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Started By
Message
Pulling out of your 401k early.
Posted on 4/29/16 at 5:50 pm
Posted on 4/29/16 at 5:50 pm
Had a conversation with a co-worker earlier today. Said he was thinking about pulling out his money in his 401k and take the 10% hit. He wants to take out 50,000.
Said he doesn't want to spend it. He feels like the markets will tank in the next 2/3 years, and wants to take it out and diversify it. Put some cash in a safe, small local bank, gold and silver, etc...
I know why he thinks this way, although he didn't say why. His Dad got burned in 2008 on his retirement with the crash.
And I told him I understood his mentality to an extent. What's a $5,000 loss, if in your mind, you will lose way more with a market Correction.
I know he is only 36, but I told that was crazy.
Thoughts??.... I hate to see someone do this, but like I said, I do understand where he is coming from.
Said he doesn't want to spend it. He feels like the markets will tank in the next 2/3 years, and wants to take it out and diversify it. Put some cash in a safe, small local bank, gold and silver, etc...
I know why he thinks this way, although he didn't say why. His Dad got burned in 2008 on his retirement with the crash.
And I told him I understood his mentality to an extent. What's a $5,000 loss, if in your mind, you will lose way more with a market Correction.
I know he is only 36, but I told that was crazy.
Thoughts??.... I hate to see someone do this, but like I said, I do understand where he is coming from.
10
Posted on 4/29/16 at 6:03 pm to Abikaasa_Posti_Teel
So at a minimum he would have to take a 35% drop in value (10% penalty +25% tax bracket) for his scenario to play out best.
I've never understood this though, if someone is truly that scared, then move it to a damn mmkt fund inside the 401k and you're still out of the market, the money does not have to exit the plan to escape market risk.
But to each his own, "Those who understand interest, earn it. Those who don't, pay it."
I've never understood this though, if someone is truly that scared, then move it to a damn mmkt fund inside the 401k and you're still out of the market, the money does not have to exit the plan to escape market risk.
But to each his own, "Those who understand interest, earn it. Those who don't, pay it."
Posted on 4/29/16 at 6:13 pm to Abikaasa_Posti_Teel
I'm sure he has his reasons but I think it's crazy. His dad sold out when the market crashed and the lesson he learned is to sell out when he thinks the market is going down? Tell him to ride the waves... especially since he's so young
Posted on 4/29/16 at 6:24 pm to Abikaasa_Posti_Teel
This is fricking insanity.
I know someone who pulled out at the bottom in 2008 and never got back in because he was absolutely certain the market was going to double dip. He missed one of the biggest market rallies in history.
If your co-worker wants to write Uncle Sam a $5,000 check for absolutely no reason, he's an idiot.
I know someone who pulled out at the bottom in 2008 and never got back in because he was absolutely certain the market was going to double dip. He missed one of the biggest market rallies in history.
If your co-worker wants to write Uncle Sam a $5,000 check for absolutely no reason, he's an idiot.
Posted on 4/29/16 at 6:25 pm to mydadpulledout
This was exactly my thoughts! If you are young (I am only 2 years younger than him) , then just wait it out. His dad was very close to retirement age, and had to work a lot longer to make it up. I know that's in the back of his mind, but I didn't bring it up as I said.
Posted on 4/29/16 at 6:29 pm to Abikaasa_Posti_Teel
Within the 401K there should be some very conservative choices like a money market fund or US treasury fund. He should check into his choices before he pulls the money out.
Posted on 4/29/16 at 8:10 pm to Abikaasa_Posti_Teel
quote:
He feels like the markets will tank in the next 2/3 years, and wants to take it out and diversify it. Put some cash in a safe, small local bank, gold and silver, etc
Safe, bank, gold is not my idea of diversification. If he truly believes the market will crash within the next 3 years - and he's willing to bet a significant portion of his retirement money on that belief - then he should withdraw the money from the 401K and reinvest it in 3 years. Simple.
quote:A lot of people got burned. But those who stayed the course ended up making their money back and more within 7 years.
His Dad got burned in 2008 on his retirement with the crash.
Posted on 4/29/16 at 8:18 pm to PlanoPrivateer
quote:
Within the 401K there should be some very conservative choices like a money market fund or US treasury fund. He should check into his choices before he pulls the money out.
I've yet to see or have a 401K where there wasn't a MM option of some sort. But the fact that this young person is willing to cash out and take a penalty hit because he's irrationally scared (an emotional investor), that says to me that he's probably doomed to financial failure anyway.
Posted on 4/29/16 at 9:54 pm to Patrick_Bateman
They didn't make their money back if they started drawing an income at the bottom. Believe it or not, some folks got screwed pretty bad.
Posted on 4/29/16 at 10:05 pm to iknowmorethanyou
quote:
They didn't make their money back if they started drawing an income at the bottom. Believe it or not, some folks got screwed pretty bad.
If you're 100% invested in equities within a decade of retirement, you're a fool. Whether due to ignorance or greed, but still a fool.
Posted on 4/29/16 at 10:12 pm to Abikaasa_Posti_Teel
A withdrawal would be fully taxable. Plus he may not be allowed to withdraw unless he's separated from the company.
He's insane.
He's insane.
Posted on 4/29/16 at 11:31 pm to Abikaasa_Posti_Teel
Some quality counsel I this thread. Your friend is making an emotional decision that could have a negative financial impact on the rest of his life.
He needs to chill out, move the money to a MM fund inside the 401K and calm down.
If the market does crash out, he can renenter after the tank. If he pulls out now he loses the match, pays a penalty and pays a huge tax.
He needs to chill out, move the money to a MM fund inside the 401K and calm down.
If the market does crash out, he can renenter after the tank. If he pulls out now he loses the match, pays a penalty and pays a huge tax.
Posted on 4/30/16 at 5:26 am to Abikaasa_Posti_Teel
It's not just the 10% penalty he must pay. If the contributions were pre tax, he'll have taxes on that amount since it is considered income. Regardless of the contributions being pre tax, the earnings will also be considered income. The additional income will likely put him in a higher tax bracket.
Posted on 4/30/16 at 7:48 am to Jag_Warrior
I will def talk to him about the money market fund. I will be honest, I didn't know much about them myself. May look into it as well to a certain extent.
I may show him this thread so he at least understands what he is about to do and why it is a really bad decision.
I may show him this thread so he at least understands what he is about to do and why it is a really bad decision.
Posted on 4/30/16 at 9:41 am to Abikaasa_Posti_Teel
I am 62 and unable to work due to medical issues. I still have my money in a 401K. I have more than 60% in fixed income and I want to make sure I always have at least 5 years of my expected withdrawals in the money market fund and will adjust the rest to try to maximize returns for retirement travel. Do your research on investments but if you want any returns you will need to have a portion in the stock market. Never be too conservative or too aggressive is my philosophy and it has served me well.
Posted on 4/30/16 at 10:34 am to Abikaasa_Posti_Teel
Sounds like an idiot. If the market crashes, he will have decades to recoup. If the market doesn't crash, what's he gonna do, put the money back in when prices are higher?
If he was like 50 it could be seen as logical. But the guy has no idea about the market and is just acting off of fear.
If he was like 50 it could be seen as logical. But the guy has no idea about the market and is just acting off of fear.
Posted on 4/30/16 at 11:06 am to Abikaasa_Posti_Teel
Tell him he's an idiot in the nicest way possible.
The sad part if these folks generally have the mind made up before the ask for advice and are just looking for reassurance. Don't give it.
He can always just move it to a money market and keep the money in the 401k too.
The sad part if these folks generally have the mind made up before the ask for advice and are just looking for reassurance. Don't give it.
He can always just move it to a money market and keep the money in the 401k too.
Posted on 4/30/16 at 2:54 pm to Shepherd88
quote:
So at a minimum he would have to take a 35% drop in value (10% penalty +25% tax bracket) for his scenario to play out best.
All you really need to tell him is this. If he still wants to do it then I would watch out for this guy. I definitely would not let him watch my kids, or go hunting with him, or probably even ride in a car he's driving.
Posted on 4/30/16 at 3:08 pm to PlanoPrivateer
quote:
Within the 401K there should be some very conservative choices like a money market fund or US treasury fund. He should check into his choices before he pulls the money out.
THis.
Posted on 4/30/16 at 3:21 pm to Patrick_Bateman
quote:
A lot of people got burned. But those who stayed the course ended up making their money back and more within 7 years.
I always point out that you don't lose a penny until you sell.
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