Planning for Retirement: Rethinking your 401(k) retirement plan

Over the years, it seems as if the mainstay to any company offer, culture or benefit package, involved a 401(k) plan.  To many people, this seemed to be a solid financial choice to integrate while planning for retirement.  However, the test of time, has revealed much.  A recent article written by Time magazine, written last month titled  “Why It’s Time to Retire the 401(k)”, brought some serious issues to consider.  Here is a direct quote from that article stating:

“The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves.”

Across the nation while teaching at our workshops and while on-air during our Chicago-based financial radio talk show, we ask the following question:

“In the future, do you think tax rates are going to be the same, lower or higher?”

Brooks Hamilton on 60 Minutes sharing the grave problems associated with traditional 401(k) plans

Shockingly enough, 90% of the room raise their hands to “HIGHER“.  Therefore, why are Americans placing hard-earned dollars into a retirement plan that traditional financial planning has us believe that tax-deferred treatment of our salary is such a great benefit?  After all, we will be taking this money out at time in our life when we need our money the most…yes, that’s retirement.  And unfortunately, Uncle Sam has us positioned to pay potentially higher income taxes on any withdrawals from these 401(k) retirement plans which were greater than when we were working.  Hmm…was this a mistake?

Lastly, we have been sharing that another anti-401(k) advocate by the name of Brooks Hamilton, has put his two cents into this subject matter.  After all, he was the pioneer of implementing the 401(k) plan into corporate America!  He has been in the pension and employee benefits consulting business since the 1950s.  I do not doubt his experience and wisdom throughout the years.

Mr. Hamilton shares another problem with these strategies in planning for retirement.  He has termed this problem by calling it “yield disparity“.  In layman’s terms, he means that two people working at the same company can have a different rate of return on their retirement plan.  Their statements would be much different, side-by-side.  It is the case of the have and have nots.

Why should the CEO and higher management executives have a much higher return on their money than the administrative assistants and janitors?  Mr. Hamilton states this about yield disparity saying, “It would destroy the opportunity for ordinary workers to retire in dignity. They couldn’t get there from here. There is no way. Number one, they are contributing too little, too late for the most part. They are contributing the least, and then they are getting lousy investment performance…”

It makes sense.  Thank you Mr. Hamilton for standing tall on this!

Here’s the real ugly truth.  CEOs and upper management executives have different types of conversations about life in general than ordinary workers.  I can see these VPs at a golf course talking about their financial portfolio mix, asset-class diversification and key investment opportunities their are eyeballing for the future.  Then I see the mail-room crew hanging out during their lunch break talking about the latest MTV Cribs episode or the new hot spot they are going to blow their money at during the weekend.  That’s just life.

But to remove corporate responsibility from educating every employee about their 401(k) plan,  best ways to take advantage of this benefit and not take blame for loyal, life-long committed employees who lose everything in their retirement plan is downright irresponsible.  Especially in such a time as this.  It is not different in Chicago than in any other part of the country.

If no one else helps you, ask yourself these two questions:

• Is all that I have been told about planning for retirement from my friends, family and co-workers, not entirely true?
• Is there another way to plan for retirement where I can bypass all of Uncle Sam’s taxes, penalties and avoid unnecessarily losing everything?

We hope you find answers to these questions…and quick.  It time to take back control, realign with our personal destiny because money shouldn’t be this overwhelming.

If you find yourself in a position where you are unsure about all your options on planning for retirement, please contact us @ 708-686-2000 x1.  Or email us, info@moneysmartradio.com We’ll make sure we get you connected with a licensed financial planner or adviser in our national network for a free consultation.  Make sure to also subscribe to our updates, get a free “Money Smart” financial course and be notified of live events or free webinars!