To conclude our three part series on the 401(k) retirement plan, here are the final 4 reasons in our list of 13 reasons why this could be your riskiest investment.
But if you’re just now tuning in,
10. Whose 401(k) is it anyway?
Brace yourself—your 401(k) doesn’t even technically belong to you. Somewhere in the microscopically small print reads “FBO” (For Benefit Of.) The tax code makes it technically owned by our friends, the government, but they are nice enough to provide it “for your benefit.” If that doesn’t sound bad enough, if we judge from world history, 401(k)s could be in danger as other countries have raided private retirement plans to fund the government (Argentina 2008, Hungary 2010, Ireland 2011.) “That would never happen here, this is America!” Before you say that, during the last recession, Congress did invite an expert to give a testimony on doing just that.
Keep in mind that it only takes one economic crisis before you retire for possible rule changes or worse, confiscation of your 401(k).
11. Where’s the gold?
So maybe you can stomach the taxes when it comes time to withdraw your money. Everything gets taxed right? But can you stomach the market swings? Sure the financial planner who set up your 401(k) predicted for you an annual return of 8%. But what if the market gets volatile?
Say your fund is down 30% one year. Any withdrawal is tapping directly into your principal. At that point, your only choices are to start withdrawing principal, or leave the money alone until your account goes up again. But it may take years for it all to come back. It’ll probably be a tough night’s sleep knowing that your income is at the complete mercy of the markets.
12. What’s a trip without a map?
There are many people out there, finances in shambles, who still whole heartedly contributes to their 401(k). That’s like someone with a slit wrist tending to a scraped knee.
You need a bigger picture plan that can identify, prioritize, and manage all the pieces of your financial puzzle in perfect harmony. You don’t need some one-size-fits-all plan that’s sold to everyone as a courtesy.
13. Bad habits are hard to break
401(k) plans subconsciously encourage people to give up responsibility for their own investment decisions. It lulls them into believing that they can just throw enough money at the “experts” and, magically, years later, they’ll end up with all the money they need. And of course, when things don’t go their way, they blame others. A good financial plan requires responsibility and attention.
In summary: Saving for retirement is a wise and prudent thing to do. But other saving philosophies, products and ideas should not be ignored.
Whatever you choose, we urge you to do it in a conscious manner as a smart investor. Don’t just swallow Wall Street’s promises blindly—look to those who tell the truth about financial options.
When saving your money, look for products and strategies that guarantee your principal and interest, provide liquidity, and minimize or eliminate taxation during the growth periods, and when you begin to take it out.
minimum thought. Maximum Wealth.