I wrote this because lots of people invest in tax-deferred government-sponsored programs like the 401k.
People invest in a 401k because they think it’s safe and because they’re scared of losing. But this “security” is a false security. It’s like hiding behind a plank of wood when someone has a 50-caliber rifle. You may think it’s safe but it’s not.
10 Reasons Why You Shouldn’t Invest In A 401k
1.It’s A Government Sponsored Program. First of all, no one in history has ever gotten rich off a government sponsored program. The idea is a paradox. You can’t become a capitalist of a socialist program. It’s a conflicting idea. It’s irrational, illogical and unsound. It’s bad advice. In fact, anytime the government funds something, run away.
2. 401k Assumes You’ll Retire Poor. The 401k isn’t a tax-exempt program. It’s a tax-deferral program. Meaning, it postpones your taxes until the day you retire and then charges you the taxes. The only way you can profit is if you have low-income and low assets, i.e you are poor, when you retire so that you have a low tax bracket. This way you’ll pay fewer taxes. If you retire rich, i.e you have a high-income and high amounts of assets, you’ll be taxed at 35% and would have to a lot of taxes. Thu,s the only way a 401k can work for you is if you’re planning on being poor when you retire. To beat that, you can withdraw fewer dollars and that’s retiring poor which is no way to retire.
it works if you want to retire poor, that’s why they say that when you retire, your income will go down 401k is like saying we’ll eat our vegetables last because the world will end by then
the average retirement income for ages 65-74 is $47,432.
401k programs want people to be poor when they retire, it’s designed to do that else you’ll have to pay big taxes on your high income.
3. 401k Doesn’t Have Insurance. In real estate, you can buy insurance and if your property burns down, you get reimbursed. But with 401ks you can’t buy insurance…
4. Your Company Matches Your Contribution. You’re asking “Well, Nikhil, that’s a reason I SHOULD invest in a 401k, not a reason not to.” Not only is this a reason not to invest, but it’s a reason to run away. You must ask, “Why is my company persuading me to invest in a 401k so hard?” The reason they have to seduce and bait you is because it’s such a bad idea. Employers “we’ll match your contribution” is just salesmanship. You’ll get “free money” but you’ll lose control over your money —which is the next topic.
5. You Have ZERO Control. Just as in a mutual fund you have no control, in a 401k you have no control either. On top of that, we’re opted-in automatically and there are auto increase contribution from the employee. So, not only do we have ZERO control, but we had no control to begin with.
401k: no control over money
6. Taxes. Dividends are taxed at 15 %, but when you put it inside a 401k it becomes ordinary income. In real estate, you can control your tax. Meaning, you can lower it.
401k isn’t a tax break or tax credit program but it’s deferring the taxes.
put money inside a 401k = taking risk, take it out and you pay ordinary income. you take risk and pay ordinary income at the end of the day.
taxes when and how you pull it out
7. No Leverage. A 401k doesn’t provide leverage. You cannot borrow money to invest in a 401k, thus multiplying your return. Nor can you use debt in an IRA
8. No Cashflow. Cashflow is why you should invest. Cashflow means a passive income that comes in every month that eventually replaces your ordinary income, i.e your salary. And with a 401k you don’t get that from the start. You get money after you retire but it’s not cash flow. True cashflow is holding on to the asset while making money. There are only two ways to make money: capital gains or cashflow. Cashflow is the secret of the rich.
pension plans: you pay into them for years and get nothing back until you’re 65
9. Rich People Borrow From 401k Companies. They Don’t Invest In It. 401k companies raise money from the middle class. Then, investors borrow from 401k companies to build apartment complexes, shopping malls or just to grow their business and pay the 401k a return on their money. Then the 401k company takes a percentage of that return for themselves and divides the rest among the clients, which is us. In the end, it’s the investor and the 401k company that gets the lion share and ultimately becomes rich, not us. In other words, 401ks makes others rich.
10. Inflation. This is the most detrimental reason of all. If you haven’t heard of inflation this is what it is: more money in the economy with the same amount of goods. Meaning, the price of goods go up higher and higher. The current inflation rate in the U.S. is 3%/year. Meaning every year your U.S. dollars lose value by 3%. How does this affect your 401k account you might ask? Well, let’s say you put 50,000 dollars into a 401k at the age of 35 and you’re now 36 and the account has grown to $51,000. That’s a 2% growth (1,000/50,000). But your 1,000 is not worth the same as last year because the price of goods has “risen” by 3%. So, it will cost you 1,040$ to buy 1,000$ worth of goods as you did last year. Thus at the end, you may have made 2% but you lost 3%, which puts you at a 1% net loss.
17 different fees in 401k.
401ks are the worst investment vehicle out there. It was created to get people in the stock market and it’s working.
People invest in a 401k or RRSP because they don’t know of any other investments and because they aren’t willing to learn. They say things like, “that’s what everyone else is doing”. The masses are wrong. It’s the blind leading the blind.
Studies show that when faced with lots of investment options for their pension plan, people often choose arbitrarily or walk away without making any choice at all.
401Ks are supposed to be supplementary not the meal. Wall street is the only ones who get rich off of 401Ks. If you want to be a millionaire, learn from a millionaire, not from someone making $60,000/year, like your banker.
401ks hasn’t worked for anybody. Nobody got rich from a 401k. Wall street is the only one who gets rich off of 401Ks.
401k money goes to banks; they make the money; that money is lend to their friends
If you want to be poor give your money to a financial planner. If you want to be a millionaire, learn from a millionaire, not from someone making $60,000/year, like your banker.
As a 401k account holder, you’re an investor. But, most don’t realize that. However, you have to start thinking like an investor. If people knew the Return On Investment (ROI) of other vehicles such as gold, real estate, business (such as retail) or oil, they wouldn’t be putting their money inside 401Ks. The only reason we have 401ks is because people aren’t willing to learn. If you invest in small investments, i.e a 401k, you’ll stay small. You need to think bigger if you want to be rich.
Again, do your research, ask your banker if all these claims are true.
To your success,