A highlight from Everything You Need to Know About Your 401(k) (Are You Losing Money?)

The Money Guy Show


You can go and bring up the headline. Because and here's a cracking me up. Four one ks plans no longer make much since for savers. Well i don't know why that much de much push the needle over a little bit murther but to me. This is bad. Look at me content creation because in bali you brought up thursday very likely a conflict based upon what his background the fact that four 401k k. assets probably don't allow his product so that might have played into it. But i don't like this because a lot of people who are starting out. You don't even know what to believe what not to believe and you see something like this and you very likely could get disheartened. You could feel like hey the system stacked against me. Why even bother. If everything's working against me. I always want to pause and say remember guys. Eighty percent of millionaires are first generation. Now here's how is that even possible. And this is something. Whenever you get the green with envying you think man. They must've got it from their parents. They must have got it from their grandparents. Remember this stat. Seventy percent of wealth evaporates in the second generation. Ninety percent of wealth is gone by the third generation. So that's why you have to have this cleansing cycle. It happens naturally. Don't let somebody tell you you cannot do this. I come from humble beginnings boko from humble beginnings. You can do it. Don't let some person writing a look at me. Type headline to get clicks derail you from making smart financial decisions. What does other did is he went through and he started trying to put out some reasons. Why the 401k is not attractive. It's not something that makes sense and so we thought we would do is. Let's just respond to some of the points that he makes. Let's give you sort of our opinion on some of the things he says. Make them less attractive. So the first thing. I'm gonna i'm just gonna go through a few of these things really quickly. The i felt like he used higher tax rates for nineteen eighty and then he used the lowest possible rates for now for. He is two thousand eighteen because the first year of the tax legislation. But here's the thing that i think is is interesting about this. He used the forty three percent marginal rate but he had to take some liberties with that because he assumed incomes kind of in. Today's dollars back then and look nineteen eighty. My parents bought their first house in nineteen about their second. Nineteen seventy eight. The house i was raised in one thousand nine seventy. They paid sixty thousand dollars for it. I want you to take the i didn't. That was not a misstatement sixty thousand. It's nice house for beings you know you see the same thing about warren buffett. You know people always talk about he. He bought his first house. For like sixty. Or seventy you have to realize. Nineteen eighty was a long time ago. So when you see somebody who's making thirty forty thousand dollars you're like well. That's not a ton of in one thousand nine hundred eighty terms. That was a lot of money so they even get in the tax bracket he was. He was taking some liberties but then he used twenty eight percent capital gains. That is the tippety top of the capital gains back in one thousand nine hundred us zero for today realize that i mean you can have a twenty three point. Eight percent capital gains rate. Today if you make enough money and to us zero. And here's the part. I don't like about what he did with the tax rates as soon as an individual makes more than forty thousand dollars a year. Eighty thousand dollars is a couple all of his assumptions. Blow out mmediately so now look. If you will be low income now you're low-income potentially in retirement. He might have some points. But i don't think that's the money guy audience and building wealth. That's not even the median when we've talked about what the medium income is in the country right now. It is not where he had us. I felt like it was kind of glass half empty pessimistic. They'll look at things to come and make his point and then boat talk about fees because he just assumed there's all this innovation that's occurred with your after-tax your traditional savings accounts but 401k's been stuck in old fuddy-duddy land and not making any change. Yeah we have a little unique perspective here because not only do. We have a feeling wealth management firm where we help individuals and families with their financial planning. We also offer investment advice to a number of four one k. Plans out there. So i feel like you and i are intimately familiar. Not only with four one k. plans but how. They've changed over the past two decades if you just look at the last two decades in his article what he found was he said average 401k fees or one and a half percent and we said that i don't know where he got that so what we did is we went to the 401k fi analyzer website. You can go access and this is including fund expense ratios administration fees and service fees. The average 401k in this country has expensive about forty five basis points. Now obviously i will agree with him. That not all 401k's are created equal. Some are better than others. But if you've been paying attention the department of labor has been putting a lot of emphasis on 401k plans improving so one of the things we have. We have to make sure we have really good. Low cost options. We have to have make make sure we have really diversified. If you're in a plan that has averaged fees of one half percent it's sort of a dinosaur it doesn't it'd be brought up today because that's not what most 401k's look like nobody an. You'd be surprised if you went to your hr. Whoever your bosses are explain you might be able to build up enough grassroots support that you could make sure because that leads to cause fees was way off of like he. He just once again assumed that you had to be have a really low income. And then he assumed the worst on fees to make his scenario like i said this is bad. Click bait what this does and then what about this. Here's another big issue. Where is the roth. Huge changes happening. I mean think about it. The majority of four one k. Plans now offer roth meaning tax free savings opportunities. Nowhere was that mentioned in this piece absolutely and that's a huge benefit. 401k so i think 401k's have actually changed and improved a vast a vast amounts since nineteen eighty and. I still think there are a tremendous vehicle to go about saving for the future. That leads the he talked about all kinds of market pressures out there in the retail sector. There's actually a water market pressure on the investment of retirement products as well like you said. Department of labor is really been coming down to making sure they. Sec has definitely been asking the questions to make sure using the best share classes and other things notifying what. The fees are for the plane every year to all plan. Participants is there's a there's a wad of there's a lot of competition that's naturally happening. That was kind of excluding historical. And this is. The last point. I'll make is felt like he diminished the moral hazard of making 401k's easy dax because he his part of his solution. Now like i said you you brought up a great point. He might have a conflict of interest here is he's got to get the money out of the 401k's allow in-service distributions. So that people can then take this money every year and go put it into lower costs or better investments by what he perceived but. I think that we've seen that. Sometimes you need these assets to have a moat around them to a degree. Think about that castle. You won't the drawbridge ways very limited where to get money for retirement and we've seen it now. I don't think it's money gop listeners and viewers but i do think that there's a lot of people that are buying pickup trucks cars and putting swimming pools backyard with four one k.

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