Here is what everyone who believes in the TRADITIONAL retirement system should know
According to Wall Street veteran, Keith Fitz-Gerald, Traditional american retirement accounts are already being slammed.
For the average married couple in their late 50s and early 60s who both have 401(k)s, their total nest egg is about $330,400. Yet, they will have paid $155,000 in hidden fees and costs to manage those same 401(k)s.
That's because, for the privilege of earning about 4.8% on their money a year... The average 401(k) holder could've paid out as much as 3% of the total value of their account - just in fees... each and every year.
"It's highway robbery!" exclaimed Fitz-Gerald.
Listen: This system was not set up for the common person; it was set up to benefit the 1 PERCENTERS! These plans are scams which are set up to drive WALL ST! This is another trillion dollar industry that has a lot of money at stake if people stop believing in the mythology got the FACTS and placed their funds in more secure and profitable retirement vehicles. Panic would most likely ensue.
Let's go over the perceived Pros, and then the undeniable Cons:
The PROS of the 401(k), and other traditional retirement plans:
You put money away before it is taxed. This has the benefit of encouraging you to save starting at a young age. But make no mistake…it WILL BE TAXED!
Sometimes your employer claims that they will match what you put in your 401(k). Rarely is this a DOLLAR for DOLLAR proposition, so it SEEMS like "free money" (ask yourself: WHY is this the only example of free money in the entire world? How can they do that and make a profit?).
When you are 59.5 years old you are allowed (like a parent allows a child) to take money out. It's taxed HEAVILY at that time. Remember it is TAX DEFERRED…NOT TAX FREE! HOPEFULLY, you've benefited from the 7% per year that, by law (just kidding) the stock market goes up. Most people do not think about the fact they will be paying taxes on the proceeds, which are much higher in the end than the end, and this simply means…MORE TAXES!
I can't really think of any other pros. If you can think of some, please put in comments and I will try to address.
The many CONS of the 401(k)
Let's look at it conceptually for a second and then I will look at the cons.
You are paid money by an employer. You have that money in your hands for five seconds, and then it is whisked away into this account and you can't look at it again for another 20 to 35 years unless you want to pay a massive penalty.
Will you be alive in 30 years? Keep your fingers crossed! Because if you are not alive then….MONEY GONE! What about your loved ones? The buck stops there!
Ok, that’s a MAJOR problem with the 401(k); I personally like to have total control of and access to the money that I earned.
Ok, let's look at the cons:
1. You can't predict your tax rate 30 years from now.
This completely destroys the whole "tax-deferred" argument.
Let's say you put money in your 401(k) at the age of 29. You are making much less money than you probably will be at the age of 59.
So your tax rate is less than your tax rate at 59, forgetting completely that taxes might be raised also (we just don't know) between now and then. So we don't really know if you are saving money on taxes or not. You are simply having your money taken from you for 30 years.
Also, when you take money out of your 401(k), you are taking out more than you put in (chances are, because your expenses are higher). So your tax rate will almost certainly be higher. Again, ruining the entire point of putting in pre-tax income.
2. The Employer Match
Do you think companies really pay you free money?
Companies that don't have an employer-match pay higher salaries. The Center for Retirement Research did a study based on tax data and showed that for every dollar an employer (on average) contributes to a 401(k) match, they pay 99 cents less in salary.
Big savings! Also employers don't give you all the money at once. They spread it out over 4-6 years (six years is the regulated max or they would spread it out longer is my guess).
If you leave before the six years, you often don't get the match. The TRUTH is employers actually SAVE money in the long run by installing a 401(k) plan.
How many employees stay at their jobs for more than six years? Not that many. The average is 4.6 years according to the Bureau of Labor Statistic. Say Goodbye to that so called employer matches! Since they usually kick in between years 5-10.
3. Mysterious unexplained account fees:
People don't manage 401(k) plans for free. There is a cost. Then there is a cost in the mutual funds they put their money in. Then there is revenue-sharing between employers and 401(k) plan managers. Is this legal? Yes. It might not always be but it is now and it is how employers make some of the money back on matching what you put in.
Is this transparent? Of course….SORT OF!
Does the average person look at all the fine print detailing fees? Not so much. I don't. Studies have shown that less than 5 percent of account owners actually READ the fine print, and less than 3 percent of those who actually read it…UNDERSTAND IT! Then there is the fine print on each mutual fund the 401(k) manager has allocated the money to. Did I look at that fine print? Not until I realized I was being taken advantage of.
Many mutual funds charge extra marketing fees. Management fees are secretly charged in excess of 6 BILLION dollars yearly. Another alarming fact is 86% (!) of mutual fund managers underperformed the market. These fees are charged REGARDLESS of how the funds perform, this means that the fees are charged even in the event of a LOSS!
4. Assumption on market returns.
The market has returned somewhere between 7-10% per year depending on what time period you look at, what index, etc. The average investor has returned 1.8% per year over the past 40 years. The psychology of investing is very difficult, as no one can predict with certainty when the market will gain or decline. And when the market declines, as history has proven it will, many investors in the plans lose money, yet the plan administrators do not!
And when I say, "many investors," I'm not talking about you — I'm talking about the best mutual fund managers in the business.
5. More on taxes.
Yes, you save tiny amounts on taxes when you are young. But this is also the period when you have the biggest tax write-offs relative to your income (dependents, business expenses, etc.). This is another one of the hidden aspects of the traditional retirement plan.
So you don't really need the extra minor savings on taxes. Trust me; you will be fully taxed at the highest rate when you pull money out 30 years from now.
So why not use that "extra" money to maximize your investment in yourself right now. Place your funds in the place it will do YOU the most good! NOT the fund manager!
401(k) plans have been around for decades. And yet the average retiree does not have enough savings for retirement. That should be a clear PROOF that the system is broken, and needs to be CHANGED! So the evidence clearly shows that the 401(k) is NOT your friend!
They are close to or have reached their retirement age and everyone up until now has lied to them about the benefits of 401(k). So they are worried about how they will survive.
My mission is to try and help as many people as possible to correct this grave injustice before it is too late.
Perhaps the main point of this article is that one way to correct this problem is to choose for yourself now that you have the whole story. Now is the time to act in YOUR BEST INTEREST, as I am willing to bet the fund managers will do on their own behalf.
Just think of it as RETIREMENT INSURANCE!