Forget the 401k and do something better instead. In this episode, I'm going to address
the 401k a lousy idea, a financial flop, a rotten repository for our retirement reserves.
Get ready, I'm going to explain why.
So, my name's Doug Andrew, I've been a financial strategist
and a retirement planning specialist now for more than four and a half decades and I've noticed that
a lot of Americans I feel are duped into putting their money into traditional IRAs and 401ks.
Thinking that's the best way to save and prepare for retirement and frankly, there's a lot of flaws
in that reasoning and I'm not the only one that believes this. In fact, back in 2008 and 2009 after
many Americans suffered up to 40 percent loss in the value of their IRAs is a 401k for the second
time in a decade. Time magazine came out with a cover story here. Why it's time to retire the 401k
and do something better instead? Now, before this article for years in various newspapers
across the country. I had an article that I titled how congress is peddling IRA and
snake oil okay and I'll explain that as we continue here because I think it's like a bait
and switch. But Stephen Gandel was the author of this article and he started out by saying, "The 401k
is a lousy idea, a financial flop, a rotten repository for our retirement reserves."
So I was quoting him at the beginning of this video and I'm not the only one that says this, why?
It is because so many Americans just sort of follow the herd so to speak and
they put their hard-earned money. They want to save for their future and be responsible and they put
it in IRAs and then the company sponsors a 401k and so they follow the herd and they contribute.
Maybe six percent and the company might match 50 cents on the dollar and other times people put
in up to 15 of the income thinking, "Golly, this is the best way to go", and what were they told
by their advisor. Yeah, utilize an IRA or a 401k a qualified plan because you will likely be in a
lower bracket when you retire. I'm talking about tax bracket but folks that has not been true
or axiomatic now for more than 25 years. People are usually not in lower tax brackets when they retire
especially if they accumulated very much of a respectable retirement nest egg.
The only people that I've seen that are in lower brackets are those that didn't save very much.
So it's been a flawed premise from the word go and that's why we have articles like this. But see time
magazine was talking about money in IRAs and 401ks invested in the market. You're just subject to the
whims of the market whereas before 401ks came out most corporations provided a pension. Many school
teachers, officers, firefighters, they received pensions based upon an amount that is contributed.
But somebody has to manage that pension fund so that they will have the wherewithal when it comes
time to retire and there's a lot of pensions that we're going under and so they wanted to change
America from defined benefit plans like pensions to define contributions. With a 401k you define
how much you want to contribute and wherever you choose for that money to be invested is
your problem and that's why they wrote the article. Because most people have their money in the market
and they lose big time when we go through market volatility. So let's look at what IRA's and 401ks
these are qualified plans and what the premise has been when they were first originated.
See, I've often asked many taxpayers is postponing tax a good idea?
Now I use the word postpone these are called tax-deferred plans, I would call it procrastinate.
When has procrastinating anything turned out good for you? It never has for me and so a lot of
times people would come to me maybe five years before retirement and they would show me their
iran 401k statements. I would usually ask them to bring their after-tax IRA & 401k statements
and they would go, "I don't think we have those", I knew they didn't. Because so many times people
would look at a million-dollar nest egg like it was this sumptuous subway hoagie sandwich depicted
here on the left and then they retire and all of a sudden uncle sam comes in and starts taking
big chunks out of it in tax and they went, "Wait a minute, you mean these are taxable when I retire?".
Yeah, it looks like this unappetizing sandwich over here on the right because the government comes in
and helps themselves to a whole bunch of that with the taxes people have to pay at retirement
and people were told, "Well, you'll be in a lower bracket", well that just has not been true, why?
See, most Americans are going down the highway of life so to speak trying to achieve a destination
of financial independence and they have one foot on the gas pedal and the other foot on the brake
pedal and they don't even know they're doing it. They're putting money into tax-deferred IRAs and
401ks okay that's the foot on the gas but the foot on the break is they're usually getting
rid of their tax deductions as they go. Most Americans they try to pay off their house.
The kids are gone in retirement so you even if they move back home as adult kids you
can't deduct them anymore. If they're a business owner they don't have those deductions anymore.
Congress keeps raising taxes and so what happens is a lot of Americans don't have the same tax
deductions they had when they were working. They're not contributing money in retirement to IRAs &
401ks. So, I've seen many people at retirement in as higher tax bracket as they were ever
in during their earning years even if they have less income. Because the deductions have all been
gone and they continue through retirement with one foot on the gas and the other foot on the brake
and they don't know how to solve it. 'm gonna teach you how. So let's review real quick what
a qualified plan is. Qualified with who? Uncle Sam the government. Uncle Sam is your partner and
so when you have a qualified plan like an IRA, 401k, 403b, 457 pension profit-sharing plans.
These are all qualified with the government and so we do it sometimes because the pros we get tax
deductible funding. We get tax-deferred growth and maybe possible matching from the employer.
But what are the cons? When you go to use the money it's fully taxed as you use it. You must use it
up based upon the government's life expectancy formula. These are required minimum distributions
because they've been planning on this tax revenue for years. They've been using you as their savings
bond. Does that make sense? And then the remainder is potentially taxed twice upon passing to
non-spousal heirs. Most savvy CPAs and tax attorneys will agree with me that the worst place
to leave money when you pass away is in your IRAs and 401ks to leave it to your children. You're not
saving tax most kids now if they inherit an IRA or 401k must take the money out. They cannot convert
it to their own they have to pay tax within 10 years. The government has been waiting for that tax
revenue. So, what happens is when people would come to me with their yet to be taxed IRAs and 401ks
I would usually ask, "Golly, are you planning your retirement or Uncle Sam's? Who were you saving for?".
Because if they accumulated a million dollars that's not all your money only about 650,000 or
700,000 of the million is your money. If you pull out 75,000 a year if you were earning seven and
a half percent on a million-dollar nest egg. 75,000 you have to pay a third of that usually between
federal and state tax in taxes. So, you have to pay twenty-five thousand and you're netting fifty
thousand to buy gas and groceries prescriptions and golf green fees and you may say, "Well, if I
tighten my belt I can get by on fifty thousand." Because of government spending the printing of
money in less than a decade from now maybe less than seven years you'll need a hundred thousand
dollars to buy the same gallons of gas and loaves of bread that fifty thousand used to buy. You'll
have to pull out twice as much money out of your IRAs of 401ks. Do you know that most Americans they
will have totally depleted their IRAs and 401ks within 11 years based upon conservative estimates
of taxes and inflation. Now, before I explain to you what the original champions of 401ks actually
said why they lament the day they ever came up with that idea. If this is resonating with you
and you want to share this with someone else be sure and share, post a comment, like, subscribe to
this channel. Because I post an in-depth answer to a financial question almost on a daily basis.
Stay with me to the end because I want to gift you a copy of my most recent 300-page bestselling book
the laser fund and that's at laserfund.com but I want to share with you why this is so critical and
why you need to protect yourself from the dangers of taxes inflation and market volatility. When 2017
came around the original champions of the 401k this was an article in the wall street
journal I think it was like January 2nd. They basically said they lamented the day
they ever came up with the idea of the 401k, why? Because so many Americans used it as their primary
retirement savings vehicle. It was never intended to be the primary savings but as soon
as corporations could wash their hands of having to provide pensions and put it on the shoulders
of the people the workers to contribute to define the contribution. They could just match it if they
wanted to but the rate of return or how long the money would last to the day they died. They didn't
want that responsibility anymore and so that's why the original champion said, "Golly, we lament the day
we ever came up with the idea", because it became the prominent way most Americans started to save
and it's not working. So, what happened is a lot of people have looked at their 401ks and it's not the
cat's meow they thought it was. It's actually sort of stinks sometimes when they look at
how the 401k is not performing very well. The average American in retirement according to Dalbar
who studies investor behavior is only earning 3.49 percent, that's not going to cut it. This is what
precipitated the 4 percent rule in the financial services industry. The financial services industry
does not want any of their advisors to illustrate any more than a four percent payout because the
average American is only earning about three and a half percent if your money is in the market.
That means a million-dollar nest egg. They only want you to take forty thousand dollars a year
out that's pretty pathetic and then you have to pay tax. Even in a twenty-five percent bracket
you pay ten thousand in tax on the forty thousand you're only netting thirty thousand. Many of them
charge fees of one percent or more on that million dollar nest egg, that's another ten thousand.
If you're pulling out forty thousand and you subtract taxes and fees you're only netting two percent
or twenty thousand. You will outlive your money because you can't get by on two percent that's
pretty pathetic. So let me show you what you can do better. So, the biggest dangers that we need to
eliminate because of people having their blinders on and they don't even think about this until
it's too late at retirement is to eliminate those dangers of taxes, inflation, and market volatility,
from your hard-earned money. Because money in an IRA 401k in the market is subject to those
three big dangers. These are the three dangers that cause most retirees to outlive their money.
So, in my most recent best-selling book that I want to gift you a copy of it's called the laser fund
and we teach you how to eliminate these dangers. Number one, by converting to tax-free vehicles
not tax-deferred. You have to perform a strategic rollout not a rollover. We teach you that here in
the book so that you can convert to tax-free. You don't have to worry about taxes going up.
You link your returns to the things that inflate. So inflation helps you instead of hinders you
we teach you how to do that here and you're not subject to market volatility because you use
indexing. Your money is not at risk in the market when the market goes up, you get to
benefit. But when the market goes down you do not lose because your money is not at risk in
the market. The three biggest strengths of what my favorite vehicle which I call the laser fund
has is liquidity, safety of principle. You will not lose due to market volatility and you use indexing
so that you can get a predictable rate of return I've usually averaged between seven to ten percent
tax-free rates of return. Now, there's some years much higher some years less but you will not
lose when the market goes down due to the market volatility. If this is intriguing you and you would
like to learn more. You can go to laserfund.com laserfund.com you contribute a nominal amount
towards the shipping and handling and I'll cover the rest of that and I'll fire out a copy of
this 300-page book for you. There's also options there to listen and learn watch and learn but
I am passionate about educating Americans on how to protect themselves during retirement.
So they don't get duped anymore by tax deferred IRAs and 401ks and stretching
them out during their lifetime thinking that's the best way to approach retirement, it isn't.