Disadvantages of Government Retirement Plans (401k’s, IRA’s, etc.)

by Wes Bridel on August 14, 2009

in Stewardship

Ever wonder what will happen to all that retirement money you've been putting away?

Ever wonder what will happen to all that retirement money you've been putting away?

“Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? 29For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, 30saying, ‘This fellow began to build and was not able to finish.’ (Luke 14:28-30)

Government Retirement Plans are the most common form of Savings/Investment in America.  Conventional wisdom says that these are the best way to save for retirement.  And just about everyone heeds this advice by using these plans.  So everyone must be doing really well, right?  Why is it that hardly anyone can afford to retire even if they’ve spent decades following this worldly wisdom?

How many people do you know of who got rich because of their retirement plan?  We saw some who had worked for technology companies throughout the 1990’s who had a lot of company stock which spiked, but if they left it there, it’s not there anymore.  We don’t seem to run into those anymore.

My guess is that you’ve been lead to believe it’s a no-brainer that you should be maxing out these plans, am I right?  If this were such a no-brainer, shouldn’t it be working for someone?  Anyone?

Who are these plans benefiting and how did they come about?

As usual, if we study conventional thinking in the way people manage their finances we will see that the group that benefits the most is the financial institution itself.  When the Government is making tax law involving people’s investments, who do you think gets involved?  These financial institutions are real cozy with Congress as these laws are being formulated.

We’ve spoken before about the Four Rules of Financial Institutions.  These plans fit what the Big Banks are trying to do to a tee.  They get a steady flow of your money from now until you stop working.  Once they have it, you are incentivized to leave it with them as long as you possibly can.  All the while, they are charging you fees to manage that money for you!  It’s a perfect system….just not for you.

We’re going to spend several days talking about some of the disadvantages of IRA’s, 401k’s, 403b’s, SEP IRA’s and the like.  The problems are going to fall into the following categories:

  1. Limited Investment Options
  2. Lack of Control/Accessibility
  3. Questionable Tax Benefit

This is _Part 12_ in the series titled The Trunk.  To continue with this series, click on Pt 13.  To use this as a growth tool, please read Pt 1, Pt 2, Pt 3, Pt 4, Pt 5, Pt 6, Pt 7, Pt 8, Pt 9, Pt 10 and Pt 11.

Photo credit: National Collegiate Scouting Association

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