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Comment by jdavis703 | Hacker News Reader

At what point does personal responsibility kick in? Every 401(k) I've been on has given the option of investing in funds that ramp down risk exposure as the fund's target retirement date comes closer.

Literally all you need to do is put your $1400/month in to a retirement account and not touch it. If you're upper middle class this is not hard to do (again I'm not talking about poor people here, but those with money who aren't saving).

Whenever our 401(k) report comes out at work I can tell that most people are not putting nearly the amount of money they should be into savings -- and this is a tech company so most everyone aside from interns are being generously compensated.

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Another big problem is that 401Ks have a "longevity risk". Saving as an individual, you must save enough to handle the very remote possibility that you will live past age 100. A pension fund, on the other hand, can safely assume that on average pensioners will die long before that. So a responsible 401K holder must oversave.

401's have ridiculous low contribution maximums and you don't get any tax rebate unlike the UK where you get relief at your effective tax rate

In theory you can hedge that risk with an annuity, and anyway you get social security until you die.

> At what point does personal responsibility kick in? Every 401(k) I've been on has given the option of investing in funds that ramp down risk exposure as the fund's target retirement date comes closer.

There is no reason to assume that a target-date fund is actually any good. It's like any fund, there are good ones and there are really bad ones, and we're not even talking about whether the 401(k) account that holds the fund has its own problems (which an employee won't be able to avoid if they want to actually invest to the tax sheltered limit every year).

So the "personal responsibility" kicks in once you've educated yourself on all the ins and outs of the way the retirement system in the US can rip people off, intentionally on the part of those peddling bad products or as the result of poor decisions on the part of the investor. Something maybe half of the people out there are qualified to do, and somewhat less than 1% of the people out there are actually interested in doing.

We could fix all this with better policy (allowing everyone to do fee-free in-service rollovers of their 401ks and IRAs to the retirement funds federal workers use, which rely on low-cost index funds, might be one basis of a decent system) but we won't. Too many people are making money ripping other people off.

But again, "you aren't talking about poor people here". Wanna take a look at the income distribution of the US and tell me what % of people you think can afford a $1400/month hit to their paycheck?

I think education is an important factor. I'm nearing 40, make a lot of money, but have no idea how to optimize my 401k. When I ask co-workers, they are more ignorant than me. I changed companies a few times and have tranches of cash in each of their 401ks.

Well if you don't mind me asking, what kind of annual returns are you generating? If you're in the 7-8% range you're probably about as "optimized" as you can be, assuming your 401(k) is only giving access to large index funds.

Another trick you can use is switch to a Roth 401(k). It means you'll be taxed on your savings today, but when you retire they'll be tax free. Now this is total speculation here, but I'm kind of assuming taxes will be pretty high in the coming decades as we try to keep social security going and pay down deficit spending, not too mention dealing with climate change fallout.

Also good for you on keeping all your money in the 401(k) accounts, some people cash them out when they change jobs which triggers penalities and taxes. If you can however, I would roll all your accounts in to one giant 401(k) so you can better keep track of what's going on.

I have no doubt that if the capping of 401k deductions goes through, Roth IRAs will be next. There is nothing stopping the government from deciding to tax Roth withdrawals down the road. They'll probably do it at a lower rate, like capital gains, but I fully expect it to happen.

I have like 20K in a 401K when I worked at Microsoft a long time ago. This is around the 2008 fiasco. I just converted everything to cash. I didn't do a rollover when I changed employers (I think there is some time limit which I have likely exceeded). I've been trying to figure out if I can make use of that cash. The confusion is that the plan I was in was for Microsoft employees. Can I still use their plan's investment options?? I also don't want to incur any tax implication ... literally the cash has been sitting there for years because I am too stupid to figure out all the details. It is just sad :(

> I didn't do a rollover when I changed employers (I think there is some time limit which I have likely exceeded).

There are several "timelimit" related aspects to 401k rollovers, neither would apply in your circumstance. You sound anxiety paralyzed like you made some "unfix-able past mistake" and there is zero reason for you to be.

> It is just sad :(

See my other comment about consolidating all of your legacy 401ks into a single robo-advisor (betterment/wealthfront/etc). It isn't hard, mainly consists of sending a few emails to HR departments and forwarding a few paper checks. Any robo-advisor will have a support team that will hold your hand through the process for free - they want to earn your business.

401k’s don’t have taxes and Microsoft employees don’t get secret better investment options than you do. Just move it into Betterment and forget about it.

Actually they do - the combined Microsoft 401k fund is large enough that they can reduce fees compared to normal places. I think most of the indexes I am invested in were at something like 0.05% costs. It's similar to the benefit of Vanguard Admirals shares.

This is at Fidelity, right? You can still use the exact same investment options as when you were a Microsoft employee, you just can't add to the account. The Microsoft 401k has some of the lowest fee investment options out there, so when I left MS and analyzed my options, I decided to leave my money in there instead of rolling it over. Do you have a NetBenefits account for the website? If not, you'll have to call Fidelity, but they should be able to sort you out pretty easily.

Thanks ... this is useful info. I was thinking I'll park the cash in a low-cost market tracking fund. I think markets are overvalued now but better to do this now than waste another decade :/

Roll all of your 401K's over into a single Roth IRA. I lost track of one for years until I went to work for another company that had a 401K with the same firm as my previous employer. It's easier to keep track of and mentally manage and last time I was in a 401K you are limited to a specific hand picked set of funds that may or may not be that great. Invest the Roth IRA 100% into index or age specific target retirement funds, off the top of my head there's a Vanguard 2040 or 2045 fund or equivalent at other mutual fund companies.

>>Roll all of your 401K's over into a single Roth IRA.

In the US, Roth contributions are made with "after-tax dollars", while 401K contributions are generally made with "pre-tax dollars", so if you rollover the 401K into a Roth, the IRS will see the rollover (aka "conversion") as a bump in your income and ask you to pay tax on the rollover amount, with the remainder/net going to the Roth IRA.

I still think a Roth conversion is a good idea for self-directed investments, but folks should be aware of the incoming tax bill.

[1] https://www.investopedia.com/articles/retirement/09/roth-401...

You can pay the tax bill separately, which is a better move than letting it come out of the rollover amount if you have cash to afford it.

I still don't understand why you'd convert to Roth.

My tax rate will be higher while I'm working and earning a salary than they will when I'm retired.

Also, by keeping the base amount higher (pre tax), won't I have more growth than compared to the after-tax amount?

One reason for Roth would be if you think tax rates will be higher when you retire.

It'll be more absolute dollar value of growth, but wouldn't be higher in percentage, and taxes are going to come out as some percentage of any money that was put in pre-tax at the time you withdraw.

If you didn't work the entire year or your income was otherwise variable (bonuses or whatever other reason) then it makes more sense than usual to do roth contributions, or rollovers/recharacterization from traditional to roth, in lower-income years. Assuming you can afford to, and want to maximize what you put into tax-advantaged accounts.

The annual contribution limits are also on dollar amount that goes into the account, so if you're maxing out then you can get more out of a roth ira/401k overall. Not all companies offer the choice of roth on their 401k plans, which is a little annoying.

Not sure if you actually want financial advice but here goes:

Buy a low cost diversified ETF. Take all your options, sort on management expense, and read the description. Not sure about your personal preferences and needs, but you're still young so you can be relatively risky. Buy 75% of the cheapest diversified stock fund and 25% of the cheapest diversified bond fund.

It doesn't have to be too complicated. You just have to not make very bad decisions (all stocks a year before retirement, or all cash for decades). And avoid high fees

If you want a simple answer, consolidate by rolling all your legacy 401k accounts into a robo-advisor that handles traditional IRA accounts (ie 401k).

A robo-advisor is a tech company in the financial space. They provide one-size-fits-all opinionated investment strategy (ie they do not let you pick individual stocks etc, you respect their overall portfolio strategy) that is not actively managed (ie they buy "the market" instead of individual stocks). As a result you will be diversified and you pay extremely low fees (many company 401k plan funds have horrible fees that completely take advantage of you).

Personally, I use betterment (https://www.betterment.com/). I approve of their investment portfolio strategy (https://www.betterment.com/portfolio/) and their fees are significantly below the fund choices I have in my company's 401k, so it is a good fit for me.

The one decision betterment does allow you to make (again the goal is simplicity), is your stock/bond allocation. Allocation strategy is a bit outside of the scope of this response, but to keep things simple I'll say anything from 70% stocks/30% bonds to 80/20 stocks/bonds is probably fine.

If you have further questions, or want a more "complicated" answer, feel free to email me directly (check my profile page). I'm an engineer, not a financial adviser, but I've been actively interested in personal finance for a long time now.

Step 1: Dump it all into cryptocurrencies

Step 2: ???

Step 3: Profit!

Seriously though, everyone has given very solid advice. As mentioned, the first thing you should do is consolidate all 401K accounts into a single IRA (or Roth IRA if you're hedging against much higher tax rates in the future).

Also, consider setting aside 10% of your IRA to play/learn/speculate with. By this I mean investing in funds or direct stocks in areas that you have an outside interest in (e.g. tech, clean energy, socially responsible, geographic region, etc). Due to your interests in this area outside of pure personal finance, you may be motivated to learn more about investing in general - which is always a good thing and will be more important as you begin to pull money out of your IRA during retirement.

Look at the returns for each of your 401's. Move your money from the poorly performing funds to the well performing funds. If your top-performing funds have about the same return, keep things diversified.

> At what point does personal responsibility kick in?

That only kicks in for people with IQs >= 120 and good mental self control. So basically never.

Speak for yourself ;)

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