market is a form of gambling, and money coming from the proceeds of gambling is tainted, even if you use it for some good. They don’t play the Lotto. I don’t know what happens to a 401k when the stock market tanks, or the correlation between the two, but that is what killed my uncle’s retirement. He was retired for two years and had to go back to work. He is in his 70s as well. I asked him about it and all he would say is “the fucking stock market killed it” and fume and look off into the distance. I get no information from these guys.

The company I work at has offices all over the country (and world) and there was a huge revolt of this forced garnishment. Some of the people here where I am were a part of it. HR kept telling me to talk to Fidelity about it, like they were running the garnishment program. Fidelity was the original company I met with in 2009 that told me that my income was insufficient to plan for retirement so naturally I got pretty ticked off that they were taking money out of my check and stood up with them. HR was really cagey about the whole thing and refusing to talk about it.

36

I’m not one who believes gambling is a sin - but the idea is that there is a difference between putting a specified amount of money in an account and getting a specified amount back later even though the institution holding the funds ( bank or pension plan ) may go bust and putting money in an account where the value goes up on down each day and there is no telling today how much it will be worth next week. In 2022, literally just as I retired , I lost multiple thousands in my retirement account. I put my entire last paycheck into the account and still had less than I had a week earlier. Doesn’t happen with a savings account.

They are allowed to because there is no requirement that the company contribute anything - my husband’s employer does not contribute to his 401K at all.

It’s not likely to help the OP at this point - but there are still people who do have pensions ( including union supermarket workers where I live ) and there have always been people who did not. Are pensions less common than they used to be ?- yes , but 401Ks etc have only been around since the late 70s. Prior to that people without pensions had to try to save for retirement with after-tax money and people with pensions could still get screwed if they didn’t stay with the same employer for decades.

37

Hello Dewey_Finn.

I don’t know, and I still don’t understand what a 401k really is. My uncle’s went down after something happened in the stock market.

I don’t understand the stock market either.

My brother is older than me about 15 years. He was always self employed. He has just squirreled away money in savings accounts that he can’t touch without a pentalty. He was telling me about these accounts at his bank that he has been using for retirements, something about the money is locked up for 8 months at a time, then he can access it if he needs to, and then it gets locked up for another 8 months. The 8 months might not be accurate, it could be 6 or 9 months. I am not sure. He is always gloating that he didn’t “buy into the 401k bullshit” when those 401k things die. My dad told me his “lost all its value” but I figured what he meant is that he couldn’t sell it anymore. He is still working now at 72. When I was a kid, he always told me he would be retired by 65.

When I ask these guys specifics, they get super pissed off. I am starting to gather reading all of these posts that they most likely don’t understand what they are either. They just tell me to “don’t trust those assholes in the bank or HR they are liars.” Its not helpful.

I have plans to go meet with someone at my credit union about retirement stuff, but I have this fear bordering on panic that I won’t be able to properly identify whats actually helpful and what a scam is.

38

It’s a problem that Fidelity doesn’t know who you are. If they are the company that manages your company’s 401(k) plan, your HR or benefits department should be able to intervene. FYI, Fidelity is the plan administrator where I work and they have regular online meetings to discuss retirement in general, things like how much to contribute and so forth. You should be also able to schedule a one-on-one meeting with a financial advisor to start to learn what you need to know. And if anyone tells you nonsense like you will never be able to retire, please ignore them. That’s bullshit. Note that the Fidelity website uses a “rule of thumb” that for a successful retirement, “aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.” You’re starting a little late, but certainly not too late. Forty years old still leaves plenty of time to accumulate a healthy account balance.

39

A 401k is a retirement account that you can put money into, invest it into the market, and defer tax payments until you retire.

My guess is that guy is full of shit. Unless he was invested 100% in the company you work for and the company tanked, there shouldn’t be an investment option in a 401k that would have halved last year. Maybe he meant 2022? The market dropped about 18% in 2022 (but recovered in 2023). I’d guess he’s the sort that panics and pulls his money out at the worst time in the market.

Because they have to. When employers set up a 401k, they have to match your contributions up to a certain percentage. It is to incentive you as the employee to save for your retirement.

401k plans can have some fees associated with them, but that seems excessive. I have found Fidelity customer service to be extremely responsive and helpful - you should call them and ask them how much you contributed to the account since it was opened, and how much in fees you paid.

That is not what I said - my example was simply to show you how a reasonable amount of savings would grow in a retirement account.

No. If you are 40 and save at a similar rate as I previously mentioned ($7500/year at 7% growth), you would have $819k. To save $1.4m, you’d need to increase your savings to ~$13,000/year.

Back when I was a financial advisor, we used a stupid old saying that apparently is an old Chinese proverb. “The best time to grow a tree was 25 years ago. The second best time is right now.” As many others have mentioned in this thread, retirement is absolutely still an option for you - but it requires a great deal of budgeting, financial discipline, and saving.

40

That’s a pretty bleak idea though perhaps one that a child might have. Obviously, many people all over the world are financially able to stop working and live on pensions, social security or its equivalent, savings, investments and so forth. Some are unable to retire due to a lack thereof and also some are happy to continue to work late in life.