Last updated on August 30, 2020
Is a 401k Worth It?
Before I learned to question everything the mainstream media told me, I thought my company’s 401k was a great idea.
I know nothing about stocks! Makes perfect sense for me to put a percentage of every paycheck into the stock market! Thanks ABC News!
Ah, to be naive again….
Here are eight reasons why I don’t invest in tax-deferred retirement accounts:
1. Early Withdrawal Penalty is Bullshit
Everyone should save as much money as they can. Savings = Options.
But if you save money in a government-sponsored retirement plan (401k, Traditional IRA, etc.), that savings isn’t yours until you turn 59½.
The IRS website says:: Early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ will be included in taxable gross income in addition to a 10 % penalty.
In other words, when you withdrawal your own money before the age of 59½, you have to pay a 10% fee of the total sum withdrawn, as well as taxes.
For example, I have about $50,000 in a traditional IRA that I wanted to withdrawal to finance a real estate project.
But one quick phone call informed me I’d only get about $35,000 of that since $15,000 will go towards the penalty fee and taxes.
What a raw deal.
Related Reading: Retirement is a Joke
2. Retirement Tax Brackets are a Lie
They say the beauty of tax-deferred retirement accounts is that the investments grow tax free over all those years. When you retire at 60 years old and start to withdrawal, you’ll pay taxes on that income but because you’re retired your tax bracket will be low, making it worth it.
Absolutely no one has any clue what tax brackets will be 40 years from now. The financial services industry need you to buy into this scam and they hope the general public won’t start using common sense.
Because guess what? Our country is fucked.
The Federal Reserve can’t print trillions and trillions of dollars without also raising taxes at some point.
Maybe they won’t raise taxes today or next year or 10 years from now. But I’m not dumb enough to assume that 30 years from now the tax brackets will still look exactly like this:
I don’t trust the government.
I don’t invest in tax-sheltered retirement accounts because I want to settle my tax bill today while I know where I stand and what I owe.
Related Reading: The 30-Year Mortgage is Trash
3. Capital Gains Taxes are Far Superior
As just mentioned, when you withdrawal from a retirement account, the IRS applies your ordinary income tax.
So let’s say you withdrawal $10,000 during your first year of retirement and have no other source of income. Using the 2020 tax brackets shown above, 10% of that $10,000 will go to the IRS.
Ouch. And the more you withdrawal, the more you have to pay.
But what if you hadn’t invested through retirement accounts? What if he had invested in the exact same mutual funds through a taxable account?
Your original contribution would be post-tax, meaning you already settled up with the IRS.
And when it comes time to withdrawal, instead of paying ordinary income tax, you only have to pay capital gains tax. Check out the difference in capital gains taxes:
This means you can withdrawal about $40,000 a year in retirement and not pay a penny to the IRS, thanks to capital gains tax.
It’s weird the financial services industry or government doesn’t educate you, isn’t it?
Haha, I’m just kidding, it’s not weird at all.
Related Reading: Why Occupy Wall Street Failed
4. Market Timing is a Trap
One thing the “experts” do say is that us minions should never try to time the market. Meaning, make no predictions whether the market will go up or down.
However, about ever ten years there is a bear market. During that time, people who retire will have no choice but to withdrawal from their retirement accounts at market lows (not good). Remember, retirees are actually forced to withdrawal from their accounts at a certain age or else you are penalized by the IRS.
How is this fair?
Imagine waiting your whole life to retire in year 2008. The stock market crashes and your retirement account is reduced by half.
Guess you better start looking for a job? They say market timing is bad but the system is structured in a way that makes avoiding it impossible.
And get this: If you happen to retire during a bear market, the withdrawal is taxed as ordinary income. But if you had invested for retirement in a taxable account, and happen to retire during a bear market, you can tax-loss harvest the stock losses to offset capital gains and pay even less taxes.
And people wonder how the rich stay rich.
Related Reading: Why Are Liberals So Stupid?
5. Index Investing is Lazy
Thanks to technology, retirement accounts today are managed by robots.
These robots (algorithms) simply buy every stock for sale on the market and call that their strategy.
Is this investing?
What happened to supporting a company based on their mission or future growth or balance sheet?
Not anymore. The financial services industry wants to collect your money and request you ask fewer questions. In other words, the stock market has become a total Ponzi scheme. If you guys keep investing, we’ll keep investing, and then hopefully everyone else will keep investing and we’ll all get rich!
This works until it doesn’t.
And guess who gets screwed? (hint: it’s not Wall Street)
Most Americans don’t have a clue where their retirement contributions are going. They gave up tithing in order to invest in the evil corporations they sit at home and complain about.
The valuations of many public companies are completely unjustified. This is not investing but instead the result of quantitative easing and loose monetary policy.
Let’s see how long it lasts.
Related Reading: The Pros and Cons of Index Funds
6. A 401k is Discriminatory and Expensive
When you invest in a retirement account, even through Vanguard, you’re paying a lot in fees. Marketing fees, advisory fees, management fees, regulation fees, paperwork fees, the list goes on.
So let’s say your employer offers you a retirement plan and you put $25,000 into it and earn 10–12% on annually for the next 30 years. Not a penny more.
If the plan had a 0.5% annual fee, your account would grow to $500,000. If the plan had a 1% annual fee, it would grow to $436,000. But what if your employer hired a shitty custodian that only offers expensive plans that charge 1.5% in fees annually? In that case, after 30 years, you would have $380,000.
So that person, who happens to work for a company that hired a lousy custodian (not their fault) can’t retire as soon as the person who works at a company with a plan that charges only .5% in fees.
Remember, Wall Street is the house, and we are the gamblers and the government watches from the sidelines.
Related Reading: What Happens at Burning Man?
7. Lack of Financial Education in Schools
Not only did the government facilitate a system that enriches Wall Street and screws the people — but it isn’t even trying to level the playing field.
Investing 101, How the Stock Market Works or Personal Finance Basics are not courses you will find in the American public school’s curriculum.
Tax-sheltered retirement accounts have been around since the 80’s…what is the government’s excuse? Why encourage the public to participate in a program that they know for certain the public doesn’t understand?
This works out great for Wall Street and the financial services industry.
But in my book, this is just one more reason to be suspicious and not invest in retirement accounts.
Related Reading: What is a Cultural Paradigm?
8. Financial Freedom is Key
A friend of mine is 25 years old and doesn’t invest in retirement accounts. One day I asked him why.
He said, If by the time I’m 60 years old, and am relying on a 401(k) to fund my life — I’ve failed.
He articulated my sentiments exactly.
I have dreams of starting a business, of traveling the world, of buying more real estate and being free. How is locking up my money into an asset I can’t control going to help me?
Don’t get me wrong, I invest in the stock market (somewhat) and definitely invest in other assets, but I truly don’t believe the government has the interest of the individual at heart when it comes to retirement accounts.
After all, there is no easier population to control than a broke population.
Is a 401k Worth It?
If your employer uses a low cost and transparent custodian and matches your contribution — investing up to the match makes sense.
But when a 35-year old is working a miserable job and brags about his $250k retirement account, I’m at a loss for words. Life is too short to sit waiting around for the future.
Tax-deferred retirement accounts are marketing scams our government created alongside Wall Street because Social Security failed. Neither institution educates their victims on how to invest, what they are investing in, what the tax risks are, or how to analyze if investing in a retirement account is right decision for their situation.
All they say is Hand over the money! Trust us! Don’t ask questions!
Cash isn’t ideal in the long run, but it sure comes in handy when you want to buy real estate, right? Or start a business? Stay home with the kids? Live abroad a couple years?
Don’t let the ulterior motives of others affect your life today. Retirement accounts are not the secret to building wealth, prosperity or happiness. It’s that simple.