What is the worst thing that can happen if I get a 401K?

Question

All I know about this plan is that you are pretty much setting money apart for your retirement. I'm 24 and I know it's never too early. My biggest fear, however, is that something may happen to that money any time between now and until I'm 59... I mean, what if the money gets lost or something? It's even scarier that the company's disclaimer says that the 401K can be taken away any time-- or something like that. What if the market crashes? I don't know... I'm afraid of setting apart all that money I could be using now, only to lose it due to some national tragedy. Is this even possible? I need help!

Answer 1

You will be fine. Make sure you distribute the money to different accounts, stocks, bonds ect. Its really free money because you company will match your deposit up to a certain percentage. I say set up a meeting with your human resources manager and ask all the questions you have.  

Answer 2

When you invest in a 401k, you're taking today's dollars out of your gross pay and investing those pre-tax dollars into some interest-bearing fund. This may be something low-risk, low yield like a money market account or high-risk, high-yield like international stocks. You also get some dollar-for-dollar match from you employer (or they match some percentage of what you put into the account) right off the top. So, just by contributing to the plan, you are automatically gaining equity on your contribution.

The risk is that some of the historically high-yield plans over the long term can be very volitile in the short term. That is, one such plan might have a 10-year return history of about 15% a year, but in today's market it might have lost 10% over the last year.

But, there's a huge upside to long-term investing in your retirement: you will accumulate wealth in your retirement account for when you choose to retire and the money you put away right now is not counted as part of your income for current tax purposes (If you make $40,000 in a year and put $2000 into a 401k, your taxable income this year is only $38,000).

You can also usually change your investment choices at any time and as often as you like. About 10 years ago, I had a 401k from a previous job that I had never rolled over (I wasn't making enough a month to cover expenses if I put away a few hundred a month in a 401k). Eventually, I started making enough to put about $600 a month into the 401k. So I rolled over the $30,000 or so from my previous 401k and started making contributions again.

I spread my investments out among various funds. But, when 9/11 came around and the markets tanked, I switched to money market funds (low yield, low risk). In about 2003, when it looked like the stock market had hit rock bottom, I switched everything to high-risk, high-yield funds. The stock market took off and hit near record highs. Then, a couple years ago, there was a hiccup in the stock market and it lost about 3% in one day. So, that afternoon, I put everything back into the money market. Over the last year, I only got about 5% for the money market fund. But, that stock fund I got out of lost about 15%.

Right now, 10 years after starting out at $30,000, my 401k is at about $150,000. And, when I retire in 15 to 20 years, I expect that it will be closer to around $500,000. I'll then be able to draw from that as a supplementary source of income to maintain whatever lifestyle I can afford, in addition to other investments (real estate and stocks, mostly). And, all because I had the foresight to put some money away each month toward my retirement.

Answer 3

1. The lawyers rule.  All riteups bout save or invest gotta hav "disklaemers" tu protekt the kumpanee.  Em tri tu thank av all the thangs that kan go rong.  If em miss 1 & it happen, sumwon mae sue.

Answer 4

All these things are possible but not likely.  If the company takes away the 401k plan they dont take your money with it.  They just wont allow you to make contributions.  There is no dobut there will be market ups and downs in the time the money sits in your 401k but the best strategy in these situtuations is to keep contributing in the bad times becasue things will change for the better.  All you have to do is make your investments more consertive as you get closer to retirement.

If you ask me it is much riskier to not put money in your 401k than to put money in there in fear of the possible outcomes you have listed.

Another thing to condiser is that your company probably matces your contributions.  This means if your investments declines 50% you are pretty much in the same boat as if you had put your money elsewhere.  

Answer 5

If you are that scared about the market crashing buy a bunch of canned food and store it in a bomb shelter.  Many things can happen in the next 40years we could all be dead and the money you put in won't mean a thing.  

The market is unpredictable, but since the great depression many safeguards have been put in place to alleviate potential downfalls.  This is not to say that the market won't drop.  Any economist will tell you that a drop in the market is normal it is part of the business cycle.  

What you need to do is come up with a budget and figure out how much you need to live on and how much can afford to put into a 401k.  This is actually a good time to invest because mutual funds are on sale.  

Yes you can take it out at any time but there are fees and penalties that come along with it.  That is standard.