401(k) is the worst way to save for retirement

[NESailor]

http://wealth.kiplinger.com/reader/kiplinger/why-your-401-k-slash-403-b-is-one-of-the-worst-ways-to-save-for-a-comfortable-retirement?rid=SYN-yahoo&rpageid=14986&yptr=yahoo

Saw this pop up on my Yahoo!Finance feed this morning.  I don't even know where to begin on this one.  The author claims to be a CFP but he's either incredibly incompetent or an outright fraud (steering people towards LIFE INSURANCE ffs).

Crazy thing is...I heard similar arguments from colleagues in my line of work (I'm a CPA)...

[WGH]

Saw this as well. Completely ignores the compounding effect on the tax deferred monies which is the entire appeal of a 401k in the first place.

[jinga nation]

I think Kiplinger's target audience is high-income individuals, such as doctors, lawyers, C-levels. The only places I've seen the magazine, since 1998, is in my MD uncle's, and his MD friends' homes, and in doctor offices. That's why "Reason #2: You are NOT in a lower tax rate bracket in retirement".

Also, it encourages “maximum-funded life insurance” as a 401(k) option. Another product targeted at the same people, marketed also as whole-life and unversal-life policies. White Coat Investor has debunked the myths http://whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/.

Lots of FUD in that fluff rag.

[NESailor]

I think Kiplinger's target audience is high-income individuals, such as doctors, lawyers, C-levels.

I understand that it is possible to end up in a higher bracket after retirement but find it pretty unlikely unless one accidentally works a decade or two extra and then accidentally saves 8 figures instead of *just* 7 and proceeds to blow it all at an incredible rate.

I'm in a higher than average income category as well but it's never crossed my mind to not take full advantage of reducing my taxable income. 

He also says this: "It is okay to max out your 401(k) into a Roth option, but not the traditional one."... I'll go out on a limb and say that people who don't have enough money to max out BOTH traditional and Roth options are not going to accumulate crazy amounts of money - especially if we're talking about Roth IRA's here and only putting in the 5,500 + less-than-max in traditional IRA/401(k).

[stoaX]

I notice in reason #2, the tax reason, he equates income with standard of living when he says "do you want to retire with a lower standard of living". He needs a FACE PUNCH for that.  If I have a higher income pre-retirement with a mortgage on my house and my post retirement income is lower by the amount of the mortgage and my house is paid off, I have the same standard of living despite a lower income - even a non-mustachian can buy into that.  There are many mustachian reasons after that why he is wrong....   

[mizzourah2006]

I guess if you are a prototypical American and you spend everything but the 10-15% you make you will want to end up spending more in retirement.

[BigHaus89]

I also saw the article this morning. It gave me a good chuckle. Don't use a 401k because the government will come after it. Indexed annuities on the other hand...

[abhe8]

In some cases, I agree. My dad was highly compensated for his work in finance, retired early ish (early 50s), his much younger wife still works in finance, also highly compensated, so he is in a higher tax bracket now, and wishes he had invested more in after tax index funds and less in 401k. Situations vary.

[NESailor]

In some cases, I agree. My dad was highly compensated for his work in finance, retired early ish (early 50s), his much younger wife still works in finance, also highly compensated, so he is in a higher tax bracket now, and wishes he had invested more in after tax index funds and less in 401k. Situations vary.

Indeed, but you'll probably admit yourself that this affects a tiny fraction of the population.  The article is not framed like that and the advice is pretty poor for the majority of people.

[UnleashHell]

I was shocked to see that he is a financial planner with his own firm that would be happy to advise you how to invest that non 401k money.

SHOCKED!!




fucking dingbat

[jinga nation]

I was shocked to see that he is a financial planner with his own firm that would be happy to advise you how to invest that non 401k money.

SHOCKED!!




fucking dingbat

Jackass Mustachians using logic and following the money trail....  bet these dingbats are calling us a bunch of fuckers.... literally fucking with their business model

[SirOcelot]

He also says this: "It is okay to max out your 401(k) into a Roth option, but not the traditional one."... I'll go out on a limb and say that people who don't have enough money to max out BOTH traditional and Roth options are not going to accumulate crazy amounts of money - especially if we're talking about Roth IRA's here and only putting in the 5,500 + less-than-max in traditional IRA/401(k).

He means using a Roth 401(k) instead of a traditional 401(k) -- which is reasonable if you accept as given his "Reason 2: You are NOT in a lower tax rate bracket in retirement".  But of course you probably shouldn't.

[MgoSam]

It's like asking a barber if you need a haircut.

[NESailor]

It's like asking a barber if you need a haircut.

I think you're on to something but I'd say these guys push the limits.  It's more like asking someone who claims to be a doctor if you're healthy and they tell you to take a particular type of medicine...without telling you that they're actually a drug salesperson first, doctor second.  I clicked on his page and the whole "financial planning"' this is a ruse for selling life insurance.  Most of those guys sound like insurance salesmen who also do something else (tax prep for example).

[ooeei]

I guess if you are a prototypical American and you spend everything but the 10-15% you make you will want to end up spending more in retirement.

If you're only saving 10-15%, you're not going to save enough to spend more in retirement.

[Magilla]

I guess if you are a prototypical American and you spend everything but the 10-15% you make you will want to end up spending more in retirement.

If you're only saving 10-15%, you're not going to save enough to spend more in retirement.

Which clearly shows how rigged the system is... I mean you should be able to save nothing and spend more in retirement, right? Right? /S

[Trudie]

He also completely ignores the following:
1 - Preferential capital gains rates for nonqualified retirement income
2 - The ability to allocate your income among different sources (ordinary, capital gains, nontaxable) in retirement to reduce your tax liability
3 - Being able to "engineer" your income in retirement to minimize taxes; maximize standard of living
4 - What "standard of living" really means
5- And even though he was addressing income tax in particular, I thought the fact that payroll taxes which take a huge chunk from your net income in your working years (arguably reducing your "standard of living") are a non-factor in non-wage/investment earnings...

In sum, I think this article was way off the mark and unimaginative.  I would expect and "expert" to do better.