CRACK in the FOUNDATION POINT 3 -
You are going broke because you didn't plan on having to pay HUGE taxes on your 401 K/IRA/etc.
Huh?
In investing...
Inflation kills you.
Fees stomp on you.
Taxes kick you when you are done being stomped on.
This is the part that ticks me off most even though it's only one of the big monsters in this mess.
So you have your $20,000 you stuck in retirement in 1989. 20 years goes by, we have no return on our money after inflation and fees. Now you take 1/3+ of that OUT for taxes and you have the purchasing power of $14,000, 20 years later. (This assumes old fashioned taxes and not the taxes that are coming to pay for bailouts...and other lovely "programs.")
No one ever told you that you'd get taxed on that money did they?
Don't worry about it.
What you don't know can't hurt you right?
ugh...
So even in a BLISTERING HOT bull market that never ends, you can't really end up with more "purchasing power" (inflated money) than you started. At least not if you are an employee earning $100,000 or less per year.
Let's be clear.
You can hope...you can aspire to get your money back that you put in your Rainy Day 401 K Fund.
You can't hope to actually make money. You won't.
Look, let's say you were making a whopping 10% per year. You invested the 20,000 in this mega-magic-fund and 20 years later you have 120,000 before factoring out inflation and fees. Pull out the inflation and fees and you are left with about 80,000 of buying power. Take 1/3 of that out for taxes and you have $50,000 left.
No wealth here and you had a best-case scenario.
So WHY do I think you should max out your 401 K?
Well IF the company you work for, if the company who invests for your company, and IF the mutual funds THEY invest in...all three of them are 100% saintly and trustworthy and you trust them with your life, you will end up with the same purchasing power at a guaranteed rate of return of 7% per year....less taxes...or about 2/3 of what you started with 20 years ago.
And that's my reason?
Yep.
That's my reason.
Now, if you don't trust your company, your county, the company managing retirement at your company you work for, the market in general....then there are other avenues....
Face it...
Most people would go buy a car or a ring or a TV.
Value in 20 years?
Zero.
Value of your 401 K in 20 years?
2/3 of what you start with normally, break even in a blistering hot market.
Better than zero.
And truly coincidentally (really) that is exactly what happened.
If you had enough to live on for a year, say that $20,000.00, then you will have that 20 K when you retire. ONE YEAR worth of income you don't have to stress about.
REFRAME the 401 K to be a RAINY DAY FUND that will last for about 1-2 years. IT IS NOT RETIREMENT.
Now, there are people who will tell you that "stocks have never had a time when they didn't return 10% per year over time."
That is both misinformation and a lie. (Sorry)
The fact is that after expenses and fees and inflation AND a MASSIVE WITHDRAWAL TAX, it's all pretty meaningless as a tool to BUILD WEALTH.
It's A GOOD RAINY DAY FUND, though.
Turn the page for the "Down and Dumb" Report over the last 18 years ...
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