Stacking cash and investing for the future is great. Doing it through government-sponsored retirement accounts? Nope.
I was 26 years old the first time I heard the term 401(k). It was right after I had landed my first “office” job and I remember sitting down with the woman from HR like it was yesterday.
I had so many questions!
Back then, the concept sounded great and I proceeded to invest a % of each paycheck for years to come. Over time, however, I educated myself to really understand where my money was going. The conclusion?
Retirement accounts are not for me.
To be clear, investing is great. So is stockpiling assets for the future. What I don’t love are tax-deferred accounts, as I believe I can do more with that money today to secure my future than I will be able to 50 years from now.
Here are eight reasons why I don’t invest in a retirement account.
1. Common Sense
In the United States, I’m allowed to earn a living however I like as long I pay a portion of my proceeds to the government by way of taxes. I will likely never see that money again. Fine. Whatever.
If I’m already paying 30% in taxes, why would I give up even more of my income to Wall Street? And you’re saying I won’t see that money until I’m 59 ½?
Investing in stocks and bonds in a retirement account is giving my money to Wall Street investors and market makers, it is completely out of my control. If I ever want to access my money, I am forced to pay a 10% penalty fee. Absurd.
The last thing I need is the government telling me when I can and cannot access my own money. Common sense-wise, this is not a good deal.
2. The Tax Lie
The assumption about tax-deferred retirement accounts is that taxes will be lower in the future. Do you know what the tax rate will be when you’re 59 ½? Me neither. Do you know what income tax brackets will be 20, 30 or 40 years from now? Me neither. Does the government? Nope! Have you heard about this country’s ever-increasing debt levels? Yeah…
Another assumption is that we will be earning less in our 60’s and 70’s than we are today. Says who? There’s a very real possibility I’ll have a much higher income in 30 years than I have today at 33. Therefore, is it really in my interest to defer taxes today that need to be paid in 30 years? At a time when I’m possibly in a higher tax bracket?
I don’t trust the government. For that reason, I want to settle my tax bill TODAY while I know where I stand and what I owe. I prioritize and value freedom over my finances more than the *hope* that tax rates, personal and nationally, will be lower in the future.
We need a better system. Ten thousand baby boomers retire every day, and they are our 401(k) and IRA guinea pigs. No generation before them has retired off such accounts. At any moment, their portfolios could drop to zero. It is grating to hear someone say this would never happen because it’s never happened in the past. Have you heard of black swans? Donald Trump, the Titanic, 9/11? Black swans happen.
Social Security failed. The government couldn’t balance the budget to provide any sort of security blanket for the elderly, so it’s passing us off to Wall Street. Isn’t it irresponsible for the government to encourage Americans to invest in the global stock market where factors that affect performance are out of even the its own control? What happens in China, Russia and Europe is anyone’s guess.
So do you think the money in your retirement accounts will be there by the time you’re 60? Fingers crossed!
We are told not to time the market, but that is precisely what retirement accounts force us to do.
Every eight to 10 years, there is a bear market. During that time, many retirees will have no choice but to sell (yes, you are actually forced to sell at a certain age or else you are penalized by the IRS). And when that time comes, what if the market is at bottom lows? Or what if the bear market lasts 10 years? Oops, guess you better start looking for a job! The government and Wall street are encouraging what can only be described as quintessential market timing.
5. It’s Not Always a Good Time to Buy
Just as it’s not always a good time to sell, it’s not always a good time to buy, either! I’m writing this in August 2019, and the stock market is considered expensive. Most Americans don’t have a clue where their contributions are going, so they invest each month regardless of price.
This statement is aimed largely at the increasing popularity of index funds that buy the entire stock market. It’s possible the stock market could go up forever, but according to most measures, we are nearing the top or are already there. Americans are encouraged to make contributing to their retirement accounts a habit, but that is not always sound advice.
6. Wall Street Always Wins
Every time you buy a stock, mutual fund or exchange-traded fund (ETF), someone on Wall Street gets paid. This is whether there is money waiting for you at retirement age or not. Wall Street is the house, and we are the gamblers. The government watches from the sidelines and hopes the markets go up.
7. Ignorance is Not Bliss
Not only is the government supporting a system that largely enriches Wall Street, but it isn’t even leveling the playing field for the rest of us. Investing 101 and financial education should be required in schools. Retirement accounts came to life in the 80’s, and the last time I checked, there has been no reflection of this type of education required in public schools. Of course, the financial services industry is grateful for our ignorance.
8. I Have Bigger Plans
A friend of mine is 25 and doesn’t invest in retirement accounts. One day I asked him why. His response? If by the time I’m 60 years old I am relying on a 401(k) or IRA account to fund my life — I’ve failed.
He articulated my sentiments exactly. I have aggressive net-worth goals and plenty of ideas for how to get there. Putting aside 10% of a salary for 30 years and hoping it’s enough to support me when I’m old is setting low life standards. Every dollar in a retirement account is a dollar not being used to invest in myself, in real estate, in my business, my education, my hobbies, etc.
Retirement Accounts are a Scam
There’s several blue pill marketing campaigns in this country:
1. Owning a home is the American Dream
2. Going to College is essential to succeed
3. Capitalism is Evil; socialism is Good
In my opinion, retirement accounts (excluding the Roth) are marketing scams created by the financial services industry that the government went along with because it lacked any better plan.
The idea of putting all our eggs in a stock market basket is asinine. Especially since the majority of Americans can’t explain how the stock market works. What happened to saving cash? Owning physical assets? Starting a business? Taking a hiatus from work to travel?
It makes me sad to see so many people stretch themselves to contribute to retirement accounts when there is no guarantee of that securing their future. Cash isn’t ideal over time, I get it, but what if a great real estate deal pops up? Or someone pitches a cool business idea? Aren’t these things worth your money today because they can provide you security in the future??