Ted Bennett, the inventor of the 401K, described his own creation as a monster that should be blown up. Today, we’ll tell you why it is so. Stay tuned and learn why you should consider withdrawing your money, why it is a gamble, and how those low fees actually slash the value of your investment.
What You Will Learn About What They’re Not Telling You About Your 401K – 2019:
- What Ted Bennett said about the 401k
- What makes 401k complicated
- Why you should consider withdrawing your money
- How your taxes are going to get deferred in time
- Why 401k is a gamble
- How it affects the salaries
- How much you are actually paying for it in the long-term
- Watch the full video version of this episode on YouTube!
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Speaker 1: This is Theriault Media.
Matt Theriault: I’ve been sharing this for years, what they’re not telling you about your 401K, too much disapproval by the way, and some downright hate too, but people are starting to change their tone a bit. Even the inventor of the 401K himself, he admits to have created a monster that should be blown up, his exact choice of words, and I’ll tell you why on today’s episode Financial Freedom Friday.
What are they still not telling you about your 401K? Kind of really all the same stuff, but based on the feedback that the last time that I talked about this, and the feedback that continues to roll in since then, the better question is, what are you still not telling yourself about your 401K? Here’s what I mean. You see, I’ve been called a conman, I’ve been called a scammer, I’ve been called a fear monger, I’ve been called a total joke, and some other fun things, because of what I’ve had to say about the 401K as a retirement strategy.
Before you decide to pile on and share your expert opinion of me, the father of the 401K, the guy that invented the 401K, Ted Bennett admits to have created a monster that should be blown up, his exact words, and he goes on to say this, he says, “The plans have grown so overcomplicated, and so fraught with hidden fees, and opportunities for bad decisions, that they were better at enriching the financial industry than the actual savers.” And, these here are precisely the very abuses that caused him to invent the 401K in the first place back in 1980, so those abuses of the financial industry, the pre 401K have found [inaudible 00:01:46] themselves all the way back around come full circle, and now, they’re all deeply entrenched and embedded in the 401K.
Now, here’s what needs to be understood about my thoughts on this. It’s not that Ted Bennett agrees with me, and the ideas that I’ve been sharing over the years. It’s not like he came out, and said this, because he’s been watching my YouTube channel, no. You see, it’s me, and my ideas that agree with him. When I revisit the, what I said in the last video more than, I don’t know, five years ago I guess, I still struggle to find out what was so controversial about it. First thing, I said it was complicated, of which so many people just thought I was absolutely insane, arguing that, “Matt, idiot, it’s super simple.” Of which, it’s supposed to be for you.
It’s supposed to be simple and easy for you to put your money into a 401K. That’s what they want, and that’s the part that the father of the 401K now has an issue with. It’s simple and easy for you, but you see, it’s what goes on behind the scenes that’s complicated, and it’s that complication that is doing the enriching of the financial industry more than the owners of the 401Ks, meaning you if you have a 401K, of course, so that’s the first thing.
The second thing I said was, “The 401K was based on the wrong retirement mindset for the new economy.” It’s based on saving money, of which per the overwhelming stats of the giants of the financial industry that facilitate 401K’s, most people simply don’t make enough to save enough for the 401K to provide a fulfilling life in retirement, and yes, even if your employer matches your contribution. I’m gonna get to that in just a minute, but overall, here’s what I mean. The average balance for the 401K at retirement age is just $179, 000. After 40 years of working, the average, the 401K at the retirement age is only $179, 000, under $200, 000.
Love it or hate it, I don’t care what your opinion is, it’s not working, but hey, it’s still $179, 000, right? Well, what’s that gonna do for you in retirement? Well, if you can live on $4, 000 per month, let’s say you can live on $4, 000 per month. You’re gonna run out of money in 4.3 years, so you’re telling me the 401K that’s the best that you could do over a lifetime of saving? The third thing I mentioned was, to consider withdrawing your money from your 401K, consider taking it out, and I said, “Consider taking it out, and get out of it altogether, and invest in income-producing real estate.” I said, “Consider doing that.”
I mean, people just, they can’t handle that one. This is where most people, they absolutely lost their mind, and I don’t understand why. I mean, real estate, it’s produced more wealth than anything else, certainly, far more than any 401K has ever produced. I mean, I’ll put that up against any wealth created by a 401K any day of the week, twice on Sunday. That’s an easy competition. Only 1% of those with 401Ks have a balance of more than one million dollars, only 1%. That means 99% of 401K holders do not have that much. It wouldn’t even be a competition.
Here, let me give you six solid reasons why your 401K is likely not going to work out for you, and even if you don’t agree with all six, it would only take one of these reasons to crush your 401K dreams. Reason number one, deferred tax. Deferred tax is likely a higher tax. Deferring taxes until you retire, it sounds really good on the surface, but what will the tax rate be when it’s time for you to retire? Nobody knows, right? No one has a crystal ball, but 89% of the people surveyed in an independent study recently believe that tax rates can only go up over the long term due to our country’s unsustainable debt, and aging demographics. The logic that’s tough to argue with, not to mention that the trend of the political climate.
Furthermore, the required minimum distributions, did you know that once you hit a certain age you are required to withdraw money from your 401K, and what’s gonna happen there, it’s likely gonna push you into a higher tax bracket than you’re currently in, so yes your taxes they are deferred way out in time, but likely to a time when you’ll be taxed more than you would be taxed today. Reason two, unrealistic growth expectations. The mainstream media they would like you to believe that the stock market always goes up, and indeed the market has trended up more often than not, but the concern really shouldn’t be so much whether you’re fortunate will grow, but rather the timing of when it does.
For example, if you were to hit retirement age during the great recession of 2008, 2009, 2010 right there in that era, you would have been forced to take distributions from your retirement plan when stock prices were really low, and because they were low you would have had to, taken a lot more out, something that you can’t afford to do in retirement. It’s a long term gamble of timing that you have to hope works out for you. Reason three, your money is restricted. Once you put your money in a 401K, you can’t pull it out without a penalty until you’re 59 and a half years old, even if you absolutely need it. I mean, you essentially have to beg for permission to use your own money.
Reason four, that free money isn’t exactly free. Seriously, why is this the only example of free money anywhere in the world? Because, it ain’t free, and what I’m talking about, I’m talking about the employer match. Many employers offer a dollar for dollar match for employees who participate in the company 401K. If you invest a $1, they’ll put in a $1. That sounds like a really good plan, right? That sounds like free money, doesn’t it? Well, that’s what everybody thinks, but it’s actually not free money at all, and here’s why. The Center of Retirement Research did a study based on tax data and found that for every dollar an employer contributes to the 401K match, they pay 90 cents less salary to men, and 99 cents less to women on average.
In other words, companies fund their employer matching program by reducing salaries by an equivalent amount. Like I mentioned earlier, even with the employer match the average balance of a 401K at retirement age is still less than $200, 000. The employer match as good as it sounds doesn’t make enough of a difference for the 401K to pan out as a retirement strategy. Reason five, vesting, meaning reduced wages aren’t the only problem with the 401K employer match. There’s also the problem of vesting. In most companies, your employer match funds won’t be fully vested until you’ve been in your job for six years. That’s the most allowed by law. If you get laid off, or you switch jobs prior to that six-year mark, you’re gonna forfeit a portion of the employer matching funds that you thought were yours. This may not seem like a problem until you realize that the average length of employment at any job is only 4.2 years, according to the Bureau of Labor and Statistics. That’s reason five.
Reason six, fees. See most people who put money into 401K accounts, they never read the fine print to see how much they’re paying in fees, and quite honestly, I probably wouldn’t either, but with that said, most plans fees, they fall between one and 2%, and that doesn’t seem like much, but it adds up. Actually, it’s much worse than adding up, and this really gets me thinking about the one person that posted under that original video, he posted that, “Einstein called compound interest the eighth wonder of the world, and you sir are no Einstein.” That was kind of my favorite one, I think. Well, I hope you’re watching right now because you know what? You’re absolutely right. Compound interest is a powerful thing when it comes to building your wealth, but the compound interest, it works both ways.
Those fees they compound too, and here’s what I mean. Over the course of 30 to 40 years, according to the Department of Labor, fees have only 1%, I’m just talking about 1% fee, that 1% fee per year can slash the value of your 401K by 28%. That 1% cuts into your savings by almost one third. That 1% cuts into your savings by almost one third. Don’t get mad, it’s just math, and you don’t need to be Einstein to do that math, alrighty? Don’t get depressed, don’t be afraid. There’s no fear mongering here. There’s a really simple solution, and it’s this solution that’s been the overall idea that I stuck to for as long as I can remember, and it’s everything I stand for here at Epic, this is it. Focus on creating streams of income, verse building piles of cash, and then, once your streams are flowing enough to support your desired lifestyle, then let your streams flow with over, and build your piles of cash for you.
In other words, keep your 401K if you want. You’re getting no judgment from me, but what I’m requesting is, or asking you to consider is, just move the creation of your passive income to the top of your priorities for your retirement strategy, and then, let your excess passive income build your 401K. I’m partial to real estate, it’s what’s worked for me, and countless others, but watch this video right here. It’ll give you 30 other options if real estate isn’t your thing, all right? And, it’s gonna give you everything you need to know about creating your own passive income. I’ll see you next week on another episode of Financial Freedom Friday.