WIn 2020, the US Census Bureau reported that “401(k)-style” plans were the most common retirement account nationwide. Nearly twice as common as IRA or Keogh accounts.
But although they may be the most “popular,” offering tax benefits, employer matches, and a convenient way to set aside cash for retirement, they’re not without their drawbacks.
In fact, their track record shows less-than-glowing results, even calling into question their overall effectiveness as a retirement account. Read on as we uncover four ways 401(k) plans can miss the mark.
There’s no such thing as a free lunch, and there's no such thing as a free 401(k).
Unfortunately, however, many people with these retirement accounts are unaware of not just the fact that they’re being charged, but also how much they’re being charged.
A survey by TD Ameritrade showed that 37% of respondents thought their 401k was fee-free, and 22% didn’t know whether their plan included fees or not. But these charges are very real, and even seemingly small ones can make a big difference over the years:
A 2% annual asset fee may sound like a drop in the bucket, but over thirty years, you could be looking at tens of thousands of dollars depending on your balance and portfolio performance.
Before 401(k)s took over in the late 20th century, pensions were the primary vehicle for retirement benefits.
When you retired with a pension, you were guaranteed a fixed income until your last breath. You still had to meet all the requirements to receive those retirement benefits, but once you did, you could rest assured that you’d have a consistent stream of money coming in until the end.
401(k)s, on the other hand, provide no such guarantee. With a 401(k), the security of your retirement is wholly dependent on how much you save, how your investments perform, the volatility of the market, and how you withdraw funds throughout your retirement.
Unfortunately, according to the data, the odds aren’t in your favor. The record shows most 401(k) participants—even high earners—find it hard to even come close to hitting their target savings before retirement, ending up with half or even a third of what they were shooting for.
If you want a nest egg big enough to live out your ideal retirement, you’re better off pairing your 401(k) with a pension (if possible), a Roth IRA, and other retirement savings options.
Nowadays, 401(k) plans put you in the driver’s seat of your investment portfolio. Typically, a company will provide you with a limited list of investment opportunities, and it’s up to you to decide which to invest in.
While on paper it might seem ideal to be in control of these decisions, the reality is that most people aren’t equipped to manage their own portfolios. For the uninitiated, even basic concepts like buying low/selling high and diversification often go unapplied, making it increasingly difficult to reach their savings targets.
Unless you know your way around the market, you could end up accidentally sabotaging your own retirement goals.
The employer match is one of the main perks of a 401(k) plan. The amounts vary, but typically, companies will contribute additional money to your savings based on how much of your salary you put away.
Who doesn’t love free money?
The only issue is that if you’re unable to contribute enough to get your employer match, you could be leaving serious money on the table. Over time, you could lose out on tens of thousands or more—crucial cash that could dramatically improve your lifestyle in retirement.
Well, if you’ve partnered with an AUM advisor, they may tell you the exact opposite: to collect your social security money as early as possible. That way, they’ll get a larger percentage kickback from your assets, all while robbing you of a significant boost in retirement income.
By now, we’ve established that putting all your eggs in the 401(k) basket is risky business.
Ideally, you want a balanced approach with multiple retirement accounts to contribute to. But juggling several of these yourself can quickly become tricky.
Trying to hit your employer match percentage, contributing to an IRA, and tracking and refining your investment portfolio, all while managing your personal finances, is a herculean task—especially if you have outstanding debts.
The Money Max Account is an award-winning money management software that brings all your finances together in one secure location. Income, expenses, loans, debts—the program tracks everything, giving you a real-time, bird’s eye view of your financial situation.
Not only that, it puts you at the helm of your monetary ship, allowing you to set custom budgets and goals (both short- and long-term).
Then, using sophisticated algorithms and high-level banking strategies, it guides you on how to move and manage your money to achieve those goals as quickly and effectively as possible—whether you’re working towards your retirement savings target with a 401(k), tackling interest payments on your credit card, or paying down your mortgage.
With every purchase you make and every change to your income stream, the system will automatically adapt and update its suggestions to keep you on the fast track. Twenty-four-seven, three-sixty-five.
With the Money Max Account’s mathematical precision and round-the-clock guidance, you can hit your retirement savings goal in a fraction of the time.
But it gets better.
If you also have debt to deal with, you can easily tackle that too, canceling tens of thousands in interest payments in less than ten years, as so many Money Max Account users have before. (The average user saves $100,000 in interest!)
So, if you want to enter your golden years with the guarantee of financial security, fill out the form below. One of our financial experts will reach out to set up a free consultation where you’ll get to see exactly how and when (not if) the Money Max Account will get you there.