Saturday, August 26, 2006

Large 401(k) Stashes

Let's veer away from animation momentarily and talk about 401(k) pension plans, and the people who own them. Many employees today participate in their company or union 401(k) plans, but many (most?) employees don't utilize them to the max, which is a shame. Because individuals who've been tucking money into them for seven or ten years should have a nice pile of loot by now, as this L.A. TIMES article explains... I've been enrolling animation employees in The Animation Guild's 401(k) Plan for a decade. TAG, through a simple twist of fate (in 1985 the animation guild was thrown out of the IATSE's contract bargaining unit with the Alliance of Motion Picture and Television Producers) found itself with the wherewithal and leverage to negotiate a 401(k) Plan with most of the major animation studios. (If we had NOT been thrown out of the bargaining unit, this couldn't have happened. I won't bore you with the details as to why.) So here it is 11-plus years later, and a goodly number of TAG's members have a hundred thousand dollars (or more) in the TAG 401(k) Plan. This is on top of the fifty to a hundred grand most of them have in the Motion Picture Pension Plan's IAP (Individual Account Plan). I don't care how ferocious inflation might be, two hundred thousand dollars is a nice trunk-full of money on which to be sitting. The questions I get asked about the most regarding TAG's 401(k) Plan are 1) Why should I enroll in it since TAG's Plan has no match? and 2) What should I invest in? The first question is easy. Yes, you should enroll. It's a way of sheltering income and painlessly saving for retirement. (You should also utilize IRAs and Roth-IRAs.) One thing I know about many animation employees is they live paycheck to paycheck no matter how much or little they're making, so peeling off a few bucks every week and tucking them away where you won't spend them is a fine idea. (Most 401(k) plans have a match, so the motivation is even stronger there. But it is still amazing how many people don't enroll.) As to the second question, that's a bit more complex. But I have a single, one-word answer that I've used for years. That word is: "DIVERSIFY." If you have thirty years before you hang it up, you'll want to have a lot of different kinds of stock investments (foreign stocks, domestic stocks. Large company stocks, small and medium company stocks.) Also a little bit of bond exposure. If you are close to retirement, then you'll want to be more heavily weighted in short-term and some medium-term bonds. But you'll still want stock exposure. I'm not a financial advisor, but the esteemed Ric Edelman is, and Ric advises that people with fairly lengthy time horizons before retirement be 100% invested in stocks. Whether you buy this or not (I don't), Mr. Edelman is worth reading. His book "The Truth About Money" is a good place for anyone serious about saving for retirement to start. His prose is clear and entertaining, and although some of his conclusions and analyses are open to debate (see the reviews at the Amazon link above), he is right, I think, more than he's wrong. My main point: If you're reading this and in a position to participate in a 401(k) plan, do so. Time speeds by, and you'll be sixty a lot quicker than you now think you'll be.


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