Six Reasons Your 401(k) is a Scam

UPDATED: March, 2022

I’m going to make a very bold statement that’s sure to get me some nasty blowback. But as a financial investigator who’s exposed the truth about the conventional financial wisdom, I’m used to that, so here goes…

401(k)s are a scam. Want proof?

Here Are Six Reasons Why 401(k)s Are a Scam…

Reason #1: The 401(k) Tax-Deferral Scam

In our immediate-gratification society, deferring your taxes by funding your 401(k) sounds so good, doesn’t it?

But when the tax man eventually comes calling, he won’t ask you to pay what your tax liability would have been if you’d been paying taxes all along. He’ll tell you what your tax liability is at the time your taxes are due.

Conventional wisdom says you’ll come out ahead by deferring taxes. After all, doesn’t that mean your entire contribution can go to work for you immediately? Unfortunately, like many assumptions about personal finance, this simply isn’t true. According to the Society of Actuaries, if tax rates remain the same…

“It doesn’t make any difference whether the taxes are taken away from you at the beginning (before you put the money in a savings vehicle) or at the end (tax-deferred). It’s the same fraction of your money that is left to you.”

If tax rates are lower in the future, you’ll come out ahead. However, most people, including most financial experts, believe tax rates must head higher, not lower, over the long term. And your retirement could last 20-30 years or more.

The reality is that you are probably sitting on a tax time bomb. Simply put, the government is going to need more money in years to come for several reasons. For example, let’s look at the numbers impacting Social Security and Medicare.

Today there are 62 million Americans using Social Security and Medicare. By 2045, 140 million – twice as many – Baby Boomers and Gen X-ers will be over 65 and requiring Social Security and Medicare. Where do you think the money to pay for that will come from?

Social Security and Medicare’s financial condition has deteriorated despite a long economic expansion. In fact, Social Security is already in a negative cash flow situation. What will happen to those funds in the next downturn?

And what about the national debt? Washington has not dealt with the government’s unsustainable debt and spending for decades, and as of March 2022, the national debt has ballooned to over $30 trilliondoubling in just the past decade! And it’s climbing at a head-spinning rate. (For a painful wake-up call, check out

For all these reasons, the overwhelming likelihood is that tax rates will go UP over the long term, and when they do, then OOPS! There goes the whole 401(k) “tax-deferral” argument.

Reason #2: The 401(k) Employer Match “Free Money” Scam

Who doesn’t love getting “free money” in the form of the 401(k) employer match? Do you really believe your employer is giving you something for nothing? (If you believe that, I’ve got a Rolex watch I’ll sell you for $10.)

The Center for Retirement Research did a study based on tax data and found that for every dollar an employer contributes to your 401(k) match, they pay 90 cents less salary to men and 99 cents less to women on average. Translation: That means your employer is essentially pulling money out of your paycheck to contribute to your 401(k).  And you’re really netting pennies, not dollars, in matching funds. Whoa! Doesn’t sound like such a good deal now, does it?

Get Your FREE Report!

Get instant access to a FREE 18-page Special Report that reveals a Safe and Flexible 401(k) Alternative, that lets you access your retirement savings when you want – with no restrictions or penalties.

We respect your email privacy

That’s why one of the Bank On Yourself Revolutionaries had no trouble convincing his boss to pay him the money that he was getting as an employer match in salary instead, so he could use it to fund his Bank On Yourself program.

Plus, you don’t even get all of the employer match during the first 4-6 years you work for the company – you need to be “vested” first. If you leave your job before that, you typically don’t get the full match. And during the pandemic, some companies suspended their matching contributions altogether. They are not a guarantee.

And according to the Bureau of Labor Statistics, the average time a person stays on the job is only 4.1 years. Which means you’ll lose some or all of your employer’s meager match money if you don’t stick around longer than the average worker.

So unless you sit around and wait to be “vested,” you may never even get that “not-really-free” match anyway.

Oops! There goes the employer match “carrot.”

So why not take the money you’re contributing to your 401(k) and put it in a safe and proven retirement plan alternative that gives you guaranteed growth, flexibility, control and numerous tax advantages?

Get Your FREE Report!

Get instant access to a FREE 18-page Special Report that reveals a Safe and Flexible 401(k) Alternative, that lets you access your retirement savings when you want – with no restrictions or penalties.

We respect your email privacy

Reason #3: 401(k) Fees Devour Up to HALF of Your Hard-Earned Money

In spite of the rules passed a few years ago requiring better 401(k) fee disclosure, surveys show most participants still have NO clue how much they’re actually paying.

But according to Brightscope, participants in small plans pay between 1.5% and 2% in fees annually, and participants in the largest plans pay nearly 1% per year. If those fees sound like “small change” to you, then here’s a wake-up call: Fees of only 1% per year can slash the value of your savings by 28% over the next 35 years, according to a Department of Labor report, A Look at 401(k) Plan Fees.

Brightscope also noted,

The sheer number of plans paying north of 2% a year in [401(k)] fees was shocking.”

We put together this chart that shows you clearly how much of your hard-earned dollars will be devoured by the typical fees in 401(k) plans:

Fees You Pay in your 401(k) Average 1%-2%, According to Brightscope

Is that a little or a lot? If you have $100,000 in your 401(k) earning 7% a year, over 35 years here’s how much you’ll lose to fees:

No fee 1% annual fee 1.5% annual fee 2% annual fee
After-fee account value after 35 years $1,067,658 $759,776 $640,133 $538,876
Total dollars lost to fees over 35 years -$307,882 -$427,525 -$528,782
Percent of account value lost to fees 0.0% lost 28.8% lost 40% lost 49.5% lost

Poof! There goes one-third – or more – of your retirement savings. I can assure you somebody is getting rich on this, but it’s not you!

Reason #4: Funding a 401(k) is Like Putting Your Money in Prison

It’s like a trade with the devil: Give me all your savings in return for tax-deferral (a scam as we’ve seen) and an employer match (another scam), and I’ll keep it under lock and key for you until you’re 59.5 years old.

You have to beg for permission to use your own money! There are all kinds of restrictions and penalties for accessing your own money.

Yeah, I know – the idea is that they don’t want you to spend your retirement savings before you retire. But rarely a day goes by that we don’t receive a heart-breaking email from people who have a very legitimate need for cash, but they couldn’t get what they needed out of their 401(k).

Did you know that there’s a strategy that actually lets you use your retirement savings for whatever you want, and your money can continue growing as though you never touched it?

You can bet you won’t hear about this from your 401(k) provider, but you can get all the details when you download this free Special Report.

Reason #5: The Myth of Market Returns

Most of the money in 401(k)s is invested in mutual funds. You’re told that over the long term, you can do well in the stock market. But over the last 20 years, the average equity mutual fund investor has earned only 4.25% per year, beating inflation by only 2.1% per year, according to the DALBAR studies. Asset allocation investors averaged only 2.89% per year, beating inflation by less than 1% per year.

Yet Wall Street has brainwashed us into believing we must risk our money in order to get any kind of decent returns. And so we continue to blindly fund our 401(k)s like lemmings following each other off a cliff.

My investigation into more than 450 different financial products and strategies revealed you don’t have to risk your money to get a decent return. You can reach your financial goals and dreams without taking any unnecessary risk. And you can have access to and control of your retirement savings.

The Bank On Yourself safe wealth-building strategy gives you an unbeatable combination of advantages that include guaranteed, predictable growth, liquidity, control, and many tax benefits, too. Request a free Bank On Yourself Analysis here to find out how you could benefit from a custom-tailored program.


Learn more here about rolling over your 401(k) or IRA into Bank On Yourself.

Reason #6: After Decades of Being Lab Rats in the Great 401(k) Experiment, Most Pre-Retirees Still Don’t Have Enough Saved

Labor economist and nationally recognized retirement security expert Professor Teresa Ghilarducci summed it up succinctly:

We’ve run the 401(k) experiment for 40 years. We pronounce it a failure.”

Even the “father” of the 401(k), Ted Benna, has called it an “out of control monster” that should be blown up. (And he says he now puts most of his own money into the high cash value, dividend-paying whole life policies most commonly known as Bank On Yourself.)

How much more evidence do we need that 401(k)s are not the solution they’re touted to be? The more accurate name for a 401(k) is a hope and pray plan.

So are there any good alternatives to the 401(k)? The answer is YES, but of course you won’t hear about it from Wall Street.

Free Book Reveals How to Avoid the Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans

In this eye-opening book, Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans—and How to Avoid Them, you’ll discover…

  • How high fees, the stock market roller coaster, and tax time-bombs are devouring your hard-earned retirement dollars
  • How lack of control and access to your savings can ruin your best-laid plans
  • Why you’ll likely spend more years in retirement than you think you will, why those years will cost you far more than you’ve planned for—and why you need to take a different approach to avoid outliving your money

Most important, in this concise book, you’ll discover what you can do differently—starting today—to find the financial security and peace of mind that have escaped you until now! So claim your FREE book here:

Rescue Your Retirement

Here Are 8 Reasons Bank On Yourself Makes a Safe, Reliable Alternative to 401(k)s…

  1. Guaranteed, predictable growth and retirement income – with no luck, skill, or guesswork required. In fact, Bank On Yourself has a 160-year-plus track record of positive growth!
  2. No volatility. Your plan doesn’t go backward when the markets tumble. Your principal and growth are locked in. It’s not subject to market risks.
  3. You’re in control. You have control of your money without government penalties or restrictions on how much income you can take or when you can take it.
  4. Tax advantages. You can access your principal and growth with no taxes due, under current tax law. Check out these 5 tax advantages of Bank On Yourself.
  5. Liquidity. Your cash value can easily and immediately be tapped for any purpose at all, and your plan can continue growing as though you never touched a dime of it. Compare a 401(k) loan against a Bank On Yourself loan, which some consider to be the 8th wonder of the world.
  6. Fees don’t compound against you. As we’ve shown here, the fees in traditional retirement plans can consume as much as one-third to one-half of your savings over time. With a Bank On Yourself-type policy, all fees have already been deducted from the bottom-line numbers and results you’ll get, so there are no unpleasant surprises.
  7. Income tax-free legacy. The death benefit is likely to be many times larger than the total amount you’ve paid into your policy. This passes to your loved ones and/or favorite charities income tax-free and without going through probate. If you die prematurely, the death benefit allows your plan to provide for your family as you had intended. That won’t happen with traditional retirement plans.
  8. Peace of mind. Perhaps the best reason of all: You’ll know the minimum guaranteed value of your plan on the day you plan to tap into it – and at every point along the way!

Find out how you could benefit from a safe and proven 401(k) alternative today…

You can easily find out what your bottom-line numbers and results could be BEFORE you decide whether to add the Bank On Yourself method to your financial plan. Just request your free Analysis.

Take the first step to a lifetime of financial security right now, while you’re thinking of it:

Request your free, no obligation Analysis


  1. Frankly, this article is a scam. There is nothing better than a long-term, steady investment into the United States stock market. Sure, IF and ONLY IF you invest in the right funds (which is: low-cost, index funds tracking the US stock market).

    There are risks within the 401K because there will always be risks with any investment. Anyone that tells you a sure way to make money with no potential downside is a liar and you should be careful. Most employees fail to make money from their 401K because the system is filled with people and tricks built to scam money out of you, so they listen to these people and invest in the worst funds. It’s not their fault, very intelligent people fall under these sophisticated traps all the time.

    The right thing to do is NOT to abandon your 401K, but to watch out for the scams and do the right things to avoid the scams.

  2. I agree with all the point against the 401k and the like. Don’t know what type of investment this article is selling and I don’t much care either. I don’t like giving my money to someone else to watch over, I can do that myself. There are ways of earning money for and during retirement without giving it to someone else.

    When is the last time government had your best interest in mind? What about those big corporations? Since when have they done anything but take your money and keep it? Why would retirement money be any different.? They don’t care about the financial state of America. If they did, the government would t continue to fell further into debt and the corporations woulld preserve a healthy middle class. But they don’t. Don’t trust them or anyone else for that matter when it comes to my family’s well being.

    • WOW! That was very refreshing… I am pleased that others understand the True Nature of the Finance Beast. 🙂

  3. The comedy of those that defend the “tax deferred” retirement plan keep me laughing all day. Ask your fund manager what their net worth is (usually negative). They have an income from getting your account, not what you “earn” in the fund. They also peddle diversification within the market, which is also a farce. Do your homework, become financially intelligent, stop believing your broke advisors and start following a mentor that has actually earned money from a business or investment (real money, not 4%/yr over 30 years). Inflation will destroy your earnings in this “tax haven”, and then you will pay taxes on the entire amount of your distributions later on under whatever income tax law is around at that point. The huge fund owners are making a killing, you are making nothing after taxes, save what you would’ve made if you were not brainwashed into thinking someone else will do this for me with my best interest in mind. Look at it this way, if you ask an insurance agent if you should purchase life insurance, do you think a successful one will tell you “no”? Most fund managers or investment bankers are poor. They are simply employees like all the rest of us paying into their 401K. When the day comes and you realize you contributed 300K to your account, its value is now 900K and you need to pay 40 cents on every dollar you take from it in income, you should be dismayed at the idea of barely beating inflation over all those years. Next lesson, your house is the Bank’s asset, not yours! An asset earns you money, your house doesn’t.

    • Yeah, you don’t know that. Most of these fund managers and financial companies are some of the wealthiest people in the world because they get the concept of making money by helping others make money. The paltry returns started in this article are based on the average RETAIL investor. The average retail investor may have only performed at a little over 4% but the average stock Mutual fund produced far greater returns. People thinking they can get in and out at the right time and time the market is the biggest issue. Investments work, investors generally don’t.

      • What the mutual fund managers are best at is convincing us bumpkins these fairytales are true. Proof point #1:

        Fully 80% of all mutual funds, portfolio managers, and investment advisory services underperform their respective benchmarks, according to The Hulbert Financial Digest. And that’s not only because of the fees they charge. The experts are humans, too, and they’re predictably irrational like the rest of us, buying and selling at the wrong times.

        Proof point #2:

        Mutual fund companies and the financial media love to tout and compare the results of funds over the past year, or past three or five years. And people make decisions about what funds to buy based on those performance records.

        But the fact of the matter is that the only way to reduce or eliminate luck as a factor in performance results is by looking at track records of at least 15 years. Even a ten-year track record isn’t long enough, according to the well-respected Hulbert Financial Digest.

        The second thing to be wary of is putting much faith into the performance reported in a mutual fund prospectus.

        CASE IN POINT:

        The top-performing mutual fund for the decade ending November 20, 2009, enjoyed an 18% annual return. However, the typical investor in that fund didn’t come anywhere close to getting an 18% annual return. In fact, they actually lost an average of 11% per year – every year – for ten years, according to Morningstar, Inc.

        Wondering how that’s possible? It’s because mutual funds are legally required to advertise only the results of “buy-and-hold” investors. So when a fund advertises returns for any given period – in this case, a decade – it assumes investors bought the fund on the first day of that period and held it until the last day of the period – no matter how wild the ride got. But that rarely happens in real life. In fact, on average, investors hold mutual funds for less than five years.

  4. The bottom line is this,the US government does not have your best interest in mind. In fact, the poorer you are the easier for them to control you. Instead of contributing a certain % of your pay in a 401K, just take that money and invest it yourself in gold,silver, and maybe even invest it yourself in the stock market. You can do just as good as a professional broker
    and you will also save fees and be protected from people trying to scam you.

  5. My company tried to auto-enroll me in a 401k plan. I am ****** livid; this is absolutely criminal! I had to then opt out; to not have my money stolen and gambled away by whatever investment firm my idiot company chose.

    Ugh. The USA is disgusting! The government gets a book of blank checks and burns out future while legalizing theft of our retirement savings. I have been investing for decades and ‘SORRY; **** YOUR PLANS! WE ARE TAKING YOUR MONEY UNLESS YOU OPT OUT!’ and they made it a bat-**** hassle.

    I’m good with computers; you have to click the small print if you want to avoid being treated like a bitch. Such BS

  6. I worked 15 years for a company. I contributed @100 a pay period (every 2 weeks) in my 401K.
    It turns out that Massachusetts was one of only a few states at the time where they allowed companies to invest the money in their own company stock. The original owners sold the company to a large conglomerate. At that time I owned over 2,600 shares valued at a little over $400 per share. The new VP “Invested” all of the company’s stock funds by remodeling a new office building. We thought we were growing and would soon move from an old sewing factory to a beautiful new six story modern office. It turns we didn’t own the building we were remodeling. Also, Instead of paying the bills, that money also went into the new building. The company went bankrupt. My 2,601 share investment of over $39,000 during a 15 year period went from over $400.00 per share ($1,010,100.00) to $0.01 a share. I tried to cash out my $26.01 retirement fund but was told I needed to pay a $100.00 processing fee to the firm that was managing what was left in the fund.

    • I am SOOOO sorry to hear about this Robert!  Unfortunately, you’re not alone.  If the high fees and taxes don’t get you, corruption and mismanagement often will.

      It’s just more proof that the 401(k) is a scam and you have little or no control over what they do with your hard-earned life’s savings.

      It’s another reason to Bank On Yourself.

  7. For every $100 I contribute to my 401K, my net check goes down $75. In other words, its only costing me $75 to have $100 work for me.

    • You’re missing the point we made in that blog post:

      Who doesn’t love getting “free money” in the form of the 401(k) employer match? Do you really believe your employer is giving you something for nothing? (If you believe that, I’ve got a Rolex watch I’ll sell you for $10.)

      The Center for Retirement Research did a study based on tax data and found that for every dollar an employer contributes to your 401(k) match, they pay 90 cents less salary to men and 99 cents less to women on average. Translation: That means your employer is essentially pulling money out of your paycheck to contribute to your 401(k).  And you’re really netting penniesnot dollars, in matching funds. Whoa! Doesn’t sound like such a good deal now, does it?

  8. 401k’s are a scam. It’s my money. I want to live life while I am young and have the energy – especially now in my 40’s-50s. You can do anything physically adventurous when you are 70-80. I dont have kids, not married and dont plan on it. It’s just going to be a waste sitting there and I cant do anything with it when Im old and immobile. Bunch of BS.

  9. When you collapse your 401k, they take 20% right away for “taxes”, then you’re taxed another 15% on the personal income … it’s a scam, devised to protect the banks.

Speak Your Mind