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  • Cash's role in a retirement strategy

    I'm a typical mid 40's working guy who has a 401K whose employer pitches $.25 for every $1.00 I put in, up to 3%. I put in 6% of my pay, so I essetially get $.125 for every dollar I put in. I also have an annuity from a previous job that I don't contribute to, it just feeds or eats itself. (I also will have SS (therhetically) when I retire, but I am not counting on that.)

    Here's the thought. Would it be crazy to stop contributing to the 401K and just stick the money in the bank? If there was some catastrophic market meltdown, I could lose all my 401k and therefore most of my retirement gets wiped out, other than the annuity that has a gaurenteed value. I'm not at all worried about spending this retirement cash on other things, we are very disciplined spenders.

    I could still invest the cash at some point if I felt it was the prudent thing to do, obviously sticking it in the bank won't make me any money.

    Am I nuts to consider cash as part of my retirement plan? Part of me says I am crazy for just following the herd and investing in the stock/bond markets when the markets/economies are entirely global and therefore more volitile, unlike 20 yrs ago. Part of me says I am crazy for thinking outside the box and not making any money on the money in the bank.

    Thoughts?
    Wisconsin Hockey: 1, 3, 5, 7, 9, 11 WE WANT MORE!
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    Come to the Wisconsin Evangelical Lutheran Synod
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  • #2
    Re: Cash's role in a retirement strategy

    Originally posted by Timothy A View Post
    I'm a typical mid 40's working guy who has a 401K whose employer pitches $.25 for every $1.00 I put in, up to 3%. I put in 6% of my pay, so I essetially get $.125 for every dollar I put in. I also have an annuity from a previous job that I don't contribute to, it just feeds or eats itself. (I also will have SS (therhetically) when I retire, but I am not counting on that.)

    Here's the thought. Would it be crazy to stop contributing to the 401K and just stick the money in the bank? If there was some catastrophic market meltdown, I could lose all my 401k and therefore most of my retirement gets wiped out, other than the annuity that has a gaurenteed value. I'm not at all worried about spending this retirement cash on other things, we are very disciplined spenders.

    I could still invest the cash at some point if I felt it was the prudent thing to do, obviously sticking it in the bank won't make me any money.

    Am I nuts to consider cash as part of my retirement plan? Part of me says I am crazy for just following the herd and investing in the stock/bond markets when the markets/economies are entirely global and therefore more volitile, unlike 20 yrs ago. Part of me says I am crazy for thinking outside the box and not making any money on the money in the bank.

    Thoughts?
    If your employer is offering you free money, you would be crazy to not take it. Heck, I think you're crazy for not contributing 12% in order to take advantage of the full 3%.

    If you're really worried about your 401k going down, there's always stable value funds or cash-heavy funds you could elect.
    Last edited by FlagDUDE08; 11-17-2011, 05:38 PM.

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    • #3
      Re: Cash's role in a retirement strategy

      *****http://4.bp.blogspot.com/_XADVZkORRe4/SaSLXNPhVPI/AAAAAAAAACI/0nGyywovzwM/s400/johnny_cash_1969.jpg******
      Keep an open mind. Just don't be so open-minded that your brain falls out.

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      • #4
        Re: Cash's role in a retirement strategy

        Originally posted by Timothy A View Post
        I'm a typical mid 40's working guy who has a 401K whose employer pitches $.25 for every $1.00 I put in, up to 3%. I put in 6% of my pay, so I essentially get $.125 for every dollar I put in. I also have an annuity from a previous job that I don't contribute to, it just feeds or eats itself. (I also will have SS (theoretically) when I retire, but I am not counting on that.)

        Here's the thought. Would it be crazy to stop contributing to the 401K and just stick the money in the bank? If there was some catastrophic market meltdown, I could lose all my 401k and therefore most of my retirement gets wiped out, other than the annuity that has a guaranteed value. I'm not at all worried about spending this retirement cash on other things, we are very disciplined spenders.

        I could still invest the cash at some point if I felt it was the prudent thing to do, obviously sticking it in the bank won't make me any money.

        Am I nuts to consider cash as part of my retirement plan? Part of me says I am crazy for just following the herd and investing in the stock/bond markets when the markets/economies are entirely global and therefore more volatile, unlike 20 yrs ago. Part of me says I am crazy for thinking outside the box and not making any money on the money in the bank.

        Thoughts?
        The problem with sticking large sums of money earmarked for retirement in cash, when you are 20-30 years away from retirement is that you are just going to get killed by the impact of inflation eating away at the buying power of that cash over time.

        You should be contributing at least up to what your employer matches in your 401K, that would require at least a long term 20% fall in the market for you to lose any of the principle of what you personally added. Given your investment options, unless they have a very high risk fund, you will never lose all of the value you have in the market, and as you get closer to retirement you can switch over to a more conservative investment allocation. If the market were to collapse to the point that everything that you have in the stock market were wiped out, that annuity would also be lost and inflation would quickly destroy the value of any cash you have saved (if you were even able to get it out of the bank).

        What I would do is:
        Cut my contribution on my 401k back to 3% of my pay to take advantage of my match.
        Since you are a working guy, I suspect that your AGI is below $150k, start a Roth IRA at either Vanguard or Fidelity for both you and your wife with the objective for contributing another 7-12% (total retirement savings of 10-15%) of your take home pay, up to the annual contribution limit of $5000 each to your IRAs. You can be as conservative as you want with how you diversify with your IRAs, but with a 20-25+ year time horizon to retirement you really need to stay in the equities markets to try and build a large enough retirement fund.
        If you have maxed out your IRAs and still have money to invest and you want something very safe, l'd look into Treasury Inflation-Protected Securities (TIPS). They are not as liquid as cash, but they will hopefully allow you to not have inflation completely eat away at buying power of what you have saved.

        This is just a generalized suggestion, the details of would require knowing much more about your current financial state and where you want to accomplish in both the short and long term.

        At the end of the day, you have to do what you feel is best for you and only take the risks that you are comfortable taking. No one cares more about your money than you do.

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        • #5
          Re: Cash's role in a retirement strategy

          If you are so risk averse that you're considering cash, then you should at least be looking at bonds or even a broad basket of commodities as hedges against inflation. You should be able to invest in either within the confines of your 401k program, or, as Almington pointed out, an IRA or Roth IRA.

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          • #6
            Re: Cash's role in a retirement strategy

            Gold.
            **NOTE: The misleading post above was brought to you by Reynold's Wrap and American Steeples, makers of Crosses.

            Originally Posted by dropthatpuck-Scooby's a lost cause.
            Originally Posted by First Time, Long Time-Always knew you were nothing but a troll.

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            • #7
              Re: Cash's role in a retirement strategy

              Originally posted by ScoobyDoo View Post
              Gold.
              Not to drag hockey into the discussion, but I could never own anything gold, or maroon for that fact. I'd hate to give anyone the slightest impression I may me a rodent fan.

              I'm not mega adverse to risk, but if there was a 1929 economic type meltdown, could the Roth be wiped out by that? That money ends up getting invested somewhere, correct?
              Wisconsin Hockey: 1, 3, 5, 7, 9, 11 WE WANT MORE!
              ------------------------------------------------------------------------------
              Come to the Wisconsin Evangelical Lutheran Synod
              ------------------------------------------------------------------------------
              Originally Posted by Wisko McBadgerton:
              "Baggot says Hughes and Rockwood are centering the top two lines...
              Timothy A --> Great hockey mind... Or Greatest hockey mind?!?"

              Comment


              • #8
                Re: Cash's role in a retirement strategy

                Originally posted by Timothy A View Post
                Not to drag hockey into the discussion, but I could never own anything gold, or maroon for that fact. I'd hate to give anyone the slightest impression I may me a rodent fan.

                I'm not mega adverse to risk, but if there was a 1929 economic type meltdown, could the Roth be wiped out by that? That money ends up getting invested somewhere, correct?
                Depending on where you're invested, it's possible. Just make sure not to put all your eggs in one basket and diversify.

                The money is with the companies where you hold certificates. If they spend it and don't get a return, it's been lost. There is a multiplier involved, so people can get rich and retire, and once it gets pulled out, the multiplied portion of the money is gone.

                I'd say at this point, do research on stocks and funds to find the best one. You have a terrific case study in 4th quarter 2008 and 1st quarter 2009. However, we're definitely heading to 1937 at this point, so I'd try to see what happened there. Hopefully we don't need World War III to pull us out of this (although there's already been some fighting in the Bush era, which is where the prosperity came).

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                • #9
                  Re: Cash's role in a retirement strategy

                  Originally posted by Timothy A View Post
                  Not to drag hockey into the discussion, but I could never own anything gold, or maroon for that fact. I'd hate to give anyone the slightest impression I may me a rodent fan.

                  I'm not mega adverse to risk, but if there was a 1929 economic type meltdown, could the Roth be wiped out by that? That money ends up getting invested somewhere, correct?
                  You sure sound risk averse. The money that you put into the tax advantaged retirement plans (IRAs and 401k plans (regardless if a Roth or traditional) are invested somewhere, but even in the case of a 1929 or 2008 type meltdown where the value is hit by up to 50% you will still own the underlying investment and provided that you are well diversified you will not be "wiped out".

                  After every large fall in the market: 1929, 1987, the tech bubble, or the financial crisis, the market has recovered with time. The key is the with time, if you don't need the money for 10 or 15 years, what impact do short term market fluctuation have on your day to day life? Short of the stress of worrying about them, they really don't. The thing is that you can tailor your holdings to reflect what your risk tolerance is and what type of long term financial goals that you have. Once you have done that you are best to just ignore them on a daily or weekly or even monthly basis and just periodically (like once a year or so) make sure that your holding match what you want in retirement.

                  Provided that you have a 10-15+ year investment horizon, keeping a large potion of you retirement savings sitting in cash long term (provided that you have a health emergency fund and no expected short term crisis looming for which you want a pile of liquid cash you can tap) is going to hurt you when it comes to the financial resources you have a retirement.

                  My personal feeling is that gold just isn't worth the risk, all the signs of a bubble market exist and it has the potential to blow up in an ugly way. Silver, on the other hand, greatly intrigues me given its wide range of industrial uses.

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                  • #10
                    Re: Cash's role in a retirement strategy

                    I built my 401k one piece at a time, and it didn't cost me a dime.
                    Unless you have the time and acumen to research stock/ bonds, the 401k is a perfect vehicle to generally beat inflation in the long term. Sure, you'll have down years - but these have been occurring since the 20s. The nice thing is that your company matches it AND your financial services will do all the work for you. As for investing in bonds, commodities and performing hedging practices, stay clear unless you have some knowledge about how financial products work. The stock market can and has crushed many novices.

                    Lastly, remember its you and only you who has something to lose. Listen to us at your leisure, but at the end of the day, be confident that the guy looking back at you in the mirror has to make the right choices.
                    "Look to the end, no matter what it is you are considering. Often enough, God gives man a glimpse of happiness, and then utterly ruins him"

                    -Herodotus

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                    • #11
                      Originally posted by unh_hockey View Post
                      Unless you have the time and acumen to research stock/ bonds, the 401k is a perfect vehicle to generally beat inflation in the long term. The nice thing is that your company matches it AND your financial services will do all the work.
                      My biggest issue with 401k and why I would only contribute as much as the match until I have max my IRA contribution is that 401k often have limited investment options and high expense levels. If you are not careful those two things will negate much of the tax advantages of the 401k.

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                      • #12
                        Re: Cash's role in a retirement strategy

                        Originally posted by Almington View Post
                        My biggest issue with 401k and why I would only contribute as much as the match until I have max my IRA contribution is that 401k often have limited investment options and high expense levels. If you are not careful those two things will negate much of the tax advantages of the 401k.
                        Absolutely true. I have been investing post-tax for the most part (non-IRA), but I can actually claim loss with some of my distributions. Cash is good in the late game, but Tim, you're not even close to the late game yet. 30-year bonds if you really want, maybe some mutual funds that give you the best of all worlds, but I'd stick with stocks at this point (at least 80%, even if it's a mutual fund that's 80% stock investment). Get yourself some good paying dividends. What I'd recommend is to check out Morningstar's website and look to see the best performers in terms of profitability, growth, and financial stability. Invest based upon what is important to you. Be aware they won't consolidate all of this unless you pay, so you'll have to do some searching. Get companies that have been fairly stable with dividends even through the 2008-09 crash, but be sure to look at the companies' financial history (use Google) to see if they have the earnings ability to pay them (or if they pay according to the booms and bears, that's always good). Obviously if you want recommendations, I'd be happy to give them to you.

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                        • #13
                          Re: Cash's role in a retirement strategy

                          Two words: Vanguard IRA.
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                          Originally posted by SanTropez
                          May your paint thinner run dry and the fleas of a thousand camels infest your dead deer.
                          Originally posted by bigblue_dl
                          I don't even know how to classify magic vagina smoke babies..
                          Originally posted by Kepler
                          When the giraffes start building radio telescopes they can join too.
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                          • #14
                            Re: Cash's role in a retirement strategy

                            Originally posted by dxmnkd316 View Post
                            Two words: Vanguard IRA.
                            Not a good plan. They have $20 commissions on stock trades (unless you invest in their limited number of funds (where I saw worse options than 401k), although there's probably a minimum trade amount to avoid that fee, it's gotta be up in the 6-figures).
                            Last edited by FlagDUDE08; 11-20-2011, 08:29 PM.

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                            • #15
                              Re: Cash's role in a retirement strategy

                              Originally posted by FlagDUDE08 View Post
                              Not a good plan. They have $20 commissions on stock trades (unless you invest in their limited number of funds (where I saw worse options than 401k), although there's probably a minimum trade amount to avoid that fee, it's gotta be up in the 6-figures).


                              I suppose that would be a big deal if you're a day trader, but if we're talking retirement here...

                              I'm kicking in bi-monthly payments for $5k a year and each time I see the full purchase price going towards the funds.
                              Code:
                              As of 9/21/10:         As of 9/13/10:
                              College Hockey 6       College Football 0
                              BTHC 4                 WCHA FC:  1
                              Originally posted by SanTropez
                              May your paint thinner run dry and the fleas of a thousand camels infest your dead deer.
                              Originally posted by bigblue_dl
                              I don't even know how to classify magic vagina smoke babies..
                              Originally posted by Kepler
                              When the giraffes start building radio telescopes they can join too.
                              He's probably going to be a superstar but that man has more baggage than North West

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