3/08/2009
Things I was wrong about
I've been thinking about errors that have been exposed by this crisis. The one that I think I'm most embarrassed about is the 401(k) as a retirement vehicle. I suppose it seems obvious now, but it turns out to be entirely unacceptable (as others, I admit, said) to base people's retirements on a mechanism that might decline in value 40% (or more) almost at random due to circumstances beyond any normal person's control. Of course, investing conventional wisdom tells you to shift slowly out of equities over time, but I've never seen any investment advice recommend *no* equities, and that is the only expedient that would have saved a retirement aged person in this crisis. Now to find out what kind of employer might offer a traditional pension.
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I'm shamefully ignorant of the exact mechanics of the 401k -- do you have to pull out all the money at once when you retire? Because it seems like if you had sensibly shift the bulk toward T-bills and such, you could live on Social Security plus the proceeds of those conservative investments if you happened to retire at a bad time for the equities markets, and then wait on cashing out your equities until that market had improved. But of course this only works if you're allowed under the various rules to cash out of various parts of your 401k at different times of your own choosing and not just everything at 65.
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