Ask an author: David Loeper here to answer your retirement planning questions!

[davoscat]

Originally Posted by David Loeper

One of the few places I'm not a misfit!

I don't know. You might have to prove yourself in this thread David. Come on join the dork side!

[gr8fl1]

David,

You are doing such a great service for us! Thank you for sharing your wealth of knowledge and allowing the playing field to be more level.

My question is as follows: Which is better to invest in - 457 that is not matched or a RothIRA? I am not sure if paying taxes now is better than later, although websites always say I will be in a lower tax bracket when I retire (I hope to be making more money when I older, so that confounds me).

Your answer is truly appreciated.

[sancho]

hi,

through a series of family medical and financial emergencies my wife and i managed to rack up large credit cards debts. we are working hard to pay these off as they certainly are a burden. but i'm wondering if it would be better to take out a loan from my 401k and pay off, or at least pay off the majority of this debt so that we can get a handle on it.

i am 55 and have about 150,000 in my 401k account. i don't plan on retiring and using this money but rather i want to retire and start a second career. i've not figured out what this may be yet. i quit my job three years ago, an ill planned attempt to begin another career and used my pension money to help. the business failed and luckily i was re-hired by the same company, only this time in a management position. i am now vested. but still, a couple of years ago when i asked the hr manager to compute my retirement...it was pretty small. hardly worth it to stay until i'm 65 for just a few hundred dollars more a month.

but by cutting down on the credit card debt and paying back the loan, i could be in better shape to start a new career when i'm 59 or 60.

is this a good idea or not?

[David Loeper]

Originally Posted by Brandonsc

Fantastic service you're providing here David. Thank you for answering our questions. Your website sells financial software to financial planners. Does that mean you have a lot of experience dealing with financial planners?

There are so many different types of financial planners out there with various designations and certifications. I've seen so many different ones and upon research some of them look like scams. Which ones do you think are legitimate?

My wife's 401(k) is a mess. I'm definitely buying her this book!

We have a lot of experience in trying to get planners to give objective advice.

You are right there are a lot of "scam" designations out there, but unfortunately even the "non-scam" ones don't really help you much. CFP, CIMA, CFA, CPA are all legitimate designations, but just because an advisor has that designation doesn't mean they will be a help to you at all. All it means is the person could pass the tests.

Here are some simple tests I'd use when interviewing an advisor:

1) If they ask you how much more you can save, WITHOUT asking if you would like to reduce how much you are saving...skip them. They are focused on maximizing the amount you are investing to get higher fees, not focused on giving you rational advice.

2) If they ask you your "risk tolerance", ask them if they will position you in an "optimal portfolio allocation" for your risk tolerance. If they say, "yes" then skip them. (They should say, it depends on your goals, automatically positioning you in the highest risk tolerance portfolio allocation regardless of whether it makes sense for the goals you are trying to acheive means they will probably position you in a portfolio with needless risk.)

These two items are really big red flags to avoid if you really want objective advice about your portfolio and goals, regardless of their designations.

[David Loeper]

Originally Posted by Megan

Thanks for the book, David! Can't wait to read it and figure out how I can better manage my 401(k)!

I hope you enjoy it and can make the most of your life.

[David Loeper]

Originally Posted by davoscat

I don't know. You might have to prove yourself in this thread David. Come on join the dork side!

I haven't proven it yet????

[David Loeper]

Originally Posted by sethlcd

I bought a copy over the weekend after reading David's warnings about hidden fees. He sounded like a really sincere guy in the forum so I thought what the heck. The book gives a lot of concrete action steps. Thanks for a great resource Wise Bread.

I do have a specific question about the book. It comes with three post cards addressed to David's company. The book says you can fill out the cards with the name and address of your company's 401k admin and he or she will get a free copy.

I have three questions:

1. Can I only send this book to my company's plan admin? Can I use the post cards to send free copies to someone else, like my parents or a friend.
2. Will the recipient of the book receive advertisements or have their names or information sold to another party?
3. How long does it take for the other person to receive the free book?

Actually I have one more question. How do you make money by giving away so many copies?

1) You can send the free copies from the gift cards in the book to whomever you want. We designed it to make it easy for you to get some of your coworkers to help in your cause of getting broken 401k plans fixed.

But, when you send the gift card request to us, we can't tell if the person is the 401k administrator or not and all we do is process it and order on Amazon.

2) We do not send advertisements to those you request receive gift copies nor do we sell their contact information or anything like that. We just send them a book with either your gift message (or the standard one if you don't provide a custom gift message). The only people we contact are those that ask for personal assistance by submitting the request for contact from the first of the four cards, and then all we do is call them once as they requested.

3) How long it takes to receive the books depends on the post office. We process the gift orders within two business days of receiving them and they get shipped second day delivery. But, we only seem to get the gift card replies from the post office every week or two. So...it could be a couple of weeks before the book gets to the intended party.

4) We don't make any money on the book. We are donating the net profits from the book to Virginia Tech. There is enough in royalities from each copy sold to send 3 free copies for others without us losing money. Most buyers unfortunately do not take advantage of the free copies though.

[David Loeper]

Originally Posted by gr8fl1

David,

You are doing such a great service for us! Thank you for sharing your wealth of knowledge and allowing the playing field to be more level.

My question is as follows: Which is better to invest in - 457 that is not matched or a RothIRA? I am not sure if paying taxes now is better than later, although websites always say I will be in a lower tax bracket when I retire (I hope to be making more money when I older, so that confounds me).

Your answer is truly appreciated.

Well...your point is a good one and some of my other replies make mention of this. Aside from what your tax bracket will be in the future (no one actually knows this, so it is an uncertainty) there is also the issue of the immediate certain tax savings now, and how long growth on the additional pretax dollars might be able to grow, and at what rate (another uncertainty.)

I'd be cautious of any easy rule of thumb because invariably it will be wrong for some people. It depends completely on your situation.

If you are in a high tax bracket now, it might make sense to shelter that income from current taxation with the 457, especially if you are a long time away from needing to withdraw it.

If you are currently in a low tax bracket, or close to needing to make withdrawals, or both, the Roth might be a better option.

I wish good, objective answers could be as easy as bumper sticker, but unfortunately, there are usually numerous examples as to why cookie cutter conventional wisdom is not all that wise.

[David Loeper]

Originally Posted by sancho

hi,

through a series of family medical and financial emergencies my wife and i managed to rack up large credit cards debts. we are working hard to pay these off as they certainly are a burden. but i'm wondering if it would be better to take out a loan from my 401k and pay off, or at least pay off the majority of this debt so that we can get a handle on it.

i am 55 and have about 150,000 in my 401k account. i don't plan on retiring and using this money but rather i want to retire and start a second career. i've not figured out what this may be yet. i quit my job three years ago, an ill planned attempt to begin another career and used my pension money to help. the business failed and luckily i was re-hired by the same company, only this time in a management position. i am now vested. but still, a couple of years ago when i asked the hr manager to compute my retirement...it was pretty small. hardly worth it to stay until i'm 65 for just a few hundred dollars more a month.

but by cutting down on the credit card debt and paying back the loan, i could be in better shape to start a new career when i'm 59 or 60.

is this a good idea or not?

Based on your history, I'd be careful about taking the 401k loan. While it is better to pay yourself interest than someone else (normally/often), there are some risks you really need to think about.

How secure is your job? If you are downsized, or you leave to start another job/second career, your entire 401k loan balance would be subject to penalties and ordinary taxes, and it doesn't sound as though you have the money to pay for that.

Also, is there a risk of more medical and financial emergencies? If there is, you might end up with both a 401k loan and high credit card balances.

As you can tell, I'm not normally a rule of thumb advocate, and personally I disagree with the notion that 401k loans are in general "bad" but, that doesn't mean they are all good either.

I'd avoid the temptation to dip into your 401k through a loan unless one of the following are present:

1) You would have other securities or resources that could be used to pay off the loan in full if needed due to a job loss.

2) You have very low risk of job loss (i.e. you are a tenured professor...pretty much anything else would require #1 above otherwise for it to be worth the risk.)

3) Your credit rating is so poor that you can't take advantage of all of the teaser offers from credit card companies for balance transfer AND this is the last resort to avoid bankruptcy due to the heavy debt burden. This is a gamble, but if you are at the end of your rope, sometimes that is all you can do.

Loans from 401ks can make sense for a lot of reasons (mostly a lower cost of financing) when you have other resources to mitigate the risks.

Have you looked at your hardship withdrawal provisions for your 401k (if any?) This might enable you to avoid the penalty tax.

[davoscat]

Originally Posted by David Loeper

I haven't proven it yet????

Being really smart about investments does not make you a geek. It just makes you spiffy.