FIRE.046 401k car to nowhere

This is a TRUE STORY.  The names have been changed to protect the guilty person.  This still hurts me to this day (of current “market highs”).  Just my thoughts/another perspective on life/spending.

A few years ago I was hanging out at a small gathering with acquaintances and the stories were flying around and new cars came up.  One of the ladies mentioned how she loves her new ($30k) car.  After a few minutes, she joked that she had a 401k that “crashed” so she got mad and pulled all the remaining money out of her 401k to buy her new car, thus “protecting her money.”

Nightmare math (estimate):

  • 2007 balance in 401k: 100k
  • 2009 market crash, the balance falls to: 60k
  • 2009 she closes account <59.5, paying maybe 28%+5%+10% (fed tax, state tax, penalty). This leaves a TOTAL inflow of: 35k?
  • 2009 she uses the “saved-from-disaster” money and buys a 30k car (+3k tax, +first year=1k insurance,1k gas, other)
  • 2012 the three-year-old car may now be worth 15k? …and still dropping in value, while incurring expenses
  • So in just a few short years, her roughly $100k became a depreciating $15k ‘use’ asset.
  • If the money had been left in the account (and it only recovered back to even) and then w/d in retirement starting after age 60 (in a slightly lower tax bracket?) over 3 years, the net inflow could have been closer to 25k after taxes for 3 years.

Of course, using post-2012 math is perfect 20/20 hindsight.  I remember in 2008 thinking how everything was imploding and wondering how long the economy (markets) would take to come back…if they did at all—considering Japan’s lost decade, etc.

During the crisis, so many of the podcasts and articles begged people to stay-the-course.  They all said the markets have ALWAYS come back through US history.  I Figured I was young and over the coming decades it would work out.  WHEW.  I also kept saving each paycheck, knowing full well that I was getting more shares for the same amount of investment.  Luckily, I was an adult in 2001 and lived through something similar—but not as crazy—so I figured that it may all work out like they were saying.


Side note: I’m not one to understand the pleasure of a new car purchase.  ALL of my automobiles have been purchased used.  Our main car tends to be 3 years old when we purchase it, then we drive it for 10 years before considering our next main vehicle.  Maybe I just don’t know any better!?  Come to think about it, even my homes were all used, most of my clothes are used (or outlet), many of electronics are often last year’s tech on deal-of-the-day.  Maybe this is a trend of mine.  It’s worked out so far…

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