Here is our situation. We have very little savings left after buying our homestead. We are in our early 50's and have a 5 year old son, a 91 yr. old gradma who lives with us. All the savings we have left is our 401K Plan from my husband's former employer. It is not very much but is at least enough for 6-10 months living expenses. I am concerned that with the stock market tumbles we are going to have nothing left. I would rather pay the taxes and take it out so whatever we end up with is what we have "for sure" instead of watching it all go by the wayside. I am no gloom and doom, nor do I qualify for the "freedom forum"; however, I have a bad feeling that the storm is brewing and the world as we know it is going to change forever and we all need to get our ducks in a row. Saving for retirement isn't going to happen. We will be lucky to send our son to college at our age. We will have to make a living one way or another as long was we live anyway, so here's my question:

What is your opinions of what we should do. Cash it in or let it ride? If we cash it in what do we do with it? Trust the banks or forget the whole interest thing and just bury it in the backyard or what???

We are just scared because it is all we have in this world besides the homestead. We have watched as we lost almost half of it in the last year. Thanks for your input and are we going nuts or do the rest of you get this wierd feeling something is coming??

-- Karen (db0421@yahoo.com), September 10, 2001

Answers

Response to Your input needed

A good rule for any investment is to only risk what you can afford to lose. Also, if you worry about an investment, lose sleep over it, or just constant uneasiness -- get out and put the money someplace where you can sleep without worry.

-- Joe (CactusJoe001@AOL.com), September 10, 2001.

Response to Your input needed

Have you thought about other investments with it. Like maybe your own business, one that you know well and can suceed at it. Or maybe invest in something for the homestead such as hydroponic green houses, cattle, etc. Something that is going to make your living.

-- r.h. in okla. (rhays@sstelco.com), September 10, 2001.

Response to Your input needed

Since you are in your early 50's there's less than 10 years to go before you can get the money (59 1/2) without penality--so wait it out IF the company is a large, established one and the 401k is all in that company's stock. If the 401k is in a diversified portflio then I'd definately wait it out. It may not double in the remaining time but it will regain its value. That said, if makes you feel better close it and put the money in a fund that invests in goverment bonds. You won't get rich but you won't lose the principle. By 2004 we will be out of this downturn.

-- Dennis Virzi (DEN2007@swbell.net), September 10, 2001.

Response to Your input needed

One thing to remember when you take your money out of a 401-k plan before you reach 59 1/2 is that you will be penalized by the federal government at a rate of 10%. You will also have to pay federal tax on the money (it is considered income in the year it was withdrawn) this MAY put you in the next higher tax bracket which would cost you even more , which is either 15 or 28% depending on your income. Many states also have a penalty for early withdrawal. I used to do tax returns so I know what I am speaking about. Between the penalties and the taxes you could lose over 45%, depending on which state you live in. The choice is yours, but I would leave well enough alone. The stock market is down considerably, 50% in your case at this point, so you would suffer a great loss there also. You could lose about 75% of your original 401-k investment if you took it out now.

An option that may be of interest to you, if you choose to take your money out of your 401-k would be a government insured bond. I did NOT say a government bond. There are bonds that are currently paying about 6.5%. They are on real estate, but many of them are insured by the government. Check with a broker on this they would be glad to explain it to you. They are called CMO's )Collateralized Mortgage Obligations.

I currently have one of them. It pays me a monthly income for the next 25 Years, and at the end of that time I will get my money back.

Just one other question for you. Why do you feel that you have to pay for your child to go to college?

-- Bob in WI (bjwick@hotmail.com), September 10, 2001.

Response to Your input needed

Karen, Living in the country is not expensive but, moving to the country can be very expensive! Between purchases of land and other necessities such as livestock, garden supplies, truck, and other stuff you may wind up spending all your savings before you can benefit from the move. Another factor that you may consider is how much of the work can you do to build you a homestead in the country. In my case, I have to be able to do just about everything now, since I do not make enough money to "hire out" the work on my place. This includes building my house, which Meli and I have been working on since last November. Repairing all my vehicles, since I cannot afford a mechanic. Tend to, harvest, and can all the vegetables in the garden. Cull the chickens. The work is rewarding but, most of the time it is endless. Example: Today I worked on the pickup truck all day until dark, and still did not finish fixing it. After dark I spent time in my toolshed sharpening my chainsaw so I can cut up a very large sycamore that has fallen across one of my roads. Once I get the truck fixed I need to go into town and buy feed for the animals and pick up a load of 2x4s so that I can continue framing the interior of our new house....The list of chores never ends. Are you ready for those challenges? I am in my forties and was aware of the challenges before I chose to live this simple lifestyle. I just want to stress to you what you may be getting into. If you move to the country and can do your own maintanance and repairs, plus take care of the business of gardens and animals, and such then I say go for it! But, if you have to hire people to do a lot of work for you because of illness or lack of skills, I would say for you to stay where you are and keep saving as much money as you can. When I lived in the city I save as much money as I could and converted the surplus into gold bullion. Gold is down right now and because it has always been inflation proof many people invest into it. I would stockpile extra food and things that will help keep you alive if suddenly there was a crash. If you are worried about your safety I would learn to use handguns and purchase one or two with extra ammunition and have them on hand as well. If you take special medicines, you will have to consider how you will be able to get them in the future too. Before any major move I would Plan Plan Plan every detail first and have all the things ready before I moved. This way you can cover as many of the situations that occur before they happen. Sincerely, Ernest

-- http://communities.msn.com/livingoffthelandintheozarks (espresso42@hotmail.com), September 10, 2001.

Response to Your input needed

Karen, a company administrated 401K plan should have several investment options. There is normally a fixed fund as well as stocks and mutual funds. The interest rate is probably quite low, but at least you won't be watching it dwindle to nothing while you decide. If you decide to take a distribution, Uncle Sam gets a really big chunk! You may be able to get around this if you ask that your check be made out to you and your bank or other financial institution (if you still trust them) for rollover into a private IRA. You could then manage it yourself, but the interest would likely be even lower. Check with a qualified accountant before you make a decision to withdraw and get all the facts. Taxes and penalities for early withdrawl are scandalous, except for some special circumstances. If the plan is with your husband's former employer, at least you have the option to withdraw. Good luck !!

-- Debbie in ne NC (demeads@inteliport.com), September 10, 2001.

Response to Your input needed

I know Ken would answer, but from his post nearby it is clear he is needed elsewhere.

Please do not cash in your 401k. As for your son's college--someone said it in another post this great way--there are loans/fellowhips/schollarships for him to get for his college.

There is no such thing for your retirement.

Pretend that money does not exist--like you should also plan that Social security may not exist.

-- Ann Markson (tngreenacres@hotmail.com), September 10, 2001.

Response to Your input needed

Not sure about a weird feeling, but I do think that the past 10 years of continuous growth in the economy IS going to change.

IF you decide to cash in your program, why not convert it to something you KNOW FOR SURE you will need. Food for instance; no matter where you are, or what you do, you will always need food. Doesn't have to be expensive; beans and rice, purchased in quantity, supply nearly all of our basic needs. A basic supply of food would be a great investment in yourselves; if money becomes suddenly tight, food would be removed from your list of worries.

Does your son necessarily HAVE to go to college immediately upon graduation? I know when I graduated, I wasn't ready to study or even know what I wanted to do with the rest of my life. How about allowing him to find a job in a 'depression-proof' job like car mechanics, welding, or the like? Or how about the military? Free education, discipline training, and great prospects for getting a job once leaving the service.

Take a deep breath, our imagination often fuels fears worse than reality. Once we set our mind in preparation, the fears fall into place.

-- j. r. guerra (jrguerra@boultinghousesimpson.com), September 11, 2001.

Response to Your input needed

Keep in mind if you cash out a 401k plan your going to get about half what its worth after you figure in the 20% required penalty and post tax penalties.. If its only a couple of months then I would leave it.

-- Gary (gws@redbird.net), September 11, 2001.

Response to Your input needed

Don't worry about your son's college. One of the best ways to pay for it is to work at the college. My husband's mother worked as a secretary in the Biology dept. at the school where we met. He got to go there for free. He now works at an area university, and he and our daughter could go for free, and I could take classes at a reduced price if I wanted. Perhaps your son could get some good practical skills such as maintenance, heating and cooling, electrical, etc. and get a job at the school of his choice and save himself (and you) thousands of dollars.

Also, my parents gave me what they could afford toward college, but it wasn't much. So I knew I had to earn scholarships, grants, work summers, do work/study at school in order to pay my own way. All that made me a much more diligent student. I worked harder at my education because I worked harder for my education. Handing a child "college" on a silver platter isn't necessarily doing them the greatest of favors. And besides, what about a good trade school for him? Have you seen what plumbers and electricians make these days? And many times employers will pay for their workers to get additional training in their vocational area-let someone else pay for his degree as an electrical engineer!

-- Lori in SE Ohio (klnprice@yahoo.com), September 11, 2001.

On college, there is always the G.I. Bill. It, and a part-time (sometimes full-time) job, put me through college. Besides, the military is a great place for youngsters to grow up. Suddenly they have to be fully responsible for their actions.

-- Ken S. in WC TN (scharabo@aol.com), September 11, 2001.

Karen, it seems as though your bad feelings were not unfounded!

-- Rebekah (rebekah_swinden@hotmail.com), September 11, 2001.