In 1974, the US Congress passed the Employee Retirement Income Security Act (ERISA), forcing employees to switch from employer-provided defined benefit (DB) pension plans to employer-provided defined contribution (DC) pension plans like 401(k). This put their retirement money in the hands of mutual fund managers and the volatile stock market. From then on, Wall Street gained control of the retirement money of American citizens, ushering in a new age of deceit. Now, let us examine why 401(k) is a financial fairy tale weaved to dupe the financially ignorant.
To start, 401(k) offers very limited opportunity for cash flow to the individual investor because there is no immediate cash flow. In addition, given the penalties in place to punish people for early money withdrawals, most people do not withdraw their money in the plan, thus placing them in the hands of Wall Street firms that leverage this money to reap excessive profits. As a result, the common people miss good investments as their money becomes locked while the rich gets ever richer.
Moreover, there is a heavy dependence on a volatile and ever-changing market for your money to grow in the 401(k) environment. Because of this, there is great uncertainty and fear. As many of you know, these 2 are powerful emotions that trigger mistakes, worry and scarcity. Given the lack of a safety net and insurance for your money, you have a higher chance of losing your money and it is definitely not worthwhile to gamble what you worked for in your whole life with a temperamental market.
Furthermore, investors have no control over how their money is managed. Given this lack of control, it is hard for you to maximize your profits because the person managing your money always thinks of his best interests first. With this, I sincerely believe that it is better that the investor educates himself well and manage his own money to gain more control over his profits.
In addition, 401(k) has exorbitant administration fees excluding expense ratios and 12-b1 fees (for marketing expenses). All these cause the investor to lose a certain amount of his returns on the investment and forces him to reduce projections.
To add on, there is a severe under-utilization of money because taxes are simply deferred to the future where they have to be paid eventually. Because of this, a fixed amount of money is guaranteed to be taken away by the government when you can withdraw your money from 401(k). Given the fact that taxes rise over time, the 401(k) investor really loses out when taxes on his money gets deferred to the future.
Hence, in conclusion, after covering so many flaws of the 401(k), I believe readers have gained a better understanding about why it is a financial lie. Armed with this knowledge, move your money to better investments that promise higher returns instead of letting it get preyed upon by the financial predators around today!
About The Author:
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