IRA Question – Help
This stuff is scary. Any advice would be greatly appreciated.
Great question……Unfortunately, I am not even remotely qualified to help.
I have been visiting this site daily for the last couple of months and I am certain someone here will eventually provide some valuable feedback.
I am meeting with my IRA manager Monday morning. I am getting near my retirement years but still have several minor children and a spouse at home. Just a few months ago, I had what I considered to be a decent-sized nest egg in my IRA. Today, I have about half.
Some of my IRA money today is in Money Markets, including Reserve, which invested in Lehman Brothers. THAT part of my IRA, therefore, has been proclaimed in “lock-up.” This means I may never get it back, is my understanding. (So, maybe I DON’T really have what my most recent statement says I have.)
1. I told my IRA manager that I want out of the stock market and corporate bonds, effective immediately.
2. She asked whether I want to move all my IRA into Money Markets. But after what happened with Reserve, is it not best to stay away completely from all Money Market companies?
3. She asked if I wanted to put my IRA into CD’s. But CD’s aren’t liquid, are they? And wouldn’t they still be risky? If you put money into CD’s with a small, local bank that seems conservative in its lending policies, and if each CD savings account is “federally insured to $100,000” is that fairly safe in the current economic situation we are in?
4. She asked about putting my IRA into a Mutual Fund of nothing more than short term US government securities (a mix of T-bills and T-notes with varied maturities). Then I could cash out immediately if I wanted to, she said. But are such Mutual Funds safe? If not, should I buy my own T-bills and T-notes which might be safer but not as liquid since I’d have to wait fot their maturity dates?
I don’t suppose that any of the above options are safe over the long run but what should I do on Monday, for the interim, while I’m figuring things out???????????
I want to say that this site is new to me. This week I subscribed and went through the Crash Course twice with my family and have read everything (I think) on the website. It resonates as nothing else has. For years, I’ve been uncomfortable in my gut about my IRA but every IRA manager I interviewed was pretty much the same so I stayed with the same lady. They all (financial planners I met) seemed to believe in the system. Foreseeing no problems, they were unable to offer ideas outside the standard financial planner’s box.
I am so glad for this website. Truly, I am trying to assimilate so much, so quickly. But in 36 hours, I have to tell my IRA manager what to do … and I don’t know where to move to my IRA funds to keep them as safe as possible (or at least safer than they now are) while I try to understand and implement a new plan and with a new mindset and “the bigger picture” in mind.
P.S. Like the original poster (John), if the BEST thing to do RIGHT NOW is withdraw my IRA, pay the 10% penalties and 30% income tax and, then, invest the cash in physical possession of metals, I am willing to hear and consider that advice. So, please don’t be hesitant to share your opinions on that with me.
First, by all means read up online but ultimately the best thing is to make your own decisions based on your own research and risk analysis, because if you look hard enough you’ll find almost every possible different opinion out there.
The question of what to do with IRAs, and 401Ks etc. also, is a good question and one I’ve been examining too. I’ll just throw out some thoughts, though I’m not qualified by any means. If you still believe in the traditional "buy and hold" strategy for the long term then keep holding stocks, but those days seem over to me. If you can’t accept the risk that the Dow could drop another 50% as things unwind then exchange to something safer like treasuries (for the moment anyway). Decide if your strategy is to maximize potential growth or to protect value.
Pulling money early out of your IRA means you take a big hit on taxes plus penalties as you noted. But maybe that option starts looking more attractive compared to a total loss of value. One option, if you have some cash now to pay the taxes, is to convert the IRA to a Roth IRA. In 5 years you can withdraw that amount out (but not subsequent earnings) without penalty and without further taxes. The risk is TSHTF before 5 years is up. Note taxes and IRA rules could change in the future too, greatly impacting what is the best strategy.
Then what to do with the money, if you do pull it out. Save for retirement or emergencies? Pay off mortage? Buy gold? Buy physical things you need for basic survival? Your call.
I will share one thing I’ve done is sell some non IRA investments, which I no longer count on to give a positive return, to pay off debt, therefore saving the interest on that debt 100% risk free.
Particularly frustating is my 401K. I’ve protected it before the market tanked by exchanging from stock funds to a treasury fund, but there’s no way to get that money out until retirement, unless I quit my job, if I decide there’s a better use now than hoping somehow it will still be there at retirement. I’m even wondering if I should stop further contributions even if it means giving up the company match.
wow, did i hear that right about the penalties being waived on roth IRA contributions if you’ve had it longer than 5 years? Mine is a Roth and i’ve had it longer than 5 years. That would be great to be able to take it out now!
is that true?
Dear elcapthenose and Thunderbird-
I agree with woodman’s sentiment that in the end, we all need to research, learn, and do our own risk analyses and make our own decisions, because he’s right; every different opinion under the sun is out there right now! But we can still share our own thinking on this, and let you take it for what it is worth.
First, I think Chris or another excellent analyst (maybe Mish Shedlock?) said that the most important question to answer first is; are we going to continue heading into deflation, or -especially with all the new $ being pumped into the US economy right now with the bailouts- are we headed towards inflation or hyperinflation? The reason it is so important to try to figure that out is because you will find that the financial strategy recommended for deflation (where "cash is king") is very different from that you’d take if the outlook were hyperinflation (where "cash is trash"). You can search on investments for inflation and investments for deflation, and find specific recommendations for each.
So the trouble is, trying to anticipate where we are headed. Right now, Chris and many others say we are experiencing deflation (as evidenced by economic contraction, massive job losses, US Dollar strengthening, etc.). But there are also factors that indicate inflation/hyperinflation could be in our future (massive additions of new $ to our system, etc.). So this is a BIG question that many of us our struggling with, for the same reason as you: we need to anticipate what the economy is going to do in order to know what financial strategy makes the most sense in these times.!
Another big factor, and I am not totally clear on its relationship to the forces of "deflation vs inflation", is what is in the future for the US dollar. Many people (me included) are afraid the US dollar is in bad shape and could potentially crash somewhere down the line. I know adding more $ to the system devalues the dollar, and so all this $ we are adding right now for the bailout is not good for the future of the dollar.
But what I am less clear on is how being in deflation, as we are in at least for now, affects that. The US dollar is strengthening…does that mean it really is fundamentally more strong and less likely to collapse in the near term? Or does it just mean that the dollar is stronger because of all the deleveraging going on across the globe (loans made in US $s have to be repaid in US $s, and so US $s are in demand to repay loans now due)….and when that is done, the dollar could collapse? I don’t know, but wish I did!
And again, as woodman said, different analysts have different opinions, so you can find almost any answer out there (it is not easy to know which is the "right" one!). And it also is incredibly difficult to predict the timing of when things may happen (next week? next month? next year? 5 years from now?). But making an educated guess at this is also very important, because it impacts how safe you feel in something like short-term US Treasuries, or whether you feel the risk of the dollar crashing is severe enough to take the penalty of getting $ out of an IRA (with the penalties and taxes), just to get the option of investing in somethings (potentially!) safer, like physical gold or silver.
I think that is why you will often see people on this site say that each person has to do their own due diligence, try to learn for themselves. I don’t think that is meant to be unhelpful, so much as to acknowledge that no one knows for sure where things are headed and what the best moves will be, and so it is incumbent on each of us to try to understand things the best we can nd take responsibility for our own choices.
Hi elcapthenose and Thunderbird-
Here are a couple of links that you might find helpful. They have discussions about good investements for a deflationary environment vs an inflationary or hyperinflationary environment:
"How does one invest for inflation and deflation?" Mish Shedlock: http://globaleconomicanalysis.blogspot.com/2007/12/how-does-one-invest-for-inflation-and.html
"Best investments for a deflation environment", Bogleheads investment forum: http://globaleconomicanalysis.blogspot.com/2007/12/how-does-one-invest-for-inflation-and.html
Also, are you subscriber’s to Chris’s website here? If so, check out his latest Martenson Report, dated 7 November 2008, "Post Election Blues". You’ll find the link to it right on Chris’s home page. This report has Chris’s general recommendations for what people should do in this type of deflationary environment. Please note that these are not detailed, specific investment picks. But it is very helpful advice in terms of laying out a high-level strategy (asset allocation).
Best of luck!