I am always amazed at how many retirement advice articles include “max out your Roth IRA” and “contribute to your 401(K)”. Even articles being promoted by highly regarded news sources.
What if your company’s plan has “high” fees?
What if your company has no plan or no match?
What if you do not have a company?
What these articles often fail to recognize is this advice is almost as outdated as “stay with your company 40 years and look forward to a gold watch and a pension”.
Seriously.
This advice is as overly simplistic as “be debt free”.
It sounds relatively easy, but there are so many things to consider… especially after 2020.
Yes, contributing to a 401(k), up to the amount your company matches, gives you an immediate 100% ROI (return on investment), and it tends to increase in value as long as you contribute and your company matches that contribution.
But, what happens when the contributions stop? Well, that depends on the plan. Most 401(k) plans are mutual funds, which means you are paying someone else to manage your funds (ie: buying and selling stock) and try to beat the stock market. There are a few dirty, little secrets about this:
1. It is almost impossible to beat the market on a regular, ongoing basis
2. If the manager makes you money, the manager makes money. If the manager loses your money, the manager still makes money. The manager has no incentive to really optimize your investment.
3. What may seem like a small fee (think 0.01%) can make a huge difference when compounding is involved. This can add up to tens or hundreds of thousands of dollars over the course of your contributing years.
The next thing you need to consider is governmental control. With most retirement accounts you pay tax-free, then pay taxes at whatever tax rate you are at when you withdraw the funds. The things is we know the tax rates now (which are at a historical low, although that may change in 2021). We do not know what the tax rates will be when you are retired. And, the government charges you fees and fines if you do not follow the rules they set up on your money (so much for “the land of the free”!)
And what do you do if you do not have a company to sponsor that retirement program? Well, there are some options available to those people. The other option is to think outside the box. Pretty much whatever assets you have when you retire will be your “retirement account”. This includes your house, your possessions, any collectables, your stocks/bonds/annuities/cryptocurrency, savings, rental real estate, land… well, you get the idea.
Now, to be clear, I am not completely retirement account adverse. Just make sure you do the research so you understand what works best for you.
I just wrapped up a free 5-day workshop that covered this (and more). If you would like to be included in the next workshop, email me at jennifer@jenniferharterconsulting.com and I will add you to the waiting list.
If you cannot wait for the next workshop, we could have a free First Steps financial strategy call to cover your specific situation and best first steps.
And, of course, if you want to take a deep dive into all things money, finances, investing, and money mindset, check out the money mom academy over at https://moneymomacademy.com.
How are you preparing for retirement?