We only publish this stuff to give retirement advisors an idea of what they’ll have to debunk when employees proudly produce clipped articles in 401k education and enrollment meetings.
Pamela Yellen, author and “financial investigator,” sent us the following pitch with reasons she feels 401ks are a fraud.
Most of her points are easily swatted. For instance, her first about the possibility of rising tax rates; yes, market and policy uncertainty exist, and there’s always the possibility tax rates will increase. She might also be surprised to know the universe is in flux.
Here’s some great advice—have participants wait for perfect market stasis before investing. How long would they wait? Could such a thing ever happen? It’s why Investing 101 demands basic asset allocation and properly diversified portfolios.
The rest of her arguments are more of the same, which we reprint below in all their sophomoric glory. Fostering and exploiting an “us vs. them” mentality only serves Yellen’s interests, which is to sell books. The wicked Wall Street she describes (which she conflates with the financial services industry as a whole) is overwhelming populated with committed professionals dedicated to helping.
We’d advise caution with such market prophets preaching a better “system,” but feel you already know.
The folks who originally pushed the 401k as the solution for retirement savings now say it is a bad idea, yet Wall Street and the government continue to push it as if Americans had no other choices. Pamela outlines 6 reasons the 401k is a scam and why people don’t have to risk their retirement savings in order to grow wealth.
- The Tax-Deferral Scam –No one knows what tax rates will be in the future but most people believe they will only go up, due to our country’s unsustainable debt and aging demographics, Pamela says. “Unfortunately, if tax rates do go up and you’re successful in growing your nest-egg, you’ll only be paying higher taxes on a bigger number.”
- The “Free Money” Scam –Think you are getting “free money” in the form of your employer’s 401k match? Think again. A Center for Retirement Research study of tax data found that for every dollar an employer contributes to your 401k match, they pay 90 cents less salary to men and 99 cents less to women on average.
- Fees Devour Your Hard-Earned Money –In spite of the rules passed a few years ago requiring better 401k fee disclosure, surveys show most participants still have no clue how much they’re actually paying. But according to Brightscope, participants in small plans pay 1.9 percent in fees annually, and participants in large plans pay 1.08 percent per year. If those fees sound like ‘small change’ to you, then here’s a wake-up call. Fees of only 1 percent per year can slash the value of your savings by 28 percent over the next 35 years, according to the Department of Labor.
- Putting Your Money in Prison –“It’s like a trade with the devil: Give me all your savings in return for tax-deferral (a scam as we’ve seen) and an employer match (another scam), and I’ll keep it under lock and key for you until you’re 59.5 years old. You have to beg for permission to use your own money! There are all kinds of restrictions and penalties for accessing your own money.
- The Myth of Market Returns –You’re told that over the long term, you can do well in the stock market. But over the last three decades, the typical equity mutual fund investor has earned only 3.98 percent per year, beating inflation by only 1.3 percent per year, according to the DALBAR studies. Yet Wall Street has brainwashed us into believing we have to risk our money in order to get any kind of decent returns. And so we continue to blindly fund our 401ks like lemmings following each other off a cliff.
- After Decades of Being Lab Rats in the Great 401k Experiment, Most Pre-Retirees Still Don’t Have Enough Saved –Even the ‘father’ of the 401k, Ted Benna, has called it an “out of control monster” that should be blown up.
“So are there any good alternatives to the 401k? The answer is YES, but of course you won’t hear about it from Wall Street,” according to Pamela.
From her research Pamela shares a time-tested retirement savings method that has none of the disadvantages of the 401k–one that allows people to know guaranteed minimum value of their savings on the day they plan to tap into them, and every step along the way. This method, which Pamela calls Bank On Yourself, has provided savers with up to 9.94 percent annual returns over the last half century, and has never had a losing year–ever–in 160 years.