401-K: To Rollover Or Not To Rollover There are too many variables and possibilities for me to write up a complete description let alone an analysis right now. Difference in tax rates post-retirement, number of years until retirement (at which point you should switch to IRA since the 401(k) then offers no more deferral of RMDs), number of anticipated years of life (not IRS tables), type of beneficiary (spouse or other), expected rate of return (and variability of returns).
Broad picture - the more your tax rates drop in retirement the better off you are in keeping the money in the 401(k), since that will avoid RMDs until they're taxed at the lower rates. That tax savings can more than compensate for the extra fees in the meantime.
If there's no change in rates, the picture changes. Each year you pay $8K in taxes using the IRA, meaning you have $8K less earning returns. Keep the $500K in the 401(k) and you have $4800 less due to fees that can earn returns. So you've got about $3.2K more with the 401(k) sitting there earning returns.
But while the $4800 loss to fees in the 401(k) is permanent, the loss of an extra $8K in taxes with the IRA is temporary. Keeping the money in the 401(k), sooner or later, you'd still withdraw the $20K, post-retirement, and pay the $8K in taxes then.
I don't have the time right now to delve more deeply into this. Gut feeling is that a sizeable post-retirement reduction in tax rates would justify keeping the money in the 401(k). Otherwise, moving the money to the IRA may come out better.
Janet Yellen to Reassure Bankers NO BANK is totally immune to a run in deposits. It's simply the innate nature of the beast. It's a bug, not a feature, and this is not a secret.
From Matt Levine, in his Bloomberg
Money Stuff column:
Banking is a confidence trick. You put money in the bank today because you are confident you can take it out tomorrow; to you, a dollar that you have deposited in the bank is just as good — just as much money — as a dollar bill in your wallet. If you show up at the ATM at any time of day or night, you expect it to give you your dollars.
But the bank doesn’t just put your dollars in a box and wait for you to take them out; the bank uses its depositors’ money to make loans or buy bonds, and just keeps a little bit around for people who need cash. If everyone asked for their money back tomorrow, the bank wouldn’t have it.
But everyone is confident that, if they ask for their money back tomorrow, the bank will have it. So they mostly don’t ask for it, so when they do, the bank does have it. The widespread belief that banks have the money is what makes it true.
This is obvious stuff. Also obvious, and famous, is that it is an unstable equilibrium. If people stop believing it, it stops being true. If everyone stops believing in a bank, they will all rush to get their money out, and the bank won’t have it, and their lack of belief will be retrospectively justified. Whereas if they had kept believing, their belief would also have been justified.
Isn’t this ridiculous? But there is a deep social purpose to the confidence trick. Banking is a way for people collectively to make long-term, risky bets without noticing them, a way to pool risks so that everyone is safer and better-off.
You and I put our money in the bank because it is “money in the bank,” it is very safe, and we can use it tomorrow to pay rent or buy a sandwich. And then the bank goes around making 30-year fixed-rate mortgage loans: Homeowners could never borrow money from me for 30 years, because I might need the money for a sandwich tomorrow, but they can borrow from us collectively because the bank has diversified that liquidity risk among lots of depositors.
Or the bank makes small-business loans to businesses that might go bankrupt: Those businesses could never borrow from me, because I need the money and don’t want to take the risk of losing it, but they can borrow from us collectively because the bank has diversified that credit risk among lots of depositors and also lots of borrowers.
But the basic problem remains: the confidence trick, where trust in banks makes them trustworthy and distrust in banks makes them fail.
Bankers and bank regulators tend not to talk in these terms... because talking about it ruins the magic. But they know it in their bones; at a deep level they understand that preserving that confidence is their most important job.
More specifically they know that if there is a run on a bank, and that bank goes bust and doesn’t pay depositors, then there will be a run on other banks. And they know that the run can start with a bank that is bad, that is undercapitalized and made poor decisions and in some sense deserves to fail, but that it can spread to other banks that are good.
And they know that “good” and “bad” are not really the things that matter: What makes a bank good is not just its capital ratios and liquidity position but also confidence, and however good the ratios it is hard for a bank to survive a loss of confidence. They know that they are all interconnected, that they are players in an essentially social game, and that the goal of the game is not to win but to keep playing.
The above are edited excerpts from Matt Levine's Money Stuff column of March 17, 2023. Text emphasis has been added.
Just noticing such tremendous VOLATILITY in the Markets, "that is all." @larryB- thanks much. Like you, minimalist on vehicles/keep forever.
Years ago AAA had an inspection service that would certify a vehicle for a buyer or seller, and you could trust them. Haven't heard about anything like that in a long time.
PIMCO and Invesco Among Biggest Losers in Credit Suisse AT1 Bond Write Down +1 Invesco bought Oppenheimer several years ago. Some of the excessive risk taking in fixed income appears to have come along for the ride. Relieved to have so little with them at this point. Suspect one fund I still own may have been adversely affected. A year ago it surely would have hurt quite a bit more. Hope somebody publishes a list of which specific funds got hammered / degree of exposure each had to these ”idiot bonds.”
I’ve added a story to the OP which cites Lazard and Fidelity among those with substantial holdings in these bonds.
Just noticing such tremendous VOLATILITY in the Markets, "that is all." I like to sleep well at night. 10 years in bucket #1 is the best sleeping aid.
My allocation model is so fragmented & complicated that I fall asleep at night just trying to figure it all out.
Great sleep inducer.
I’ve been burned more than once on used cars, Usually buy new. Then I know what I’m getting. There’s an old expression that when you buy used you’re “Buying somebody else’s problems.”
Morningstar charts not working :) - Since according to
@NumbersGirl this is a paid subscription service I guess you have a right to bitch. For the freebies out there - including some M* functions - I takes what I can get. M* did me a favor when they eliminated their free portfolio tracker. What I use now, for only a few dollars a month from Apple’s app store, is light-
years ahead of what M* offered. It’s been a tremendous help for this “allocation nerd”.
Just noticing such tremendous VOLATILITY in the Markets, "that is all." The car that was totaled was a CPO that was flawless for three years. That’s why we went back to the same dealership and bought a 3 year newer version of the same car, even the same color. Shit happened. But we were lucky we caught the non inspection and demanded our own inspections
ETNs in 2023 @yogibearbullI recall 10-20
years back, that some 'stable value' choices found within 401k/403b plans may have contained ETN products; synthetic bonds, so to speak; as I named them.
--- The bonds in such a fund are sometimes called "wrapped" bonds, referring to the fact that they are insured. The insurance is commonly issued in the form of a so-called synthetic guaranteed investment certificate (GIC). ---
During the 2008 melt, a friend received a letter stating that 'one shouldn't be concerned about the safety of their underlying 'stable value fund'.
At the time, even some insurers were not very stable. No back up for the back up, for the back up. The musical chairs problem and who is remains without a chair.
Wondering today about ETN's stuff inside such funds.
Just noticing such tremendous VOLATILITY in the Markets, "that is all." @crash. Thank you for your concern. I was sore and the airbag cut my hand but no great harm. We liked the car so much that we bought the same car,,, three
years newer. Big out of pocket. It was a CPO car but I figured out it had never been inspected. Had it checked out and it had low compression. The dealer took the car back. The next day it was back on the lot as a CPO car. Buyer beware.
CPO?
Glad you're pretty much ok, physically.
Just noticing such tremendous VOLATILITY in the Markets, "that is all." @crash. Thank you for your concern. I was sore and the airbag cut my hand but no great harm. We liked the car so much that we bought the same car,,, three
years newer. Big out of pocket. It was a CPO car but I figured out it had never been inspected. Had it checked out and it had low compression. The dealer took the car back. The next day it was back on the lot as a CPO car. Buyer beware.
Morningstar charts not working How many years later, and 'Morningstar' + 'not working' is still a thing? Asking as a longtime former M* user.
Others may not be aware of all the history, eh?
Just noticing such tremendous VOLATILITY in the Markets, "that is all." @sma3….. +1. Retired without a pension too. I like to sleep well at night. 10
years in bucket #1 is the best sleeping aid.
Just noticing such tremendous VOLATILITY in the Markets, "that is all." Most people agree that the worst negative impact is to have to sell equities at the bottom because you need the money to live on. So you should not have money in the market that you will need to live on for the foreseeable future.
The question is always "how long is the foreseeable future". A very long time it turns out.
I looked at DJA and SP500 worse case losses over last 100
years and how long it took to get back to peak and stay there.
Pundits usually say five
years of expenses is enough to keep you from selling at the bottom, but this ignores the two "double bottoms " ie in the 1930s and 1970s when stocks crashed again and the "lost decade" of the 2000s
It took 10
years for DJA to get past it's peak in 1973. It took 13
years for SP500 to get past 2000 peak.
Our good buddy John Hussman believes we could be in for a 60% decline from here.
https://www.hussmanfunds.com/comment/mc230319/So I try to ensure I have enough cash and bonds ( after accounting for Social Security and dividends etc ) to live on for at least ten
years. I am retired without a pension, so what I got is all I am going to get!
Morningstar charts not working How many years later, and 'Morningstar' + 'not working' is still a thing? Asking as a longtime former M* user.
UBS Agrees to Buy Credit Suisse for More Than $3 Billion @LewisBraham, when Dutch giant ING got into trouble during the GFC 2008-09 and had to be rescued by the Dutch government, one condition was to refocus on core businesses. It ended up divesting its US operations (noncore):
ING insurance and asset management businesses (US) went to Yoya Financial/VOYA.
ING Direct (US online bank, that itself had origin in the failed online NetBank in GA) went to Capital One/COF. Unluckily or luckily, I stayed through all these transitions after my early find
years ago that NetBank offered FREE wire transfers - that didn't last long!
We don't know all details of the UBS takeover of CS, but there may be similar conditions by the government or by UBS. CS in the US already had a lot of controversial M&A history - First Boston, Warburg Pincus (asset management unit), Donaldson Lufkin Jenerette.
https://en.wikipedia.org/wiki/Credit_Suisse
Right Now: Treasuries vs CDs This morning there are fewer CDs (1 year) available this morning at Fidelity and Vanguard. On last Friday, there were many more choices. Stayed with large banks only - Morgan Stanley, UBS and Barclays.
Will wait after March 22th FOMC meeting to see if treasury will return. Two weeks ago T bills were yielding over 5.2% (6 mo) and 4.8% (2 years). Just like that they were all gone.
It is time to refocus on investment grade bond funds since corporate junk and bank loan funds took a sizable hit this week.
