A continuously growing number of retirement planning experts believe that 401(k) plans no longer make sense for savers.
One of the biggest appeals of the 401(k) – the ability to make contributions with untaxed dollars in exchange for tax-deferred growth and withdrawals – is disappearing.
The national debt was already skyrocketing before the pandemic spurred the most prominent fiscal stimulus programs in the nation’s history. That, paired with a wave in unemployment, has reduced tax revenue for federal and state governments.
What do governments typically do to offset budget deficits?
They increase taxes, of course!
And as taxes increase, deferring them in a 401(k) or IRA means you’ll pay more later – potentially a lot more.
Even before the pandemic, the Center for Retirement Research said people lose 25%-33% of their 401(k) value to taxes. Most people are appalled by this statistic because they’ve forgotten they will owe the IRS taxes on every penny they’ve put in and every penny of growth they’ve deferred.
Do you know what the tax rates will be in 20 or 30 years from now? Speculation aside, no one knows! Just like no one saving in a 401(k), IRA, or investment account can know what their retirement account(s) will be worth when they need to tap into them.
In addition to creating an unpredictable future tax liability, experts say 401(k)s come with other wealth-killing pitfalls:
- The employer match turns out not to be “free money” after all – the Center for Retirement Research found companies that offer matches simply make up for it by paying you less salary.
- The employer match isn’t guaranteed – thanks to the pandemic and shutdown, many companies have reduced or suspended the match.
- You typically need to work for a company for four to six years to keep the full match. That’s not working out so well for the tens of millions of people who are suddenly out of work.
- The fees in 401(k)s and IRAs compound against you and can easily devour 30-50% of your savings, according to Brightscope and the Department of Labor.
- You have little to no control over the money in your 401(k) or IRA – the government controls it, imposing numerous restrictions and penalties if you don’t follow their rules to the letter.
No wonder Ted Benna, the inventor of the 401(k), says it’s a “monster that’s out of control” and should shut down. Even Mr. Benna has recently said that he now puts most of his own money into what’s most commonly known as Bank On Yourself-type policies!
The Bank On Yourself Strategy gives you numerous advantages.
- Knowing what your tax rate will be on withdrawals from your policy throughout your retirement – zero! Your policy grows tax-deferred and can be accessed tax-free under current tax law.
- The income you take from a Bank On Yourself type policy does not cause your Social Security benefits to be taxed and doesn’t hike your Medicare premiums, unlike 401(k) and IRA withdrawals.
- There are no surprise or hidden fees – the projections and guaranteed values of Bank On Yourself-type policies have already had all costs deducted and accounted for.
- You control the equity in your policy and can access it whenever you want – no questions asked!
- You can use the money in the policy, and your policy can continue to grow as if you never touched it. (Only a few companies offer this feature, so be sure to reach out so we can help you implement this strategy.)
- You get guaranteed, predictable growth and retirement income – with no luck, skill, or guesswork required.
Don’t you owe it to yourself to investigate how adding Bank On Yourself to your financial plan can help you reach your financial goals and dreams without any unnecessary risks?
Bank On Yourself® is a registered trademark owned by Hayward-Yellen 100 Ltd Partnership and is being used with permission.