Even if they had to sell, they could buy stock in their taxable account with the withdrawn money.

fusion,

Yes, you could repurchase the same security, but only a reduced amount due to the taxes owed. McCain's point is that people will feel as if they have lost, then get taxed again, increasing their loss. Perception is reality, as they say. Even if people were not taxed, they would still feel this loss, regardless of the action you suggest. Then there are the additional costs that people would face by taking such action, such as having dividends taxed that would not be in a 401k, and accounting that will confuse many people who are unfamiliar with such accounting since the only stock (or other securities) they own are held in 401k's.

McCain's sentiment is right. Whether or not it has any real benefit is questionable. On that, I agree with you and Dean. What would be better than McCain's suggestion, though costly to everyone, would be to immediately convert all taxable 401k's to 401k-Roth's without any conversion fees or taxes. The cost to the Treasury would be too great for such action, I am afraid.

The benefit from the McCain proposal has nothing to do with the market meltdown. As others say, you can always turn around and buy the same crap before it goes up (if it goes up). It's simply avoiding tax for an extra year.

Those 'forced' to take a distribution, by the way, are those who don't need the money for living expenses. Among retirees, this is a relatively privileged group. Why are we not surprised.

Also, if we're going to protect seniors who use stocks to fund their retirement from the dangers of a volatile market, why not just strengthen SocSec and pay higher benefits to everyone?

No one who has retired should have more than a small portion of their 401k in stocks. And what the powers what be are trying to talk away from is that this is why it's a really bad idea to fund retirement this way.

This McCain idea may be divorced from reality but not from politics.

Obviously, McCain is attempting to court older, wealthier voters. McCain desperately needs support from that demographic group to contend in Florida.

Do candidates really prefer a political message to a reasoned economic policy?

Go figure.

What are people at age 70+ doing with their retirement in stocks to begin with? I worked in the securities biz for a while (churn and burn) but unlike more than a few of the people I worked with, the concept of "appropriate investments and appropriate risks" was something I took quite seriously.

By the time you approach age 70, surely you should have moved the vast bulk of your retirement savings into rock solid investment vehicles like AAA rated bonds (guaranteed and insured bonds at that), CD's and other low return but extraordinarily safe securities. In addition, the withdrawal rules only apply to actual tax advantaged retirement accounts (IRAs, 401k's, etc.) and don't have any effect on holdings outside of these accounts.

If you are approaching retirement age, you really ought to consider that you should have only a small portion of your portfolio in stocks, perhaps on the order of 10-20 percent, and even that should only be money you can afford to lose.

Let me add that after working in securities for four years, I couldn't take it (the push for commissions regardless of customers actual risk profile and needs) any more and left the biz for a more honest line of work...selling used cars. (Yes, that's true.)

Why wouldn't anyone have 100% of their savings invested in the stock market when they are 70? Has risk and opportunity somehow come to care about an investor's age?

Indeed, shunning stocks in one's later years potentially is a fatal mistake. This is particularly true in this age of hyper-inflationary bailouts in an environment of economic breakdown.

As much as need be, risk and opportunity in the stock market are relatively predictable.

Does one ever fear snow in the middle of summer?

And should one expect sunshine in the midst of a financial blizzard?

The stock market is where the money is at, hands down. Truth is 70% of the time one is wise -- indeed, astute -- being fully invested there, no matter what one's age.

However, 30% of the time risks are extraordinarily elevated. That's when you run for cover.

The present moment certainly is one such time. However, the time for panic probably has passed. In other words, a better opportunity to exit awaits.

It is the wise investor who knows how to properly discern risk and opportunity in the stock market. This is a skill that can well-serve the average person over the entire course of his or her lifetime.

I strongly disagree with common "wisdom" saying a person should shun the stock market later in life...

I love how you guys assume that people are rational actors who pay attention to their investments, act in a timely fashion, and would never drift too far from the conventional wisdom or take stupid risks.

It may be the case that no 70-year-old should have their retirement funds invested completely in stocks, but you might want to look at some data before asserting that no 70-year-old does have their retirement 100% in stocks.

All the research I've seen on the behavior of 401(k) holders shows the behavior of a substantial minority is perverse -- they invest everything in one asset class (often the stock of their own company), they buy high near the peak and sell low in a panic, they withdraw funds early and pay the penalties, they load up on the riskiest asset class, they fail to rebalance, some of them park everything in fixed-income funds while still in their thirties and never budge, etc.

People are not rational economic actors, nor are they often successful at maximizing utility even when they try. (This is why privatising Social Security is practically guaranteed to produce a large cohort of elderly paupers.)

Quote: "Why wouldn't anyone have 100% of their savings invested in the stock market when they are 70? Has risk and opportunity somehow come to care about an investor's age?"

Answer: You should have stopped when you got to the word "risk". That's why a 70 year old should NEVER have anything like the majority of their retirement in stocks. You don't have the years needed to make up the losses if you guess wrong.

You believe what you want. I'll settle for being right.

Why can't they withdrawal shares? Do they have to cash them in? Can't you take it out in stock?

There are some affluent retirees who are in effect investing for their children. I suspect the main beneficiaries of McCain's plan will be the people who plan to leave their 401(k) to their children. It's a sweet deal if you can pull it off. The original investment wasn't taxed, the unrealized gains weren't taxed, and, unless you're really rich, the inheritance won't be taxed.

joel hanes wrote, It may be the case that no 70-year-old should have their retirement funds invested completely in stocks, but you might want to look at some data before asserting that no 70-year-old does have their retirement 100% in stocks.

I completely agree--Dean's wrong on that one.

While my guess is that 70 year olds are probably pretty conservative, partly owing to their having passed through much of their adulthood before the "stocks can never fail!" mantra completely took hold, there's still got to be quite a few fools out there.