Dear Money & Crisis Reader,
You work hard… you pay into your 401(k)… and you retire comfortably at 60.
That’s the plan, right?
Unfortunately, the great 401(k) experiment is failing many Americans… and they don’t even know it.
According to the Center for Retirement Research, as of 2015, there’s a $7.7 trillion gap between what Americans have in their accounts and what they need to see them through retirement.
In fact, experts say the next generation of retirees will be the first in decades to be less well-off than their parents were.
Now, don’t get me wrong. I don’t think the 401(k) program is bad. As a savings incentive, it works great.
But if you think your 401(k) alone will be sufficient enough for retirement, you might need to double-check your math.
Recently, I sat down with Jim Rickards, best-selling author of Currency Wars, to discuss some of the shortcomings of your typical 401(k).
Below, Jim sheds some light on why your 401(k) might not be doing as well as you thought it would.
All the best,
Editor, Money & Crisis
Where Your 401(k) Falls Short
First of all, all the benefits of the 401(k) are fine.
The idea that you can put in pretax dollars and possibly get a match from your employer… and let it compound tax-deferred for decades… that’s all good.
There’s no reason not to take free money.
But the problem is that the choices you have are often quite limited.
They steer you into either money market funds, which of course pay nothing… or stocks — which have been doing well for years but, as we saw this just week, are unduly risky.
Stocks are the kind of thing that can triple in seven years and then lose half their value in seven weeks.
Some 401(k)s might have bond funds. But they put a lot of garbage in these things.
They’ll give it some name like “the global growth bond.” But in reality, you might be investing in Russia, Brazil or Turkey.
Meanwhile, Turkey’s heading for default and all of a sudden, boom. You look at your 401(k) statement and you’re like, “Whoa. Where’d that money go?”
401(k)s have become playgrounds for Wall Street sponsors who push a lot of products that customers don’t really understand.
I’m not saying it’s illegal. They have disclosure documents.
But honestly, who reads them? Even if you do, who has the expertise to evaluate them?
You rely on your broker and you rely on the plan’s sponsor.
Most people are not financial experts.
I mean, if you have a Ph.D. in monetary economics, that’s fine. But what about the people who are in advertising, in marketing, in manufacturing or in the service industry?
They’re good at what they do. They’re frugal and they save, but how are they supposed to understand what a good diversified portfolio looks like or what the risks are?
So they rely on suggestions from their brokers.
But the brokers are conflicted because all they want to do is sell you stuff. They’re not really looking out for you. They’re looking out for themselves.
Like I said, I’m not against all 401(k)s. Things that encourage people to save are good. And the legalities and the tax deferral are all good.
But I wish that people had more choices.
If you do have a 401(k), I encourage you to get some independent advice.
Find a financial adviser — independent of the plan’s sponsor — who can look at your 401(k) choices and help you get a diversified portfolio.
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