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educate me 401-k

  1. #876
    Soul Rider Paul_E_D's Avatar
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    Re: educate me 401-k

    No, I get that. The stats are not just for millenials!

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  2. #877
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    Re: educate me 401-k

    Quote Originally Posted by Not Sure View Post
    Well if you are nowhere near retirement then sure, maybe 3-6 months. If you're a year or so away, then it should be more than that in order to avoid needing cash in a down market. That is my only point.
    +1

    Prevailing wisdom I'm reading suggests having several YEARS worth of expenses in cash PLUS an emergency fund leading up to retirement. I think this was traditionally done just with asset allocation. You see things like target-date funds that transition from stocks to bonds and cash as they get close to their label dates. Thus in a bear market it doesn't hurt to sell those.

    Being the control freak I am, I think I prefer the DIY silo approach. As you near retirement you pull 2+ years of expenses out of your aggressive stock index cache and hold it as cash. My current favorite approach says to pull out 3 years worth; 2 years in a CD ladder and 1 in straight cash in a savings account. In a bear market you live off that cash and wait for a rebound before replenishing. In a bull you continuously replenish the pipeline.

    I think these are effectively similar in the end.

    What I think is interesting is the current idea that bonds don't fit in that flow very well anymore. Now you're mostly stocks with some cash on the side to live off of.

    I'm not sure how large real-estate holdings would effect that. I guess you just don't count the value of the properties in your net, but instead just deduct the gross income (rent - expenses) from your annual spend. Thus you need less holdings to support a given annual spend.

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    Last edited by nhbubba; 02-09-18 at 03:03 PM.

  3. #878
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    Re: educate me 401-k

    Re: the stats. It seems obvious that the old axiom "the rich get richer while the poor get poorer" is very true today. Wealth is becoming more and more concentrated in a smaller and smaller group.

    What is frightening and short-sighted is that eventually we are going to be faced with one of two choices; bailing out those individuals that have no safety net or watching them live in poverty.

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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    +1

    Prevailing wisdom I'm reading suggests having several YEARS worth of expenses in cash PLUS an emergency fund. I think this was traditionally done just with asset allocation. You see things like target-date funds that transition from stocks to bonds and cash as they get close to their label dates. Thus in a bear market it doesn't hurt to sell those.
    The Wall Street Journal has had articles over the last few years that talk about how just unwise a lot of Americans are:

    Quote Originally Posted by WSJ
    A $500 Car Repair Bill Would Send Most Americans Scrambling

    “Most Americans are ill-prepared for life’s inevitable curveballs,” said Sheyna Steiner, Bankrate.com’s senior investing analyst.

    An unexpected car repair or medical bill would cause the vast majority of Americans to scramble because they lack the needed funds in their savings accounts.

    Only 37% of adults have the necessary savings to cover a $500 car repair or a $1,000 emergency room bill, according to a survey Bankrate.com released Wednesday. The finding is little changed from last year, when 38% said they didn’t have the cash on hand, despite a year of steady job creation and the unemployment rate falling to 5%.

    “Most Americans are ill-prepared for life’s inevitable curveballs,” said Sheyna Steiner, Bankrate.com’s senior investing analyst. She said that’s a concern because more than 40% of families experienced a similar unexpected cost during the past 12 months.
    and

    Quote Originally Posted by WSJ
    How People Need to Rethink Emergency-Savings Funds

    Why aren’t people saving for emergencies? What’s more, if they do save for emergencies, why do they so often not use those savings wisely?

    It’s not like people don’t know what to do. I’ve been to many meetings where financial experts tell each other, “if we could just get people to save six to nine months of income.” This advice seems so sensible, so economically sound, my peers believe that if they repeat it often enough, people eventually will act on it.

    But it’s not resonating—50% of Americans do not have a “rainy day” fund, according to the 2015 National Capability Study.

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  5. #880
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    Re: educate me 401-k

    Quote Originally Posted by Paul_E_D View Post
    No, I get that. The stats are not just for millenials!
    Most Americans have less than $1,000 in savings - MarketWatch

    Here's another source to ponder...

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  6. #881
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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    Re: the stats. It seems obvious that the old axiom "the rich get richer while the poor get poorer" is very true today. Wealth is becoming more and more concentrated in a smaller and smaller group.

    What is frightening and short-sighted is that eventually we are going to be faced with one of two choices; bailing out those individuals that have no safety net or watching them live in poverty.
    Without saying whether or I think it's a good idea or a bad idea, I think in my lifetime we will need to seriously consider the idea of a universal basic income.

    The continuing rise of automation and AI is, over the next few decades, going to put an end to a lot of unskilled and semi-skilled labor.

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    Re: educate me 401-k

    Quote Originally Posted by number9 View Post
    Without saying whether or I think it's a good idea or a bad idea, I think in my lifetime we will need to seriously consider the idea of a universal basic income.
    I don't know if that's a good idea or not either, but stupid people make stupid decisions and they can squander any type of income. I don't agree with bailing people out unless there are some limits and best faith efforts on the part of the recipient.

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  8. #883
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    Re: educate me 401-k

    Quote Originally Posted by number9 View Post
    The Wall Street Journal has had articles over the last few years that talk about how just unwise a lot of Americans are:
    You quoted me and I now realize I wasn't clear that I was talking about lead-up to retirement.

    When younger and in the "accumulation phase" I think the emergency fund is somewhat less important. If you have a fairly stable job and/or some solid flexibility with your expenses, I do not see why you couldn't skimp on the e-fund and have 6 months or less in straight cash. Especially if your debt load is low and your credit is good.

    I've seen arguments for using heloc loans, even credit cards as ways to cover emergency expenses and avoid taping savings that would have penalties to touch (ie 401ks). I argue this logic extends to touching stock investments in a bear market as well. Use the loan to bridge the bear market. Adjust savings and/or expenses in the meantime until paid off.

    I may be in the minority here, but I agree with that. If my boiler blew up today I'd borrow to replace it.
    FWIW: I also have routinely kept > $1k in my bank accounts in the past. My wife gets squeamish about this and so we now have a much bigger buffer in straight cash. I view that as trading potential gains for peace of mind. If I lost my job I'd convert other, non-cash savings to cash to live off of.

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  9. #884
    Burns retinas nhbubba's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by number9 View Post
    Without saying whether or I think it's a good idea or a bad idea, I think in my lifetime we will need to seriously consider the idea of a universal basic income.

    The continuing rise of automation and AI is, over the next few decades, going to put an end to a lot of unskilled and semi-skilled labor.
    Agreed. Although I'd be okay if we just started with universal health care. With the statistics floating around about how many Americans are wiped out by medical bills I would think this would be the greatest, most immediate ROI.

    I know it's the thing I sweat most; providing health care for myself and my family.

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  10. #885
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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    You quoted me and I now realize I wasn't clear that I was talking about lead-up to retirement.
    I know that that's what you meant, but I was trying to say that I was shocked to find people didn't have money way, way before the lead-up. There was another study last year (can't remember by whom) that said most people couldn't cover a $400 expense if it came out of the blue.

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    Re: educate me 401-k

    I've been reading stories of people doing uber or lyft part time for "extra" cash that are not prepared for having an accident while working. Seems uber and lyft have policies that cover their "contractors", but they have like $2500 deductibles. Most people's private insurance has like $1-500 deductibles. However those private insurances almost always exclude any type of for-hire work from coverage. Those same people could not or could barely cover their deductible are suddenly looking at $2500 to get their wheels back. Now they can't get to work and get fired. Down hill from there.

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    Lifer Not Sure's Avatar
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    Re: educate me 401-k

    Quote Originally Posted by number9 View Post
    There was another study last year (can't remember by whom) that said most people couldn't cover a $400 expense if it came out of the blue.
    We use this https://www.federalreserve.gov/2015-...lds-201605.pdf one during work (we sell healthcare decision support tech) presentations. It includes the $400 example you're referring to, which is the stat we use. 46% of adults can't cover it.

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  13. #888
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    Re: educate me 401-k

    Quote Originally Posted by nhbubba View Post
    I've been reading stories of people doing uber or lyft part time for "extra" cash that are not prepared for having an accident while working. Seems uber and lyft have policies that cover their "contractors", but they have like $2500 deductibles. Most people's private insurance has like $1-500 deductibles. However those private insurances almost always exclude any type of for-hire work from coverage. Those same people could not or could barely cover their deductible are suddenly looking at $2500 to get their wheels back. Now they can't get to work and get fired. Down hill from there.
    It's even worse than that. Most rideshare drivers are underinsured at best and uninsured at worst.

    Ubers deductible is 1k and Lyfts is $2500 if you're on a trip btw.

    The catch is, if you're just driving looking for a ride, or simply just driving, you aren't covered AT ALL unless you have the right endorsement, which costs extra money. The vast majority of private policies have an exclusion for using a vehicle for compensation or hire. Drive rideshare without the correct coverage and the insurance you thought yoy had doesn't really exist because no one read the fine print.

    There are a ton of rideshare drivers in this region who are one step away from complete financial disaster because of this, nevermind that a lot of them have no clue on extra income vs extra profit or how to handle taxes. It's astounding.

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    Last edited by e30addict; 02-09-18 at 03:56 PM.
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  14. #889
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    Re: educate me 401-k

    Quote Originally Posted by Not Sure View Post
    We use this https://www.federalreserve.gov/2015-...lds-201605.pdf one during work (we sell healthcare decision support tech) presentations. It includes the $400 example you're referring to, which is the stat we use. 46% of adults can't cover it.
    that's scary.

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  15. #890
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    Re: educate me 401-k

    I've thought about this. I used to have a couple months in cash but school wiped that out. I figure if some unforeseen expense comes up I'll use a 401k loan to fund it.

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  16. #891
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    Re: educate me 401-k

    Quote Originally Posted by e30addict View Post
    that's scary.
    When Americans base their success on how they compare to people more successful, or more debt ridden, than they are , then this isn’t surprising. With raises or advancement always comes lifestyle inflation for the vast majority.

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  17. #892
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    Re: educate me 401-k

    Well, yeah. Not everyone wants to race an ex500.

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  18. #893
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    Re: educate me 401-k

    Quote Originally Posted by Chippertheripper View Post
    Well, yeah. Not everyone wants to race an ex500.
    Yeah fuck those piles of... Hey! Wait!

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  19. #894
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    Re: educate me 401-k

    Quote Originally Posted by Not Sure View Post
    Well if you are nowhere near retirement then sure, maybe 3-6 months.
    I disagree, based on my experience and education. What happens if your company suddenly goes belly-up? Or if they just decide they don't want you anymore, or want to outsource your position, etc? 12 months has been the rule of thumb I've always heard and tried to adhere to...and with the luck/skill/fortune of having a good-paying job, it still took me the better part of a decade to accumulate that.

    Quote Originally Posted by nhbubba View Post
    +1

    Prevailing wisdom I'm reading suggests having several YEARS worth of expenses in cash PLUS an emergency fund leading up to retirement.
    Several years would be tough for all but the highest earners, IMO

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    Re: educate me 401-k

    Don’t get caught up in the number of months. That varies by person based on skill set, income rate, and risk tolerance. My point remains the same.

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  21. #896
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    Re: educate me 401-k

    Quote Originally Posted by Mustang View Post
    Several years would be tough for all but the highest earners, IMO
    But less so for retirees with a large pile of assets saved up. The discussion was (or I thought it was) about the volatility of the US market and cash vs stocks vs other holdings (ie real-estate). My point was +1 to what Mike has been saying; that cash should be part of everyones hold. As you near retirement it should be a BIG part. Like 2-3 years of expenses worth PLUS e-fund.

    I'm midway between the 2 and could easily convert 2-3 years worth of my stock indexes to cash. And as I get closer to retirement that's exactly what I will do.

    Quote Originally Posted by Not Sure View Post
    Don’t get caught up in the number of months. That varies by person based on skill set, income rate, and risk tolerance. My point remains the same.
    +1

    Another variable is flexibility with spending. If one can drop their spending XX% on demand, it changes the e-fund needed.

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