{"id":90,"date":"2024-05-22T19:44:56","date_gmt":"2024-05-22T19:44:56","guid":{"rendered":"https:\/\/www.bourbonnaistax.com\/blog\/?p=90"},"modified":"2024-05-22T19:44:56","modified_gmt":"2024-05-22T19:44:56","slug":"was-the-401k-a-mistake","status":"publish","type":"post","link":"https:\/\/www.bourbonnaistax.com\/blog\/was-the-401k-a-mistake\/","title":{"rendered":"Was the 401(k) a Mistake?"},"content":{"rendered":"
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Retirement sure has changed, hasn\u2019t it? A century ago, it meant slowing down a bit as you got old and frail, but still working until you dropped. In the 1950s and 60s, it meant collecting a gold watch and living off a company-sponsored pension along with health benefits and Social Security. But, supporting retired workers is expensive, and companies grew to resent those obligations. So, in 1980, a Philadelphia benefits consultant named Ted Benna realized that Section 401(k) of the Revenue Act of 1978 could let his employees \u201cdefer\u201d part of their paycheck into a deferred compensation plan. Just two years later, 7.5 million American workers were using the new plan to save. Today, there are over 710,000 plans covering more than 70 million Americans, holding over $7 trillion in assets.<\/p>\n\n\n\n

Current conventional wisdom holds that the best way to save for retirement is to contribute as many tax-deductible dollars as you can to your 401(k) during your working years when you\u2019re earning your highest income and paying your highest taxes. Invest it as aggressively as you can in the stock market or pick something called a \u201ctarget date fund\u201d that makes investment choices for you based solely on your current age. Then, withdraw your savings and pay tax at lower retirement rates to finance golden years full of Florida sunsets, grandchildren, and pickleball. (Try not to drive your neighbors nuts with the sound of the ball hitting the paddle!)<\/p>\n\n\n\n

Now, a new breed of economists and investment professionals are asking themselves, was it all a mistake? Increasingly, the answer is \u201cyes.\u201d<\/p>\n\n\n\n

Investing isn\u2019t easy\u2014if it were, everyone would succeed. Investors face three primary challenges to securing results: market volatility, fees, and taxes. Employees investing in 401(k)s (or their nonprofit cousins, 403(b)s and 457s) have to navigate all of those challenges themselves. How many classes did you<\/em> take on retirement planning in high school or college? And if your name isn\u2019t something like \u201cChadwick Cabot Lodge III,\u201d Mummy and Daddy probably never sat you down to discuss it.<\/p>\n\n\n\n

Now, Ted Benna calls his invention a \u201cmonster\u201d and says he regrets how employers have made it their employees\u2019 primary savings vehicle. \u201cIt was never designed to be what it is today,\u201d he says. Larry Fink, the chairman of BlackRock money management firm, criticizes it as \u201ca shift from financial certainty to financial uncertainty.\u201d And plenty of observers criticize the 401(k)-industrial complex of driving wealth inequality.<\/p>\n\n\n\n

Let\u2019s take a closer look at just one of those fundamental assumptions underlying the conventional wisdom: the notion that taxes will be higher today, when the money is going into<\/em> the plan, than tomorrow, when it\u2019s coming out<\/em>. Will that really be true? Today\u2019s national debt stands at $34.8 trillion, and we\u2019re adding a trillion more every hundred days. How confident are you that tax rates won\u2019t go up in the future? (What about your children inhering your account when they\u2019re in their highest-taxed years, and paying more on the money than you ever would have?) If they do, millions of Americans will be lighting the fuse on a tax time bomb with every paycheck. Yes, they can choose a \u201cRoth\u201d option that flips the usual arrangement in favor of nondeductible contributions today and tax-free income tomorrow. But even guessing right on tax rates still means confronting market volatility and the punishing, sometimes-hidden Wall Street management fees.<\/p>\n\n\n\n

Today, financial experts and advocates are looking at potential 401(k) alternatives with higher mandatory contributions and stronger guarantees. Long-term, those could go a long way towards closing the retirement savings gap. And we\u2019re happy to help you craft the most tax-efficient plan for your own golden years. Call us<\/a> before you book that pickleball court!<\/p>\n","protected":false},"excerpt":{"rendered":"

Retirement sure has changed, hasn\u2019t it? A century ago, it meant slowing down a bit as you got old and frail, but still working until you dropped. In the 1950s and 60s, it meant collecting a gold watch and living off a company-sponsored pension along with health benefits and Social Security. But, supporting retired workers is expensive, and companies grew to resent those obligations. So, in 1980, a Philadelphia benefits consultant named Ted Benna realized that Section 401(k) of the Revenue Act of 1978 could let his employees \u201cdefer\u201d part of their paycheck into a deferred compensation plan. Just two years later, 7.5 million American workers were using the new plan to save. Today, there are over 710,000 plans covering more than 70 million Americans, holding over $7 trillion in assets.<\/p>\n","protected":false},"author":2,"featured_media":91,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[39,3],"tags":[40,43,41,42,4,11,9,6],"class_list":{"0":"post-90","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"category-taxes","9":"tag-401k","10":"tag-pension","11":"tag-retirement","12":"tag-retirement-plan","13":"tag-tax","14":"tag-tax-savings","15":"tag-tax-strategy","16":"tag-taxes","17":"entry"},"_links":{"self":[{"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/posts\/90","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/comments?post=90"}],"version-history":[{"count":1,"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/posts\/90\/revisions"}],"predecessor-version":[{"id":92,"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/posts\/90\/revisions\/92"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/media\/91"}],"wp:attachment":[{"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/media?parent=90"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/categories?post=90"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bourbonnaistax.com\/blog\/wp-json\/wp\/v2\/tags?post=90"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}