There’s also, as I eluded to, especially for “nesters” an ROI that isn’t measurable mathematically. The “peace of mind” thing for them that the lower rung of Maslow’s hierarchy is handled, barring a huge storm destroying the place. And even that can be mitigated relatively cheaply with homeowner’s insurance with full replacement value, if they’re really concerned about it.
Peace of mind is important, but it needs to be a good financial decision, too.
I’m generally anti-debt but if someone really really must do this sort of loan I always counsel them to think hard about their specific industry and job. The chances I would ever work more than seven years at a company in tech are abysmal in real world numbers. The chances I would find another job are fairly good however.
For anyone in an unstable job or industry, 401K loans with their forced payment upon job loss, are a really big risk, and worse when you add on the tax penalty.
Younger folks I’ve seen use them who lost jobs then WAY too often decide that cash is tight while looking for the new job, so just let the thing pay itself off from retirement money and go ahead and withhold the taxes, and they don’t notice until tax time that they lost 40-50% of what they earned and put in there.
It’s set up to be way too easy to be distracted by the immediate cash flow “emergency”, especially for lower salary workers, and just accept the penalty and not think about how freaking much money just got flushed.
Debt is a tool, nothing more, nothing less. Used responsibly and properly it is not a problem. Used irresponsibly and it can be a real problem. Likewise retirement plans - under some old pension systems (including the old Fed system), one could leave and take their contribution money out. Often that's not a wise decision, but under some personal circumstances, it's a fine decision. Likewise NQ executive compensation deferred plans - those require that you take the money out when you leave the company - sometimes it makes sense to reinvest, sometimes it makes sense to use it as a severance package.
Some here are likely millionaires. I had an Edward Jones guy come to my door at the city house, and I doubt he was one. I think I’ll take advice from rich people, not broke people. But you do have to decide if they’re blowing smoke up your ass, either way. Ha.
I know who I won’t take financial advice from over ANYONE on PoA. My family. Good lord. I’ve tried to help. Really I have. It doesn’t even register.
Being "millionaires" does not qualify one to be the bearer of advice. I know some that got their money through the lucky sperm club or less-than-ethical acts: I wouldn't trust them. I've met a couple of billionaires (with a B) that I wouldn't take advice from either for other reasons. And Edward Jones (I knew someone that referred to the company as "Fast Eddie") is not on my radar of good advisors. I mentioned qualified independent advisors. That means one who doesn't have an interest in churning or selling you more stuff.
Sometimes folks that aren't uberwealthy can provide good advice if they've been in your shoes and can help you avoid mistakes they made.
But again, YMMV. You gotta find someone that will understand your particular situation and help guide you... at the same time you gotta have enough smarts to say "this isn't right". I happen to be a big fan of dollar cost averaging in investments, yet I've met a couple of advisors telling folks to lump-sum invest everything at once without regard to the market. Are they wrong? Dunno, just a different opinion, but in the kind of frothy market we have right now, averaging will tend to reduce risk. YMMV.
They’re not totally gone. I have a railroad buddy who’s going to make BANK in retirement on his pension. Also know multiple double dippers who did military or civil service long enough to qualify for a pension and then took new civil service jobs to do another 20 years. They had to plan it right and be a tiny bit lucky that their specialities were in demand, and I suppose trust that the taxpayers will bail out the failing pensions. But they have a promise on paper anyway. Whether it’s made good, remains to be seen.
Yeah, there are a couple of places where they still exist - primarily state and local governments. Even the Feds stopped doing it. Some heavily unionized industries still have them, but many have gotten rid of them (one reached a settlement with employees that required them to make extra contributions to the 401K/SIP for certain employees to compensate for no pension - that was a pretty sweet deal). Certainly there's a risk to the retirees.
But again, see above for commentary on listening to rich people and not broke people for advice. Someone can offer information on a forum that hints they know what they’re talking about without posting their net worth. It’s helpful when figuring out who’s advice is wheat and whose is chaff.
I stand by my comment that being rich in and of itself doesn't qualify someone. Broke people aren't generally ones to turn to, either. What is needed is someone that can understand the situation and make tailored recommendations. One size never fits all.
I always assume HERE that folks do at least basic budgeting or they wouldn’t be able to afford our silly hobby. But yeah, budget is WAY before planning. If you don’t know what the incoming numbers are and the outgoing numbers, it’s impossible to plan anything.
I always joke that the real world way to get ahead is to cheat, but if you have morals, here’s the long slow boring path to wealth, even generational wealth, if you get on with it early. Investing shouldn’t be optional in your 20s, if you want to make things much easier on yourself. We invested back then but didn’t know the budget or the math and got ourselves into massive consumer debt. Utterly stupid but neither of us was ever taught finance in a simple way. We taught ourselves in our 30s. Many many mistakes. No debt and paid off home at 42 and that was accelerated by a small inheritance we’d rather not have had. Planning showed we would have done it without that by 46 or 47. Dad had retired early and was squeaking by on a tight budget until Social Security, so the inheritance wasn’t that significant in our numbers because he was essentially doing what the FIRE crowd would call LeanFIRE or maybe BaristaFIRE. He had a little part time retail job that he did barely enough hours at to buy medical insurance, which as others have mentioned, is the hardest part about any early retirement.
Basic financial education is seriously lacking in this country. Education about personal finance need to start in grade school. And worse, many parents today don't know themselves so they can't teach their kids. I was fortunate enough to have parents that taught me good financial planning skills early on (they were born before the Great Depression), including appropriate use of debt as a tool. Sure, I made mistakes along the way, but nothing so serious that I couldn't recover once I realized the error of my ways. It's a different world now, but the fundamentals are the same (same way as technology makes aviation a different world now, but you still gotta learn the basics of flight).
Income level. The government won’t give you the free taxes if you make more than a certain amount.
Thing is, the backdoor Roth “loophole” exists as well as there used to be the ability to “recharacterize” into Roths, so there’s really no real barrier to investing in a Roth if one wants to. The only serious pain in the ass for those is if you already have significant investments in taxable accounts, Roth deposits CAN trigger tax problems for people who miss that the law and the loophole say that ALL invested money is part of the tax bill.
YMMV so a good accountant is needed if there’s already a huge chunk of money in a regular IRA.
For those watching, be aware that there are Roth IRAs and Roth 401Ks - they have different rules. Had the Roth 401K been an option when I was younger, I would have maxed out in that. Later in life, with higher income, it's not a slam-dunk decision.
For most folks, if they can max whatever has a match first, Roth second, and then anything tax deferred third, they’re going to be doing great. Especially if they can afford to max all of those.
Small business owners and self employed have all sorts of other options and weirdness. Again, good accountant is worth whatever they can find that you’re doing sub-optimally for your specific tax circumstances.
If you liked the job, and stuck it out, it’s really a decent deal. Stacking on a defense contractor gig with a pension or solid 401K in “retirement” from the military is also quite common. A great way to solidly retire with serious cash flow. As long as the country honors all of it. Which, we should.
Bottom line for me: get qualified advice. Making a mistake on this stuff can cost serious money in the long run.
