Investing in a 401K is a scam promoted by the US government. Social Security funds are paid out to retired workers using taxes from current workers. However, the US population (and retiree population) will significantly increase to the point where the government funds will not be able to sustain the demand. The government's Social Security funds are projected to deplete by 2037, meaning a decrease in your retirement funds. Furthermore, the life expectancy has increased from 60 years in 1935 to about 77 years in 2022; more retirees will be taking advantage of the Social Security funds until it quickly runs out. There are other aspects of 401Ks that scam you out of your money as well:
a. The tax deferral aspect of 401K means taxes will only be collected when you take your money out of the retirement plan. Taxes will most definitely be higher in future years, so it would be best to have the money taxed at current, cheaper rates.
2. Employer Match, aka “Free Money”
a. A study by the Center for Retirement Research exposed that employers pay around 90 cents less salary to their employees for every dollar contributed to your 401K match. This means that your employer is withholding your pay in order to match. Often, the employer does not even give the full match until after your first five years with the company.
3. 401K Fees
a. Small plans typically have fees of around 2%, while larger plan fees are around 1%. The one percent difference may seem small now, but it can mean a difference of a hundred thousand dollars or significantly more. The Department of Labor found that there could be a 28% difference in your saving after 35 years.
4. Unattainable Vault
a. You can only use the money in your retirement plan after you are 59 and a half years old. What will you do if you require that money before then?
5. Market Returns Scam
a. The money you contribute to your 401K is invested in mutual funds in order to grow your investment. Despite a fund investor’s efforts, the average earnings are only 4.25% per year, as researched by the DALBAR studies. Inflation reduces the return on investment to only 2.1% per year. You can never be certain of growth in your retirement account.