Wednesday, January 28, 2015

Working Myths: The 401(k) “Miracle”

Welcome to a new series that discusses the myths, generalizations, falsehoods, and outright lies about working, employment, and careers. Reactions and contributions are always welcome in the comments.

The Myth: You should always max out your 401(k) contributions.

Ever since I graduated college many years ago, financial services firms have been touting the glories of the 401(k). The concept is simple: you agree that every time you get paid you will have money taken out of your paycheck and deposited in a special retirement account.

That money, which will not be taxed until you withdraw it from your account years from now, is used by the financial firm to invest in the stock market, which historically has always gone up. As an additional bonus, your company might also match your contributions to your account, which adds to your eventual wealth.

The theory is that, decades from now when you’re ready to retire, you’ll have millions of dollars in the bank to use to finance a comfortable life. Promotional materials have lots of glossy graphs that show how a mere $20 saved every week starting today will turn into $2.75 million by 2065 (or some other similar compounding scenario). It’s wealth creation without effort or thought! It’s a no brainer!

The Reality:

  • The 401(k) path to wealth assumes several things: 1. You will always have a job that offers a 401(k) plan, 2. You will consistently make the same or more money than you are making now over the course of 40 years with no interruptions, and 3. The value of the stock market in general and your investments in particular will always and consistently go up. None of these assumptions are valid. During rough patches, such as the Great Recession of the 2000’s, one of the first things companies do is cancel 401(k) plans and/or matching contributions. You’ll have to cross your fingers and hope you don’t want to retire in the middle of a recession.
  • When you open a 401(k) or retirement account, you are giving a financial company a long-term, interest-free loan they can use play the stock market and make money for themselves. And from their perspective, it doesn’t matter if the market goes up, down, or sideways! It’s not their money they’re risking. And they’ll always get their management fee no matter how much value your portfolio loses or how little it gains. They enjoy the benefits of playing the market while you assume the risk.
  • In the 40-50 years between the time you graduate from college and the time you retire, you are going to need money. And not paper wealth – you will need CASH. And to get your cash out of a 401(k) plan, you will be charged an early withdrawal penalty. What other industry gets to charge you so much to access your own money?
  • And what about those precious tax benefits? Even if you aren’t paying taxes on your 401(k) money now, you will be paying taxes on that money at some point, whether it’s in the near future when you take money out before retirement, or when you do retire, or when you die and whoever inherits your money takes it out of the bank. Tax rates may be lower 30 years in the future, or they may be higher. There’s no way to tell.
  • There’s also an opportunity cost to using a 401(k) plan, by which you are locking up a portion of your cash for decades. That’s cash that could be used for a lot of other things during your life. Things you might end up paying for with credit cards that accumulate interest. You might get a kick out of staring at your balance statement every month, but remember that there’s a reason your mortgage company, your auto loan holder, and your college loan companies all insist on getting paid in cash each month and not in IOUs or stocks.

If you don’t know how to save, by all means use the 401(k) to protect yourself from your own lack of knowledge. But if you have large long-term debts (credit cards, school loans, car payments, a mortgage, etc.) you should give serious thought to using the cash from your paycheck to pay those off first instead of locking it up in a retirement fund. You might decide that the benefits of saving money now by not having interest pile up year to year outweigh the imaginary pot of gold that might be yours 30 years from now.

If you have a basic level of responsibility about money, you’re better off investing your money yourself into stocks, mutual funds, or other investments. ETFs like index funds that track the performance of large sectors of a market are a great way to put money into the stock market without having to worry about the fates of individual companies. The advantage is in the liquidity of your assets, and that you can get them back when you want to without a penalty.

Yes, investing in the stock market is gambling. Ben Franklin had great advice about this, though: put no more than 10% of your total portfolio into “speculative” investments, which I consider to be stocks, mutual funds, commodities, or other items you can buy or sell on an exchange. If you follow this rule, you can be part of the market while still being able to sleep at night. You might even make a little bit of money...but don't expect a pot of gold.

Thursday, January 22, 2015

Job Strengths Profile #219: Brownfield Developer

What They Do: “In urban planning, a brownfield site (or simply a brownfield) is land previously used for industrial purposes or some commercial uses. The land may be contaminated by low concentrations of hazardous waste or pollution, and has the potential to be reused once it is cleaned up. Once cleaned up, such an area can become host to a business development such as a retail park.” (Wikipedia)

Major metropolitan areas and former heavy industrial sites need people who are expert at cleaning and re-purposing land that can be turned into parks, commercial spaces, or residential areas. What talents would be involved in someone excelling at this position? Here are five suggestions:

Achiever: To follow through on transformational projects

Deliberative and Discipline: To follow and adhere to cleanup procedures that correspond to legal requirements and ensure the safety of future site users

Futuristic and Restorative: A sense of the possibilities of fixing something so that it can be reused for other purposes

Wednesday, January 21, 2015

Job Strengths Profile #218: Business Continuity Planner

What They Do: “Business continuity planning...identifies an organization's exposure to internal and external threats and synthesizes hard and soft assets to provide effective prevention and recovery for the organization, while maintaining competitive advantage and value system integrity...A business continuity plan is a plan to continue operations if a place of business is affected by different levels of disaster which can be localized short term disasters, to days long building wide problems, to a permanent loss of a building. Such a plan typically explains how the business would recover its operations or move operations to another location after damage by events like natural disasters, theft, or flooding.” (Wikipedia)

What talents would be involved in someone excelling at this position? Here are five suggestions:

Analytical and Communication: To sort through complex contingency scenarios and describe them to those who would be impacted by them

Deliberative and Futuristic: A mentality that looks forward, identifying potential threats well before they happen

Restorative: A desire to take theoretical scenarios that are broken and make them better; “If this happens, what do we do to fix it?”

Thursday, January 15, 2015

Monday, January 12, 2015

Least Stressful Jobs of 2015

From Forbes Magazine, here's a list of the Least Stressful Jobs of 2015. [LINK]

Friday, January 9, 2015

Most Stressful Jobs of 2015

From Forbes Magazine, here's the list of the most stressful jobs for 2015. [LINK]

Thursday, January 8, 2015

The Ten Hottest Jobs in Michigan for 2015

The 10 Hottest Jobs in Michigan for 2015...hopefully you know how to use a computer. [LINK]

Wednesday, January 7, 2015

Job Strengths Profile #217: Philosopher

What They Do: A philosopher…is any intellectual who has made contributions in one or more current fields of philosophy (the study of general and fundamental problems, such as those connected with reality, existence, knowledge, values, reason, mind, and language), such as aesthetics, ethics, epistemology, logic, metaphysics, social theory, and political philosophy...A philosopher may also be one who worked in the humanities or other sciences which have since split from philosophy proper over the centuries, such as the arts, history, economics, sociology, psychology, linguistics, anthropology, theology, and politics. They may relate this knowledge to the discussion of philosophical problems...In the classical sense, a philosopher is someone who lives according to a way of life, whose focus is upon resolving existential questions about the human condition. (Wikipedia)

While not the most “in demand” field in the pure sense, there is always room for people focused on philosophy in fields as diverse as education, the humanities, law, medicine, and science, anywhere where there is a demand for knowledge and expertise about fundamental ways of thinking about things. What are the talents involved in someone being great, not just adequate, at this kind of role? Here are five suggestions:

Analytical and Intellection: The ability to do the intellectual heavy lifting needed to understand abstract and/or theoretical concepts…

Communication and Connectedness…and apply them to real world situations, so they can be understood by others and used as tools to help people live

Consistency: An inner sense of fairness that allows someone to judge arguments, theses, and statements logically and with as little inner bias as possible