Americans Should Be Outraged Over the 401(k) Scam

This is just a disappearing mirage in the distance

Americans should be outraged over 401(k)s but for some reason, they are not. For some reason, 401(k)s (and IRAS for that matter) have become mainstream and actually promoted and accepted by most financial advisors. This includes some people who I think overall have a pretty good head on their shoulders when it comes to finances like Ramit Sethi, author of I Will Teach You To Be Rich. He and many others continue to promote this myth that “investing” in the stock market through your 401(k) will make you rich. This is not investing in my vocabulary. This is gambling! You have no control on the outcome and you are just hoping that the house (the system) will let you take a small chunk of the cake (profit) that they make every day.

When I first started reading about financial advice, this was the constant mantra -invest early in your 401(k) and enjoy non-taxed gains for years until you retire when you are 65 or older. Back then, they said, enjoy returns on average of 12%. Then the books said 10%. Now they say 8%. Eight percent?! And I have no control over the outcome, and I have to lock up my money for 40 years before I see the POSSIBLE benefit!? Sounds like a conspiracy or something.

Well, come to find out, if you look a little deeper, just like many things, it really is a conspiracy that was made between the government and the corporations not long ago. Once upon a time, if you worked at a corporation for many years, you would be guaranteed something called a pension. Now, this word has been all but stripped out of our language as companies jumped eagerly to the 401(k) model. The pension plans had what was called a “defined benefit” meaning that if you worked a certain amount of time you were guaranteed to be paid out a defined amount of money for the rest of your retirement. The big businesses noticed that this was costing them a lot of money, so they looked to some other way out of paying for pensions. Together the big businesses and government made a pact.

They would create these 401(k)s and IRAs that would allow people to make a “defined contribution” without any defined or guaranteed benefit in the end. Then they sold it to the unsuspecting new generation in shiny wrapping paper as a great deal. To sweeten the deal, the companies would even give “matching” funds. While you should take advantage of these matching funds and maximize your 401(k) in this way, it is besides the point. The matching funds from the employer are nothing compared to the pension you could be getting.

This benefits the corporations in many ways. 1) They don’t have to pay the retirement pension for many years 2) It is voluntary, so many of the employees won’t sign up and take advantage of the free matching anyway which saves the companies tons 3) It puts all the responsibility of retirement on the individual instead of the corporation and 4) It further entrenches us to believe that the corporations are all powerful beings. We buy their stuff at the big box stores, then we work at their stores, or if we are lucky, at their corporate offices, and then we buy their stock or bonds in the form of our 401(k)s. What a scam!

And the government is no better, because they tax you to death if you try to touch your own money above and beyond the taxes you would have paid. And if you lose all your money in the stock market gamble? So sad for you.

My recommendations would be to take advantage of the 401(k) in so much as the match is free money, but don’t play the market with it. Stay conservative with this gambled money. Utilize your saved money to play real direct investments that you control. This may be becoming a silent or active partner in a business and buying things that bring in passive, residual income. These opportunities are everywhere -big and small! And they are much better than the stock market. For instance, we recently bought a house for $50,000 and are able to make $700 rent on it. That is approximately 17% return on investment, not counting appreciation on the property -much bigger than we could ever get playing the corporate gamble.

What’s the biggest scam about 401(k)s is that even if you have a great idea for an investment, even a long-term investment, they (the corporatocracy) will not allow you to touch that money without a huge penalty. For people who have no discipline in saving and who are just starting out learning about finances, you should actively practice saving, and 401(k)s, Roth IRAs and other investment vehicles might help make it an automatic habit (just like automatically taking out our income taxes, you don’t miss it if you never see it).

But for those of us who are beyond the basics and are trying to turn the system around, those who instead of being a slave to the 8-5 grind and corporate structure want to get out of the rat race and make the system work for us, we need to WAKE UP. Don’t be fooled, 401(k)s are an outrage we should not put up with. Put your money where it makes the biggest impact to make you free, not into the system that is oppressing you.

For more on this, check out this Free Republic article.