The 401k has had its heyday, and it is never coming back. Many people think of the 401k as the ultimate retirement plan in the US, but the truth is, it’s not a reliable source for retiring in this day and age.
On today’s show, you’re going to hear five main reasons why the 401k is doomed. Click play to learn more about your 401k on this episode of Investing in Real Estate!
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- The 401k was never meant to stand alone as a retirement vehicle. The 401k was created to supplement an employer-funded pension plan or defined-benefit plan. Up until the 1980s, the pension was the most frequently used retirement plans. But these days, traditional pension plans are extremely rare. Most American companies have shifted from a defined-benefit plan to a defined-contribution plan due to cost and convenience. This shift has left a lot of employees to fend for themselves, with very few resources or knowledge on how to build out a healthy retirement portfolio.
- Massive 401k fees lower your balance. Have you ever looked at the fees inside of your 401k? Spolier alert: there are a lot of them! But that’s not even the worst part about it. These fees are vague, including things like plan administration fees, investment fees, and individual service fees. These fees are purposely lacking transparency and purposely inflated. I implore you to take a look at your fees and see what it’s costing you to have this subpar retirement plan.
- Inflation and taxes will eat away at your savings. These days, multiple factors make saving for retirement impossible. Inflation and taxes are just two of the issues at hand that will decimate your retirement savings. Funds in a 401k can’t keep up with the rate of inflation, and the tax-deferred status of the 401k is built to take a sizeable chunk of your savings when it’s time to retire.
- The 401k’s success is inherently tied to the stock market. I don’t know about you, but I don’t want my financial future to be dictated by swings in the market, politics, and wars. The 401k has the potential to lose tens of thousands of dollars in the event of a market crash. Tying the performance of your retirement to the unpredictability of the stock market does not set you up for success.
- 401k balances have proven to be insufficient. The average 401k balance is just over $112,000. This is nowhere near close enough to fund years of retirement. This is no secret either, Vanguard is the source of this figure. The data is out there, hiding in plain sight, yet the 401k is pushed as an ideal retirement vehicle. People have to understand that they’re being sold a lie with the 401k. It was never designed to fund your retirement, and the numbers don’t lie—it simply doesn’t add up.
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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