Why 401k and IRA Retirement Plans Fail the Four-Point Test
The founder of A Better Financial Plan, Dean Vagnozzi specializes in retirement and financial planning. Dean Vagnozzi openly criticizes 401k and IRA as not ideal retirement savings plans and offers a different alternative.
Based on a four-point test, an investor will know why 401k and IRA are not the best options for retirement savings. The four point-test include safety, growth, liquidity, and tax-free returns.
1. Safety - The most common way of putting funds into a 401k account is through mutual funds. However, mutual funds are still highly volatile. During the 2008 financial crisis, most people have lost between 30 percent and 50 percent of their 401k/IRA’s values.
2. Growth - People who invest in 401k/IRA using the logic of the 8-to-10 percent growth in the stock market within a 100-year period. This concept misleads 401k/IRA investors since they do not have the 100-year window to invest their money. Most people only have between 20 and 60 years to invest their money. Within that window, the stock market has not performed very well. For instance, between 2000 and 2018, the average annual growth of the stock market was only 3 percent.
3. Liquidity - The 401k/IRA is a very illiquid financial investment. An investor has to wait until he or she reaches the age of 59½ before he or she can access his or her money. The most intelligent investors won’t lock up their investments for decades but rather, jump into investment opportunities now.
4. Tax-free returns - The 401k and IRA are not tax-free. Instead, the taxes are deferred to a future date. Oftentimes, the future date has higher tax rates.
Mr. Vagnozzi proposes an alternative plan that passes the four-point test. The plan is accessible through www.getabfp.com.
Based on a four-point test, an investor will know why 401k and IRA are not the best options for retirement savings. The four point-test include safety, growth, liquidity, and tax-free returns.
1. Safety - The most common way of putting funds into a 401k account is through mutual funds. However, mutual funds are still highly volatile. During the 2008 financial crisis, most people have lost between 30 percent and 50 percent of their 401k/IRA’s values.
2. Growth - People who invest in 401k/IRA using the logic of the 8-to-10 percent growth in the stock market within a 100-year period. This concept misleads 401k/IRA investors since they do not have the 100-year window to invest their money. Most people only have between 20 and 60 years to invest their money. Within that window, the stock market has not performed very well. For instance, between 2000 and 2018, the average annual growth of the stock market was only 3 percent.
3. Liquidity - The 401k/IRA is a very illiquid financial investment. An investor has to wait until he or she reaches the age of 59½ before he or she can access his or her money. The most intelligent investors won’t lock up their investments for decades but rather, jump into investment opportunities now.
4. Tax-free returns - The 401k and IRA are not tax-free. Instead, the taxes are deferred to a future date. Oftentimes, the future date has higher tax rates.
Mr. Vagnozzi proposes an alternative plan that passes the four-point test. The plan is accessible through www.getabfp.com.
