Six Reasons Your 401(k) is a Scam

UPDATED: July, 2019

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.

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 the tax rate gets lower over the years, you’ll come out ahead. However, most people, including most financial experts, believe tax rates will 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 July 2019, the national debt had ballooned to over $22.4 trillion— which comes to $871,954 for each US family! And it’s climbing at a head-spinning rate. (For a painful wake-up call, check out USDebtClock.org)

For all these reasons, the likelihood is that tax rates will go UP over the long term, and if 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?

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 according to the Bureau of Labor Statistics, the average time a person stays on the job is only 4.2 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?

To learn more about this strategy, download our FREE Report, 5 Simple Steps to Bypass Wall Street, Beat the Banks at Their Own Game and Take Control of Your Financial Future!

 

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 3.88% per year, beating inflation by only 1.7% per year, according to the 2019 DALBAR study.

Yet Wall Street has brainwashed us into believing we have to 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.

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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.

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.

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

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.

  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! So request your free Analysis here now:

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.

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Comments

  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.

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