The Problem With Your 401(k)
As you know, our world faces many challenges…and many are much bigger than a financial crisis.
Many people ask, “What is our government going to do about it?”
And I believe that question is a major part of our crisis: Too many people expecting our government to solve our problems. Too many people are dependent upon the government for a paycheck.
Fuller did not care much for politics. He said: “My ideas have undergone a process of emergence by emergency. When they are needed badly enough, they are accepted.”
He also said that we had a choice of creating heaven—or hell—on earth. He warned that our generation, not his, would face the biggest crisis of all—a crisis marking the end of the Industrial Age and the beginning of the Information Age.
His forecast was accurate. Today we are all in a giant, global state of emergency.
The good news is that Fuller often spoke on the Generalized Principle of “emergence through emergency.” He explained that out of all emergencies, something new and better emerges.
He used the example of an unborn chick, still in its shell, panicking as it grows larger, trapped in a tight little shell, with food, air, space, and life support running out. Just when things look the darkest, the chick breaks through its shell and emerges into a whole new world.
Fuller was concerned about whether or not humans would choose to create heaven on earth—or choose oblivion—as we evolved into the future.
He warned us not to be complacent, not to let our politicians determine humanity’s future. He warned that the old guard that controlled power would fight to hold on to that power.
The 401(k) Recipe
I’ve said it once and I’ll say it again: the 401(k) is the single worst way to invest your retirement savings.
Thousands of Americans rely on employer-sponsored retirement plans, but they have no idea what they’re paying for or where their money is going. They sign away control over their retirement and don’t think about trying to get it back until it’s too late.
The 401(k) has become less of a retirement “plan” and more of a retirement “cross your fingers” recipe, with lots of unhealthy ingredients thrown in.
With a lack of financial understanding and some strong misunderstandings about where their money is going, Americans have relinquished control over their future, leaving them with an absolute mess.
Many people who have a 401(k) plan consider themselves to be investing for retirement. Yet, they often have no idea what they are investing in, have no idea how those “investments” are performing, and don’t understand the ramifications of what living off a 401(k) for retirement will be.
My question is if you don’t know what you’re investing in and you don’t really know how your investment is performing, how can you really consider yourself an investor? And even more, how can you know if you are secure for retirement?
This leads me to my question: Do you know what’s really in your 401(k) “plan”?
Let’s walk through some ingredients you didn’t know were packed into your retirement plan.
1) Hidden fees
The first thing you should know is that your 401(k) is sprinkled with hidden fees that are buried in pages of legal paperwork. Legal fees, transaction fees, bookkeeping fees, and more. Plus, the mutual funds in the 401(k) often take 2% off the top.
These fees may not seem like a lot when you sign on the dotted line, but over time, compounding cuts down your returns substantially. Jack Bogle, the Founder of Vanguard, puts it like this:
“Do you really want to invest in a system where you put up 100 percent of the capital, you take 100 percent of the risk, and you get 30 percent of the return?”
The worst part? Most Americans are completely unaware that there are any fees on their 401(k).
These hidden fees water down the returns, destroying all your well-intentioned saving and investing. If you don’t know about these fees, you’re putting your money (not to mention your future) on the line.
2) No knowledge or control
The worst part of the 401(k) recipe is that you aren’t even the chef in this game. Instead, you’re sidelined, watching other people prepare your retirement buffet for you.
As an employee, you have absolutely no control over your investment. If you were to take your money and invest in the same mutual funds and stocks as the 401(k), but on your own terms, you would already have 100% more control over your money than an employee who goes with the employer-sponsored program.
That’s because most employees don’t get to opt-out of the 401(k). And when they invest, they have no voice in which mutual funds they put their money into.
Would you ever make a purchase where you don’t know everything you’re paying for? When you buy a house, a car, even a shirt at the mall, do you just blindly hand your money over, hoping for the best? Of course not! But that’s what happens with a 401(k) plan.
An article from Entrepreneur says, “With 401(k)s, I’ve seen environmentalists who are unknowingly invested in big oil, and anti-smoking advocates invested in big tobacco. Simply put, 401(k)s teach people to be unconscious while investing.”
Unconscious investing? Sounds more like gambling to me.
When you put your money in a 401(k) you rely on other people to conduct due diligence and invest in quality funds that uphold your philosophies and produce a return. But you will never meet the people investing your money. You’ll never have a conversation about your financial goals or your retirement plans. You’ll never look them in the eye, instead, you’ll just hand over your money and hope for the best.
That’s not a retirement plan. That’s jumping off a cliff without a parachute.
3) External factors
When you cook a recipe, there are lots of things that can go wrong. Your oven could overheat or your ingredients could be out of season. In the same way, the 401(k) relies on and is governed by multiple external factors, reducing your control over your investment even more.
For example, the 401(k) depends on the stock market. Whether the market rises or falls, your money pays the price. You could lose half of what you’ve put away overnight if the markets fail. Your retirement hangs in the balance and you have absolutely no control.
In addition, the 401(k) is subject to government control, and as we all know, Washington can change its mind pretty quickly. The rules and regulations governing your 401(k) could be altered, new laws can be passed, and you could be dealt a very poor hand.
Not to mention that those who make the policies are politicians and as Fuller warned us, don’t let our politicians determine humanity’s future.
Back to Rich Dad Retirement Basics
To take back control (in a world where you could potentially be living much longer) it’s vital that instead of spending your entire life working for money, you have your money work for you your entire life.
This means moving from the left side of the CASHFLOW® Quadrant, the employee and self-employed side, to the right side, the business and investor side.
This is one of the most fundamental concepts of the Rich Dad philosophy on money. By building businesses or investing in assets that provide passive cash flow month in and month out, you provide the security you need to have a robust retirement without having to rely on side gigs.
The good news is that having your money work for you allows you to still pursue many different passions and hobbies (and maybe even get paid for them), but in a way, that allows you to be financially secure and not dependent on those activities to keep you financially afloat.
Editor, Rich Dad Poor Dad Daily