401k, as we know is the majority retirement plan for most working Americans. The ideology of working hard, pay off your car, your house, and put away your money into 401k has been the American Dream of many generations.
However, with interest rate at rock bottom, a hoaxed stock market, rising unemployment, 1% GDP Growth, and increasing social benefit contribution. The dream is being crushed for many Americans. Is there another alternative?
The coin always has three sides: The head, the tail, and the edge. A sophisticated investor always positioned his or herself on the edge and listen to both ends.
There are many benefits that 401k plan has to offer. There is no doubt about it.
What about the downside of a 401k or any traditional retirement plan?
1.Security vs. Freedom:Â People often mixed up between financial freedom and financial security. With a retirement plan such as 401k, you are looking for financial security. 401k are designed such that you are not poor when you retired. If you want financial freedom, you better do something else.
Not being Poor and being Wealthy are two different things.
Financial Security and Financial Freedom are two different things.
2.Giving money to Stranger: If you are contributing your money to a retirement plan. You are the very reason that made the fund manager on Wall Street so rich!
At the end of the day, people do business and invest with people they like and trust. Retirement plan breaksÂ this fundamental concept by giving you incentive such as company matches to give away part of your paycheck to the people who you don’t even know or trust.
You never see that money again until you are ready to….die? The working class Americans are the oil and the gear that run this giant financial machine of Wall Street.
3.Bad Assumption: Ask any traditional financial advisor and the 1st thing they will tell you is: “contributing Â your money into 401k now so when you retired, your distribution will be taxed at a lower rate”
Well..F*ck :D.. excused my language but the only way you can be taxed at a lower rate is you make less money that you are currently making. By investing in a 401k you automatically tell your subconsciousÂ mind that you will retire poor and make less money that you currently making.
I don’t know about you. but when I retired, I want to pay more taxes, and all kind of taxes because I will have so much more income and different businesses by then.
4.Awesome Tax Advantage:Â Capital depreciation, Business expense, vehicle, home offices, iPhone, computers, Starbucks, gas, leverage, de-leverage, etc…
oh sorry, I must be confused the above benefit it with something called Real Estate and Business, you have NONE of it with 401k.
5.It’s all about options: By locking your money into a 401k plan, you locked yourself out of other investment opportunities. You get penalized for taking YOUR money out (how does it make sense to get penalized for taking your own money out anyway?)
Fortunately, there are vehicles which have been created such as Self Directed 401k , and Self-Directed IRA to rescue you out of this mess if you already into it. A mentor once told me: whoever has more options in life usually win.
Don’t ever limit your options.
6.There are better alternatives: 401k is the thing of the industrial ages. If you could just open your eye and look around you, There are so much going on in Main Street vs. Wall Street. There is a social aspect of investing where the fund you invest created value. Where value is created, money will follow.
Now stop and think: what value I created for my family, my friends and my communities by investing my money into a 401k? If you think of one, let me know.
7.It’s all about Me, Me and only Me:Â That’s pretty much what is retirement plan is about. It’s all about you and your money.
What about your children, grandchildren, and the people you care about? when you retired, 401k is designed so that it willÂ take care of you, not them
Vehicle such as real estate, on the other hand, is about generational wealth. If managed properly, the wealth will pass down from generation to generation after generation. Before you could notice, you great-grandchildren are the next Warren Buffet automatically thanks to you.
Investing in just 401k is pretty selfish, don’t you think? Try to pass down your 401k to your grandchildren and see how that work.
Â Conclusion: There is no one size fit all solution
Like I said, there are three sides of the coin: The head, the tail, and the edge. Listen to both side and figure out what is right for you. There is no one size fit all solution. Some people is very well off diversify their eggs into different baskets such as Stocks, Bond ,401k, Real Estate, Gold, Silver, and different Businesses.
Others, on the other hand, are doing awesome by focusing and placing all the eggs into one basket and watch it like a hawk.
What are you going to do? what will fit you and your investing philosophy?
What defined you as a being?