Last updated on May 18, 2020
Is a 401k Worth It?
Before I learned to question everything the mainstream media told me, I thought my company’s 401k was a great idea.
I know nothing about stocks! Makes perfect sense for me to put a percentage of my income towards investing in them every month! Thanks ABC News!!
Ah, to be naive again….
Below are eight reasons why I don’t invest in tax-deferred retirement accounts.
Early Withdrawal Penalty
Everyone should save as much money as they can.
Savings = Life Options.
But if you choose to save money in a government-sponsored retirement plan (401k, Traditional IRA, etc.), that savings isn’t yours until you turn 59½.
According to the IRS.gov website: Early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty.
In other words, if you withdrawal your own money before the age of 59½, you have to pay a 10% fee, in addition to ordinary income tax.
The government is just doing this to protect you! LOL
For me, I have $50,000 in a traditional IRA that I contributed to before I learned the importance of critical thinking.
There are so many things I can do with that money, but if I withdrawal it, I’ll only collect $35,000, because $15,000 will go towards the penalty fee and taxes.
What a raw deal.
Retirement Tax Brackets
The Pitch: Invest in these specific accounts (IRA, 401k, 403b, etc.) and your investments will grow tax-free for decades.
The Truth: You will pay ordinary income tax when you withdrawal from this account and we have no clue what tax brackets will be 30 years from now. Good luck!
The pundits, MSM and the financial services company representatives need you to buy into this scam.
As a result, they leave out key information and hope the general public doesn’t learn to use common sense.
Because guess what? Our country is fucked.
The Federal Reserve can’t print trillions and trillions of dollars without also raising taxes to soften the blow.
Sure, maybe they aren’t going to raise taxes today. Or next year. Or in 10 years.
But I’m not willing to assume that by the time I’m 60 years old (25 years from now), the tax bracket will still look like this, from Investopedia:
I don’t trust the government.
For that reason, I want to settle my tax bill today while I know where I stand and what I owe.
Related Reading: Alternatives to Investing in the Stock Market
No Capital Gains or Capital Losses
As just mentioned, when you withdrawal from a retirement account, the IRS charges you ordinary income tax.
So let’s say you withdrawal $10,000 during your first year of retirement and have no other source of income. Using the 2020 tax brackets shown above, 10% of that $10,000 will go to the IRS.
Ouch. And the more you withdrawal, the more you have to pay.
But what if you hadn’t invested through retirement accounts? What if he had invested using a taxable account?
Your original contribution would be post-tax, meaning you already settled up with the IRS.
When it comes time to withdrawal, instead of paying ordinary income tax, you only have to pay capital gains tax. Check out the difference in taxes paid, again using a chart from Investopedia:
Yup. So you can withdrawal almost $40,000 a year in retirement and not pay a penny to the IRS, thanks to capital gains tax.
No one seems to talk about this, do they?
Uninformed people are the easiest ones to control.
Related Reading: 5 Ways Retirement Accounts are a Scam
Timing the Market
We are told not to time the market, but that is precisely what retirement accounts force us to do.
Every eight to 10 years, there is a bear market. During that time, many retirees will have no choice but to sell (yes, you are actually forced to sell at a certain age or else you are penalized by the IRS).
And when that time comes, what if the market is at bottom lows? Or what if the bear market lasts 10 years?
Oops, guess you better start looking for a job!
Important to note: When you invest through a retirement account, you must pay ordinary income tax regardless of value. So if you contributed for 30 years, but retire during a bear market when your portfolio is down, the IRS still applies ordinary income tax. This is in contrast to a taxable account. If you withdrawal from a taxable account, but your portfolio had taken a loss, you can tax-loss harvest those losses to offset capital gains and pay even less taxes.
And people wonder how the rich stay rich. Ha!
Is Index Investing…Investing?
Most retirement accounts are managed by robots.
All these robots (algorithms) do is buy every stock in the S&P 500, Dow Jones, Russell 2000, etc. — depends which fund you chose.
Is this investing?
What happened to supporting a company, believing in it’s mission, and investing from the heart?
No one does that anymore. The financial services industry wants to collect your money and kindly request you ask fewer questions.
This is how the stock market reaches the astronomical valuations we saw in early 2020. No one is paying attention! It’s a total Ponzi scheme. If you guys keep investing, we’ll keep investing, and then hopefully everyone else will keep investing!
This works until it doesn’t. Guess who gets screwed? It’s not Wall Street, I’ll tell you that much.
Most Americans don’t have a clue where their retirement contributions are going. They have been taught to give up tithing to the church and instead give that money to the evil corporate capitalists that they sit at home and complain about.
The valuations of public companies has skyrocketed to unsustainable levels. The CEO’s and management teams rely on corporate debt to make ends meet, but as long as they can fake earnings, the public will continue to prop up their stocks.
Newsflash: This is not investing.
Related Reading: The Pros and Cons of Index Funds
401k Advisory Fees
I’m not going to go into much detail on this one, but suffice it to say, when you invest in a retirement account, and yes, even one through Vanguard, you’re paying a ton in fees alone.
Marketing fees, advisory fees, management fees, misc. fees, regulation fees, paperwork fees, the list goes on and on.
But don’t try and find this information in plain site. Wall Street has mastered hiding fees and the chance of you finding proof is slim to none.
Every time you buy a stock, mutual fund or exchange-traded fund (ETF), someone on Wall Street gets paid.
Remember, this is whether there is money waiting for you at retirement or not. Wall Street is the house, and we are the gamblers. The government watches from the sidelines.
Financial Education in Schools
Not only is the government supporting a system that largely enriches Wall Street, but it isn’t even leveling the playing field for the rest of us.
Investing 101 and financial education should be required in schools. Retirement accounts came to life in the 80’s, and the last time I checked, there has been no reflection of this type of education required in public schools.
Obviously this works out beautifully for Wall Street and the financial services industry. But in my book, this is just one more reason to walk away from something so contrived to “help me.” My ass they want to help me.
Related Reading: What is a Cultural Paradigm?
Financial Freedom is Key
A friend of mine is 25 and doesn’t invest in retirement accounts. One day I asked him why.
His response? If by the time I’m 60 years old I am relying on a 401(k) or IRA account to fund my life — I’ve failed.
He articulated my sentiments exactly. I have aggressive net-worth goals and plenty of ideas for how to get there. Putting aside 10% of a salary for 30 years and hoping it’s enough to support me when I’m old is setting low life standards.
Every dollar in a retirement account is a dollar not being used to invest in myself, in real estate, in my business, my education, my hobbies, etc.
So is a 401k Worth It?
In my opinion, retirement accounts, not including the Roth, but especially 401ks, are marketing scams created by the financial services industry that the government went along with because Social Security has largely failed.
The idea of putting all our eggs in a stock market basket is asinine. Especially since the majority of Americans can’t explain how the stock market works. What happened to saving cash? Owning physical assets? Starting a business? Taking a hiatus from work to travel?
It makes me sad to see so many people stretch themselves to contribute to retirement accounts when there is no guarantee of that securing their future. Cash isn’t ideal over time, I get it, but what if a great real estate deal pops up? Or what if someone pitches a cool business idea? Aren’t these things worth your money today because they can provide you security in the future??