i'm 24, is it worth putting money into a 401k? is the money safe from the gov. long term? really?

Question

after hearing about pension bankruptcy and revocation of retirement funds, as well as a possible raise of retirement age, i wonder if these funds are 40 year protected from the powers that be.

Answer 1

At 24, this is the BEST time to put money into a 401k. Most of the benefit of such programs is the growth that comes with time. The amount of time you put in is actually more important than the amount of money you put in, so START EARLY!!!

As far as safety goes, 401k money is typically safer than pension money, because 401k money is not normally held by the company itself, but by a plan administrator (perhaps a mutual fund firm or other entity). Of course, nothing is totally safe from the government, but the fact that your money in the 401k can grow without requiring you to pay taxes on the growth every year balances that out.

I strongly encourage you to start saving in your 401k as soon as possible.

Then, step two is this: when you leave the firm you're working for, it's usually best to roll the money from the 401k into an IRA account. But we can talk more about that later.

Answer 2

Well... define "safe."

There is always risk in any kind of investment. (Even in savings accounts or CDs, you risk that the institution might go belly up and even if that doesn't happen, you risk that the interest earned won't keep up with inflation.)

401ks are relatively low-risk. Because they aren't tied to a specific company, they can't be raided or bankrupted by a corporate takeover. At least, not legally. But you do realize, the problems that have been endured by those with pension funds has nothing to do with being safe from the government, right? The government didn't bankrupt those funds. Greedy corporate raiders did.

On the other hand, the government could very well raise the retirement age. or at least the age at which you'd be eligible for social security... And frankly, I suspect the whole idea of being eligible for social security will change significantly for those of us who are currently under 40. (I think it's a lovely myth to think we'll ever see another dime of the money we've ever put into it -- but that's just my own take on the subject.)

Technically, the government could also change the regulations of taxation on 401k contributions; however, in my opinion, that's unlikely to happen for the simple reason that the backlash would be intolerable.

In the end, as with most things, we have to rely on ourselves. If you aren't happy with a 401k, think about a Roth IRA -- if you're already saving, your income at retirement is likely to be higher than your current income, so that means you're probably better off to pay the taxes on the income NOW (as opposed to a traditional IRA.)

Answer 3

You are answering your own question. With pension problems, social security problems, and the possible raising of the retirement age the only solution is for you to save on your own. This means a 401k if you are eligible. Especially if you get an employer kick. If you do not remember to use the traditional and Roth IRAs. The most important thing you can do is pay yourself with savings that you will have out in the long term. The rule of 70's means that at 7% interest you will have doubled your money in 10 years. If you were to retire at the ripe old age of 64 you would have multiplied a savings today by 1600%. $1000 would be $16000 by the time you turn 64. And in fact once you get that nest egg going you will be amazed how it takes off, especially if you keep putting money into it. START NOW!!! Let time work for you. I retired at the age of 52 with over $500,000.

Answer 4

Are they protected? No...it's taxable income and thus is always subject to taxation or a higher level of taxation. But, worse case under that scenario is that you've postponed the tax which is exactly what you planned to do. Now, if they decide to tax the ROTH earnings then you might have a gripe....

As for pension bankruptcy....there's always been a risk of that. Don't know why people are so suprised...pensions have been failing for years (steel industry!!!). Most people, however, still get almost 100% of their pensions. It's the people that have special pension plans AND high salaries that miss out (ie airline pilots) because the PBGC will only pay out a base portion that is the typical pension distribution. Anything promised higher than that won't get paid (and shouldn't) as it's the federal government and they aren't in the business of making people wealthy (except the Halliburton folks).

Change in retirement age only impacts social security. Most pension and retirement plans stillr retain the 59 1/2 early retirement and 65 regular retirement age.

Answer 5

YOU MUST START A 401K NOW!!!!!!! It's the best way to protect your retirement, &/or retire early.

A basic 401K has nothing to do with "pension bankruptcy" or their "revocation".

You should invest in bonds (20%) and the balance should be in stock mutual funds. These funds are generally the same funds that are available to the public (just under the 401K banner/title). They will be subject to "market fluctuation". They are not "protected" and there are no powers to be.

READ READ READ......... There's not enough space here to go into detail.

BTW: JD has no idea about this stuff.

Answer 6

Generally taking the free employer match is a good idea. And it would depend on what funds the 401k is invested in in the first place. Personally I love ROTH IRAs. I think they eventually will have to be grandfathered out, so do it while you have the chance. Pay the tax at the lower rates going in but then put in what you would have pre tax to make up for the lost revenue on the back end - I can't see that tax rates are going to go down over the next 50 years.

Answer 7

well, there's always a chance that a company could go under, but it is also a great idea to start saving now, somewhere, if you can. the sooner the better! and good for you for even thinking of it. retirement funds, i don't know if they can be touched by the gov, they are under the control of the company that you invest in, of which there are many. but again, if that company has some trouble down the road, there are no guarantees. just do some research and try to select a well-respected company.

Answer 8

My 1990 IRA, from the year I was 25, is now worth more than 10x the $2000 I put in it.

So, yes, as a 24 year old, you should take advantage of 401ks, and a Roth IRA if you can.

Answer 9

Start saving for sure, I went with treasury bonds, or an interest-bearing account, like a roth ira account. Keep a separate account just in case, a "rainy-day" fund.