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[yankeefan]

Wall Street Journal's take on how people end up like downgraded companies.  High Level, but a start

http://online.wsj.com/article/SB120588577253447091.html?mod=hps_us_inside_today

[LoanChimp]

Indeed, for the unemployed, things could unravel fast. Ms. Hart notes that debt-service payments have jumped 39% over the past five years, outstripping the 25% rise in disposable income. On top of that, the annual savings rate this decade has ranged between a meager 0.4% and 2.4%, which suggests families don't have much of a financial cushion to fall back on.

[Rancidbeef]

I once heard the "official" savings rates as distributed by the government don't include the money people put into 401k's and IRA's.  Is that true?  It wouldn't surprise me if they were still using some formula from the 60's.  If that's true, it sort of makes the savings rate numbers bogus.  Heck, I don't "save" much if you don't count my 401k.  I do invest some in mutual funds and real estate.  I don't know if that counts.

[Greebo]

I once heard the "official" savings rates as distributed by the government don't include the money people put into 401k's and IRA's.  Is that true?  It wouldn't surprise me if they were still using some formula from the 60's.  If that's true, it sort of makes the savings rate numbers bogus.

IRAs and 401ks are not liquid.

Savings rate numbers are, I believe, for liquid savings, not retirement savings.

[cubbiesnextyr]

I once heard the "official" savings rates as distributed by the government don't include the money people put into 401k's and IRA's.  Is that true?  It wouldn't surprise me if they were still using some formula from the 60's.  If that's true, it sort of makes the savings rate numbers bogus.

IRAs and 401ks are not liquid.

Savings rate numbers are, I believe, for liquid savings, not retirement savings.

I believe they also count money coming out of retirement counts on the income side.  So it'll get worse as all the boomers hit retirement and start taking money out of the retirement accounts and don't "save" anything based on how they calculate it.  I wouldn't be surprised if we had a negative savings rate for years because of this.

[Rancidbeef]

IRAs and 401ks are not liquid.

Savings rate numbers are, I believe, for liquid savings, not retirement savings.

AFAIK, I could pull money out of my 401k tomorrow.  It would come with a pretty horrible tax hit and penalty, but I could do it in an emergency.

For myself, I don't consider anything liquid as "savings".  Those are just funds for the unexpected.  The real "savings" are the retirement funds and investments.  But that's just the way I look at it... not necessarily the real definition.

[misssalaska2000]

I think you're only allowed to pull out 1/2 of what you have in your 401k if you're still with the employer to whom it is connected.

[Rancidbeef]

I think you're only allowed to pull out 1/2 of what you have in your 401k if you're still with the employer to whom it is connected.

I think that the conditions for taking out a loan from your 401k.  A loan doesn't have any tax penalty.

I think you can take money out of a 401k for medical emergencies and to prevent foreclosure on your primary residence without penalty (you still have to pay income tax on it).  I suppose I should look up the rules for other withdrawals on the IRS web site.  I have no plans to do so, but it wouldn't hurt to know the rules.

[patio11]

A loan doesn't have any tax penalty

Bzz, wrong answer.  A loan costs more in taxes than just taking the money out.  (No early withdraw penalty, though.)

Check my math here.  Assume for the sake of argument my marginal income tax rate is 25%.  I take $10k out of my IRA.  My choices are straight withdraw or loan at 5% APY for one year.  How much money do I get, and how much money do I have to put back in to restore the IRA to its original state? 

If I take the money out, then I pay 25% in taxes, or $2,500.  I then need to put $10k back in to get my $7.5k out, or $1.33 for every $1 I needed.

If I loan out the money, I get $10k.  A year passes.  My loan balance is now $10.5k.  Then I have to repay the loan with *post-tax dollars*.  This means I need to earn an extra $14k dollars to get $10.5k after taxes to repay the loan, or $1.40 for every $1 I needed.

Unless it is a matter of life and death, do NOT take a loan out against your IRA.  Your IRA is NOT a substitute for saving money against extraordinary needs, to say nothing of ordinary needs.

[mothandrust]

I once heard the "official" savings rates as distributed by the government don't include the money people put into 401k's and IRA's.  Is that true?  It wouldn't surprise me if they were still using some formula from the 60's.  If that's true, it sort of makes the savings rate numbers bogus.  Heck, I don't "save" much if you don't count my 401k.  I do invest some in mutual funds and real estate.  I don't know if that counts.

The classic retirement model is the three-legged stool of your company pension, your personal savings, and social security.

The 401K and IRA's aren't included in the "savings rate" because these replace the pensions that most companies no longer offer to their employees.

[Rancidbeef]

A loan doesn't have any tax penalty

Bzz, wrong answer.  A loan costs more in taxes than just taking the money out.  (No early withdraw penalty, though.)

Check my math here.  Assume for the sake of argument my marginal income tax rate is 25%.  I take $10k out of my IRA.  My choices are straight withdraw or loan at 5% APY for one year.  How much money do I get, and how much money do I have to put back in to restore the IRA to its original state? 

If I take the money out, then I pay 25% in taxes, or $2,500.  I then need to put $10k back in to get my $7.5k out, or $1.33 for every $1 I needed.

If I loan out the money, I get $10k.  A year passes.  My loan balance is now $10.5k.  Then I have to repay the loan with *post-tax dollars*.  This means I need to earn an extra $14k dollars to get $10.5k after taxes to repay the loan, or $1.40 for every $1 I needed.

Unless it is a matter of life and death, do NOT take a loan out against your IRA.  Your IRA is NOT a substitute for saving money against extraordinary needs, to say nothing of ordinary needs.

Well of course you have to pay it back with post tax dollars.  What I mean by a loan not having a tax penalty is that you don't have to pay taxes on the money when it comes out of the 401k.  'Course, that's true of any loan.

I agree you should never take a loan out against your IRA or 401k unless it's life or death.  I've never done it and don't intend to.  Another cost is the opportunity cost of the money not being in the account.  Sure, you get the interest you pay yourself, but you can usually do much better in the regular investment the account would be invested in.