In today’s financial landscape, the default advice for an American’s retirement strategy is to funnel the lion’s share of their savings into tax-advantaged vehicles like IRAs and 401(k)s. It’s a narrative deeply ingrained in our culture, with few questioning its validity. It’s almost expected that should you choose to stray from this traditional path, you may be subject to a battle with your employer to opt out of contributing to these plans. But why has this become the norm, and who truly benefits most from it? Let’s delve into some revealing facts to uncover the retirement strategy you may be overlooking.
Set Your Retirement Strategy Free!
First, consider that any deposits you place into a qualified plan are locked away behind a 10% penalty and taxes for the better part of 40 years (most of your adult life) until the age of 59 1/2 wherein you will finally be granted permission to access your funds without constraints for a few magical years. At the age of 73 however, a new set of onerous penalties are imposed (25%) if you fail to meet the required minimum distributions. This is like trying to play ball with one arm tied behind your back for most of your life.
These restrictions, ostensibly to discourage premature dipping into retirement savings, raise questions about individual autonomy over financial decisions. The default assumption is that someone else knows best how and when you should access your money. We justify these restrictions because we have been conditioned to believe we shouldn’t touch our savings for retirement, but what if we question this assumption for just a moment?
Control is power, and in this scenario, you do not have the control of your capital. What implications does this lack of autonomy have for your long-term financial health?
Let Your Retirement Strategy Work for You
Life has a tendency to throw us a few unexpected surprises!
- We experience a job loss,
- a family member becomes critically ill,
- a daughter gets married,
- or a business venture fails.
In any of these or a thousand other scenarios, our need for access to capital is often much greater than we anticipate. Consequently, a significant portion of Americans find themselves dipping into their retirement accounts, triggering penalties and taxes. In 2017 alone, the IRS collected a staggering $5.7 billion in penalties, underscoring the profitability of this governmental gig! Moreover, when this happens, the time to accumulate capital is lost and if the market ever takes a tumble, those losses are compounded in the wrong direction.
Furthermore, this approach neglects the potential for higher returns through alternative investments that individuals might explore if they had access to their capital. Instead, the average individual entrusts their financial future to these standardized plans, perhaps out of a lack of investment knowledge or confidence.
Wealthy people make it their business to invest in what they know and can control. Have you ever heard Warren Buffet talk about maximizing his 401k? Of course not! The truth is, we are implicitly admitting when we give over the control of our capital to these funds, that we trust someone else with our money, more than we trust ourselves. This tacit admission is a sad reality for many today.
Don’t Let Your Employer Dictate Your Retirement Strategy
Finally, eligibility to contribute to employer-sponsored qualified plans hinges on one obvious factor – being employed, effectively tying participation to wage-based income. Coupled with the contribution limits imposed based upon income, the questions arises whether the system is designed to perpetuate a cycle of dependency on traditional employment structures that notably also pay the highest taxes.
Nelson Nash astutely observes in his book, Becoming Your Own Banker,
“When government creates a problem (onerous taxation) and then turns around and grants you an exception to the problem they created (any tax qualified plan) aren’t you just a little bit suspicious that you are being manipulated?”
You labored to put your hard earned dollars into those accounts thinking the money would be there when you need it. Yet, as a real estate professional, I have witnessed the agony of a first time homebuyer trying to access their money for a down payment waiting on permission from an unknown party to access their money and almost losing their contract. Someone else is in control of how much you can take, when you can take it, and upon what terms you will pay it back. Thus, the importance of control of your capital cannot be overstated.
In summary, you the consumer, bear all of the risk of the market and pay all the management fees for 40 years. You may or may not realize a substantial gain depending on the market and numerous other factors. On the other hand, the government collects a payout whether through penalties and taxes because you were forced to withdraw early, or whether you successfully make it to retirement and pay taxes on a substantial gain at withdrawal. They cannot lose. Given these facts it is not difficult to conclude that the tax qualified plan is designed as a most profitable savings account for Uncle Sam and a questionable one at best for the consumer.
A Not-So-New Retirement Strategy
This has not always been the way of savings in America. Historically, our grandparents placed their savings in government bonds and whole life insurance. The 401k did not exist for American citizens prior to 1978. The tool for savings I am suggesting is a specially designed mutually owned, whole life insurance policy.
The growth on these policies is guaranteed by private contract and the life insurance companies bear the risk of its growth – not you.
Would’t it be advantageous that before placing your money at risk and locking it away under penalties, taxes, and someone else’s control, you considered an account that created a place to store your wealth that was…
- private,
- safe,
- readily accessible when you needed it for any reason,
- penalty free,
- compounding daily tax free,
- asset protected in most states,
- and was transferred tax free to your heirs?
I know, it sounds to good to be true, but I encourage you to do your homework. We want our clients to be well educated in the concept. The best place to start is to read Nelson’s book, Becoming Your Own Banker and fill out the info here to receive a complimentary, no obligation consultation. I would be honored to show you how this process works in your favor and under your control.
