Should I do IRA or 401k?

Question

I'm not familiar with IRA at all, but I've started my 401k last year on top of online savings account that I rarely touched (just for deposits). I put 80% of my money in low-risk and 20% in high-risk. My co-workers said that since I'm only 25, I should put majority of my 401k money in high-risk. But I've heard horror stories of people losing more than 50% of their 401k plan after they've retired because you never know what's going to happen with US' economy and politic in the future.

I also just watched Frontline's "Can you afford to retire?" and it seems like a lot of people got screwed by 401k plans. Here's the video if you're interested to watch:

http://www.pbs.org/wgbh/pages/frontline/retirement/

Am I too cautious? How's IRA really work in a simple explanation? What is the best way to invest or save for your retirement?

Answer 1

401(k) plans are excellent choices for retirement, because the money is tax-deferred and usually includes a company match.  Max-out your company match!  For example, at my company we match 50% up to 6%, so if you contribute 6% of your paycheck (maximum match), the company will contribute an extra 3%.  Anything less and your just throwing away money.

You should be much more aggressive at 25 (I'm also 25), because you have many years for the money to work in your favor.  The markets swing, but in the long-run you typically end up ahead.  Talk to a financial advisor to get sound advice.  If you belong to a credit union it might even be free.

Good luck to you!

Answer 2

If you havea 401k plan at work, you can't get any tax benefit from an IRA.  If you're concerned about your 401k investments, spend some money and find a certified financial advisor who can look at the options your company offers and tell you what's best for you.

Answer 3

Yes, you are way too cautious.  You heard horror stories about people losing 50% after they retire, what does that have to do with you?  When you get close to retirement, then you can move your money into more conservative funds.  

You can change your money many times between now and retirement.

At your age, and with the market at a BIG DISCOUNT, I would be putting heavily into stock mutual funds.

An IRA nad a 401(k) are pretty much the same thing.  The 401(k) is better because it is automatic and should have a match of some kind.

Answer 4

Your my age and I started save my money with the 401K and Roth IRA through Sharebuilder.

You can't be that conservative at our age because we have 40 years to put the money to work for us. When we turn around 50 then we start putting the money in more and more conservative options as the years approach retirement age.