And I think many people think that because the market average returns are fairly good they can smooth out that average for forecasting their own projections.

Below is an example where the average annual return is 8%. One is the way most advisers calculate it – the ending total 37K. The other scenario, also with an average return of 8% is $27K. And this is only over ten years with small sums of money and not counting the unknown tax rates or management and brokerage fees for ten years from now.

Starting investment = 10,000 + 1000 added per year, tallied at end of year.

Year S&P 500 return Year end balance
1 8.00% $11,880.00
2 8.00% $13,910.40
3 8.00% $16,103.23
4 8.00% $18,471.49
5 8.00% $21,029.21
6 8.00% $23,791.55
7 8.00% $26,774.87
8 8.00% $29,996.86
9 8.00% $33,476.61
10 8.00% $37,234.74
Av annual return 8.00%
total $ $37,234.74

Here is that same average annual return may lumpy.
Year S&P 500 return Year end balance
1 22.00% $13,420.00
2 25.00% $18,025.00
3 24.00% $23,591.00
4 40.00% $34,427.40
5 11.00% $39,324.41
6 8.00% $43,550.37
7 -12.00% $39,204.32
8 -5.00% $38,194.11
9 -25.00% $29,395.58
10 -8.00% $27,963.93
Av annual return 8.00%
total $ $27,963.93

Talk all the crap you want about people who bought McMansions when they could barely afford to buy McHappy Meals, they deserve it… but don’t piss on old people who had the retirement rug jerked out from under their feet time and time and time again.

This article wasn’t really up to what I have come to consider as your standards. I think you’re better than this, both as a writer and a person.

My husband and I got lucky. We withdrew a large portion of our mutual funds and put the money into a real estate purchase that has held its value quite well, (we don’t live where that the real estate bubble really hit). My nephew the stock broker thought we were making a terrible decision and called my sister to get her to talk us out of it. We held firm, because the purchase had a moral imperative for us. It really turned out to be the right thing to do in both the moral and financial realms.

At the lowest point last fall, our remaining mutual funds were worth just about half what they had been, and our real estate appreciated slightly. Moral of the story, yes, diversify, but nobody has a crystal ball. Wise investors can get caught. It happens.

What’s the new plan of action? If your company 401k plan stinks, I mean to the point no matter how much you look at it and try to manage to get the best out of it, how do you manage that? I’d say get the match and dump all the money mostly in safe funds to preserve your original investment plus the match. Use the self managed IRA to foot the rest of it, and shove some cash if there is any left over into a bank or banks buying bonds, money market funds, etc. Do people need to be smart enough to figure that out? Yes, they do.

I’m talking about a brand new way of looking at work. People are not able to stay at their jobs for more than a few years at a time these days, dumping in 10% of income into a crappy 401k plan in high fee funds with very little returns the first years would eat up the money invested and the company match if there is one, only to leave the job in a few years? That doesn’t even make sense.

Also bear in mind that shoving the money into banks and what not would be taxed on any interest earnings, unlike defined retirement investment plans. How on earth would people get the best bang for their bucks? It’s a lot to think about when people are just barely getting by their jobs.

Another point that stood out to me was that these people didn’t expect to pare down their lifestyle much once they entered retirement.

My generation (I’m 67) grew up on the idea that SS, savings and a pension would be there for us. The idea that pensions would go away and be replaced by investments was daunting to many.

Personally, I only invested in an employer investment plan(403-b) because I wanted them to pay what I was worth & that, I thought, included the match! I have an MBA, so I learned to actively manage and balance my portfolio. Lots of others didn’t.

In my thirties, IRAs came on the scene. We immediately maxed out our contributions. As a nonworking spouse at the time I was allowed the magnificent sum of $250 a year. AS the working spouse he was entitled to $2000 a year. The new company also had a 401K allowing you to buy company stock. No pension plan. 15 years later the company was sold. Now we have stock in an entirely new company, a bank, which was eventually sold to another bank, which is now virtually worthless also. Fortunately (sort of) after the divorce I sold that stock while it was still worth something. Unfortunately, I only made 1/3 of his income. Well, I can work some overtime and keep funding that IRA.

In my forties I joined a company that had a defined benefit pension and a 403b which I maxed out. In my fifties they froze the pension and are now in the process of dismantling the matching. You have your choice of 5 really crappy funds. I am now funding a Roth IRA as much as I can afford. I also have about $100K stuck in funds that I can’t change without quitting my job, which is a restriction I totally do not understand.

So Trent, every single decade of my life so far the retirement scenario has completely changed its rules. What were wise choices at the time they were made, were made fruitless when either the circumstances of life changed or the rules were changed by either the government or the company or both. You are still young Trent, you have a lot to learn about life. Don’t be criticizing people who made choices that turned out poorly because the rules were changed in the middle of the game.

But it takes five minutes of investment research before a complete neophyte is told, in big bold letters, the closer they are to retirement, the less volatile their investments should be.

People started doing the math on 8% returns per year in stocks, got greedy, and got burned. I don’t want to leave anyone in poverty, but we’ve got a funny idea of what constitutes poverty in this country.

Vanguard 500
10/15/1999: 115
10/16/2009: 100

So, that core is down more than 10% (yes, doesn’t count dividend reinvestment, but also not in inflation adjusted dollars….)

So, yes, personal responsibility, but also compassionate to all who’ve been hit….

Nobody knows how to do everything. That’s why we’re better off with all the citizens having a say instead of a cadre of “experts” who can’t see outside their little silos, or a tyrant.

All of the emphasis on quarterly profits and short-term gains, and the pedal-to-the-metal maximizing of employees to make the most gain for their “shareholders” (read executives) makes me sick.

I have a 401(K) that is not matched, and that has crappy options. I have 60 percent in a money market fund. I have put the maximum in a SEP IRA. The fact that company X’s or company Y’s stock increases is not necessarily connected to any real value. The stock market is all about making profits for the financial industry, otherwise, the quarterly this and that would be minimized compared to long-term goals.

A huge amount of money each month is funneled into the stock market and to financial entities thanks to employee payroll deductions. It keeps the markets propped, but may fall fast when boomers are not contributing

The dismantling of pensions and the ascent of stock investments was a gift to corporations and the financial services industry. As for the actual people affected, let them fend for themselves. Even a chimp throwing dice at a stock market ticker can fare better than the paid money managers.

We will continue to have “the best government money can buy” (Gore Vidal said that) until we have publicly financed elections.

“To me, it’s similar to someone who decides to install a window without knowing what they were doing and cuts a giant hole in their house. Should I feel sympathy for them? Should society jump in and fix their house?”

So in other words, you’re saying the person who doesn’t know how to install their own windows should turn to professionals? Which is what everyone who was doing 401Ks were doing.

At the risk of repeating myself, I have two Master’s degrees and I find this stuff confusing. What about the factory worker who works hard but had to struggle to graduate high school? They’re supposed to figure out all this stuff? Some people are simply less intelligent and simply less capable of understanding this stuff no matter how hard they try.

What about the single mother who works two jobs? She’s going to learn this stuff how and when? You worked hard on your blog but you also got lucky, with the result that you can now spend a huge amount of your time on this. Most people cannot.

Remember, employers were advising employees to use 401K plans. Employers people trusted were advising them. Every financial planner in the country — the equivalent of the window professionals — was saying to use these things.

For all of those who say “they just should have invested elsewhere”, well, personal investing wouldn’t have gotten the tax breaks that 401Ks had.

I’m impressed with what you’ve accomplished, but I’m seriously unimpressed with your lack of empathy. Not everyone has it as good as you do, even people who have worked hard their entire lives.

For those who argue that 401k plans (and presumably any other self-directed retirement plans) don’t work because too many people cannot spare the time or lack the ability to undertand investing and therefore need the government to secure their retirement, I have this question:

Are those people supposed to get a vote equal to mine in electing the government officials who will run, supervise and tax me to support whatever alternative you want?

If people are not educated or intelligent enough to assume personal responsibility for their own lives, how can they possibly be educated or intelligent enough to choose the people who will do it for them?

And if they don’t trust their own judgment as it applies to their own lives, why must I trust their judgment in electing those who will rule my life?

We either are a democracy of fully responsible citizens – if you’re old enough and smart enough to vote, you’re old enough and smart enough to take responsibility for your life – or we need to accept that an elite aristocracy will be doing the real deciding for us, and the whole “voting” gig will be about choosing the celebrities who will be the popular face of that aristocracy. I prefer the former, but it does seem that a lot of people are ready to surrender their autonomy to the latter.