401k, The Poor Men's Retirement Plan

#401k #403b #financialfreedom #financialliteracy #retirement Jan 16, 2018

Financial literacy is very rare in the US.  Actually, only 5 states enforce some sort of financial class in their high schools.  I am talking about teaching how to pay bills, how to build good credit, how to avoid debt like student loans. 

Among those states are Utah, that scored the highest for having a required semester class on personal finance.  The other ones are Alabama, Missouri, Tennesse and Virginia.  It is sad to say that states like California, Massachusets, and Pensylvania don't even have an education program on how to teach people about money. 

So what does the 99% of the population do when it comes to retirement plans and financial education?  

Most people trust their employer's retirement plans.  Not because they know that it is the best way, but mostly because they don't know any other option.  The majority of people in the United States signed up for their employer 401k retirement plan.  

However,  there are a few things that they don't know about this and that today I am going to talk to you about it. 

What is a 401k?  

Here is the definition directly from Google..."A 401k is a qualified retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax-deferred basis. Only an employer is allowed to sponsor a 401k for their employees. ... These contributions are deducted from your salary on a pre-tax basis." 

You Can Lose Your Money

401k Retirement Plans are based on Mutual Funds attached to the stock market.  There are a high risk investment. Do you remember the most recent market cratch and recession?  In 2008 the S&P 500 went -38.49%.  A huge amount of people that had 401ks lost 40 to 60% of their retirement due to this.  Not all 401ks are based on the S&P 500, there are over 27,000 different Mutual Funds, but at least 97% of those have not outperformed the S&P 500.  

Your 401k Have Fees

One thing that neither the Financial Company that has established your 401k or your employer tell you is that there are fees in your 401k.  So if you think that you are making a return of 8% on your 401k, after all the fees you could end up with a 2%-3% rate of return instead.  The amount of fees that you are paying in your 401k is compounded as well as your rate of return.  You could end up paying 100,000s of dollars in fees. 

It is NOT Tax-Free

One of the biggest jobs of your accountant is to save you money now and to help you pay fewer taxes today, therefore, he might suggest you put your money is a 401k.  However, a 401k is not tax-free but tax-deferred. You might not have to pay taxes right now, but when you are ready to retire, it will hit you and it could hit you hard.    

If you want to keep your lifestyle when you retire and you want to take the same income that you are accustomed right now, trust me, you will pay taxes on that money.  

For example, let's say that you make 100,000 a year.  If you want to take $100,000 by the time you retire, you have to pay based on this year's bracket about 25% -28% in taxes.  Where do you think taxes are gonna go, up or down? 

You Cannot Touch Your Money

One thing that it is a rule regarding your 401k is that you cannot touch your money until you are 59 1/2 or you are subject to penalties.  Some 401k allows you to take it out as a loan.  But think about this... it is YOUR MONEY and now you have to use it and you have to pay interest on money that you have worked for many years.  What do you think about that? 

One Small Advantage of Your 401k

 If your 401k has very low fees, there might be some advantages on having one.  Please go to America's Best 401k and check how much are you paying in fees. 

Your employer benefits from having a 401k, they can receive certain tax benefits for contributions.  This is especially true if they match a certain percentage of your contributions.  

My suggestion, if you have a 401k, contribute up to your company's match.  Why?  Because it is free money.  But no more than that.

There are other investments that are low risk, no fees, you can't lose your money and you have access to it without penalties.  In the book MONEY Master the Game: 7 Simple Steps to Financial Freedom Tony Robbins talks about what does the wealthy population do in order to grow their money at low risk.  They don't put their money in 401ks.  Even the banks put your money on low-risk investments, grow it and then lend it to you for an interest rate and fees.  

Why do you have to be in the poor men's retirement plan and not in the wealthy retirement plan?  

You can too, be in a wealthy retirement plan, all you need to do is knowing what and where to find them.  

If you want more information about this, do not hesitate to schedule a free consultation valued $450-$2,500 and learn more about this.  I want you to be wealthy, I want you to achieve financial freedom.  All you need is the desire to learn.  

If you want a complete report of how does your state graded in financial literacy this year click here

Stay connected with news and updates!

Join our mailing list to receive the latest news and updates from our team.
Don't worry, your information will not be shared.

We hate SPAM. We will never sell your information, for any reason.