Personal Finance Blog for Retirement and Investment Advice

Six Reasons Your 401(k) is a Scam

November 30th, 2016 by Pamela Yellen | 14 Comments

UPDATED: March, 2020

I’m going to make a very bold statement that’s sure to get me some nasty blowback. But as a financial investigator who’s exposed the truth about the conventional financial wisdom, I’m used to that, so here goes…

401(k)s are a scam. Want proof?

Here Are Six Reasons Why 401(k)s Are a Scam…

Reason #1: The 401(k) Tax-Deferral Scam

In our immediate-gratification society, deferring your taxes by funding your 401(k) sounds so good, doesn’t it?

But when the tax man eventually comes calling, he won’t ask you to pay what your tax liability would have been if you’d been paying taxes all along. He’ll tell you what your tax liability is at the time your taxes are due.

Conventional wisdom says you’ll come out ahead by deferring taxes. After all, doesn’t that mean your entire contribution can go to work for you immediately? Unfortunately, like many assumptions about personal finance, this simply isn’t true. According to the Society of Actuaries, if tax rates remain the same…

“It doesn’t make any difference whether the taxes are taken away from you at the beginning (before you put the money in a savings vehicle) or at the end (tax-deferred). It’s the same fraction of your money that is left to you.”

If tax rates are lower in the future, you’ll come out ahead. However, most people, including most financial experts, believe tax rates must head higher, not lower, over the long term. And your retirement could last 20-30 years or more.

The reality is that you are probably sitting on a tax time bomb. Simply put, the government is going to need more money in years to come for several reasons. For example, let’s look at the numbers impacting Social Security and Medicare.

Today there are 62 million Americans using Social Security and Medicare. By 2045, 140 million – twice as many – Baby Boomers and Gen X-ers will be over 65 and requiring Social Security and Medicare. Where do you think the money to pay for that will come from?

Social Security and Medicare’s financial condition has deteriorated despite a long economic expansion. In fact, Social Security is already in a negative cash flow situation. What will happen to those funds in the next downturn?

And what about the national debt? Washington has not dealt with the government’s unsustainable debt and spending for decades, and as of March 2020, the national debt has ballooned to over $23.4 trillion— which comes to $189,585 for each US taxpayer! And it’s climbing at a head-spinning rate. (For a painful wake-up call, check out USDebtClock.org)

For all these reasons, the likelihood is that tax rates will go UP over the long term, and if they do, then OOPS! There goes the whole 401(k) “tax-deferral” argument.

Reason #2: The 401(k) Employer Match “Free Money” Scam

SuperMoney Interviews Personal Finance Expert Pamela Yellen on Savings and Investing Strategies

October 13th, 2016 by Pamela Yellen | Leave a Comment

Pamela Yellen, Founder of Bank On Yourself

I was recently interviewed by SuperMoney, a website that rates various financial products and the companies that provide them.

In this wide-ranging interview, I answered questions like these:

Why did you decide to start Bank On Yourself?

I reveal the frustrations my husband and I experienced following the conventional wisdom about investing and retirement planning. Maybe you can relate…

If someone were to say to you, “I don’t have the expertise to handle my finances. I’ll just hire some investment firm to deal with them,” how would you respond?

Here I discuss how and why 80% of all mutual funds, financial advisors and investment advisory services underperform the overall market. If the experts can’t even do it well, how can we regular folks be expected to? [Read more…] “SuperMoney Interviews Personal Finance Expert Pamela Yellen on Savings and Investing Strategies”

7 Reasons the Economy is Worse than it Seems

September 21st, 2016 by Pamela Yellen | Leave a Comment

Do you believe the economy has improved significantly since the Great Recession?

Or do you feel like we’re staring down the barrel of a cannon whose fuse has already been lit?

The stock markets should be down considerably by plenty of measures, but many investors appear to have been hypnotized to believe that nothing can go wrong.

I believe things are worse than they may seem on the surface, and extreme caution is warranted, for the 7 reasons I spell out here.

I’ll also give you some tips on how to protect yourself and have a “Plan B” in place in case the you-know-what does hit the fan.

Here Are 7 Reasons the Economy is Worse than It Seems…

1. Addiction to Stimulus and Low or Negative Interest Rates

The Bank On Yourself No-Nonsense Guide to Life Insurance

August 30th, 2016 by Pamela Yellen | Leave a Comment

Life insurance is a subject we don’t like to think about. It’s right up there with going to the dentist and writing the annual Christmas letter. (Do people still even do that?)

Thinking about life insurance is one more reminder that we may not live forever. Ugh.

But not going to the dentist doesn’t make things better. And not thinking about life insurance won’t help you live longer.

On the other hand, going to the dentist and thinking about life insurance are two really positive things you can do that are almost guaranteed to make your life better.

If peace of mind, a sense of security, and the knowledge that you’re doing all you can for your family and yourself are important to you, then it’s wise to spend a little time thinking about life insurance.

But life insurance doesn’t have to be complicated or boring—which is why we created this Consumer-Friendly Guide to Life Insurance.

Here are some interesting facts about life insurance that we cover in our Guide. Did you know that …

Could the Government Seize Your 401(k) and IRA Money?

August 9th, 2016 by Pamela Yellen | 1 Comment

Is it far-fetched to wonder if the government could take control of your retirement savings in 401(k)s and IRAs?

Or is that just a paranoid conspiracy theory?

The fact of the matter is that it’s not far-fetched, or a conspiracy theory. The groundwork has already been laid.

And the government already gave banks the green light to seize your bank accounts.

Read on for the facts – and I urge you NOT to discount the importance and urgency of this issue affecting your hard-earned savings…

The Government Has BIG Plans for Your Retirement Savings

An article in American Thinker titled “The Feds Want Your Retirement Accounts” revealed that, “Quietly, behind the scenes, the groundwork is being laid for federal government confiscation of tax-deferred retirement accounts. Slowly the cat is being let out of the bag.”

And Bloomberg reported that,

The U.S. Consumer Financial Protection Bureau is weighing whether it should take a role in helping Americans manage the $19.4 trillion they’ve put into retirement savings.”

For the last 18 months, the Treasury Department has been testing the “myRA” program – which Obama created through executive order – no Congressional approval needed.

The myRA, which stands for “My Retirement Account” supposedly “guarantees a decent return with no risk of loss.”

And the only investment allowed in this account is a low-yielding Treasury security.

Of course, the Treasury wants to get more people signed up for this program, because it means more funds flowing right back into the U.S. Treasury to help the government meet its voracious borrowing needs. How convenient… [Read more…] “Could the Government Seize Your 401(k) and IRA Money?”

Dalbar 2016 Report: Many Investors Haven’t Even Kept Up With Inflation

May 18th, 2016 by Pamela Yellen | 6 Comments

The latest report from DALBAR reveals the harsh reality about the actual returns stock market investors have been getting for the last 30 years.

Would it surprise you to know that many investors haven’t even been able to keep up with inflation for the last three decades?

Many investors haven’t, according to the 2016 Quantitative Analysis of Investor Behavior.

Here are the facts about actual long-term investor returns

The average investor in asset allocation mutual funds (which spread your money among a variety of classes) earned only 1.65% per year over the last three decades!

These investors didn’t even come close to beating inflation, which averaged 2.6% per year.

The average investor in equity mutual funds averaged only 3.66% per year – beating inflation by only 1% per year. (Was that worth the roller-coaster ride and sleepless nights?) [Read more…] “Dalbar 2016 Report: Many Investors Haven’t Even Kept Up With Inflation”

Review: What’s REALLY In “The Big Black Book of Income Secrets”?

April 19th, 2016 by Pamela Yellen | 9 Comments

UPDATED August, 2019

If you receive emails from investment advisory services like I do, you may have gotten a sales pitch for The Big Black Book of Income Secrets from the Palm Beach Research Group.

Photo of the Palm Beach Group's Big Black Book of Income Secrets Book Cover — *The Big Black Book of Income Secrets* is One of Palm Beach Letter’s Marketing Hooks

The promo promises you’ll discover “30 unique income tools” in The Big Black Book of Income Secrets. It sounded like there were some interesting strategies being covered, so I decided to do some investigating. Read on for my review of The Big Black Book of Income Secrets and what it’s all about…

The offer entices you with a “risk-free 60-day trial subscription to the Palm Beach Letter.” If you’re not satisfied before the two-month trial is up, you’re told you can get a refund and keep the book and some “bonus” reports that are included in the offer.

To find out if The Big Black Book of Income Secrets lived up to its promises, we signed up for the “Platinum Subscription” for $99 for the first year, which comes with additional “bonus” reports.

Three weeks later, the book arrived, containing 22 (not 30 as promised) strategies, with a cover letter from the Publisher, Tom Dyson, explaining that we could log into their website to access the reports we signed on for and back issues of the Palm Beach Letter. (I guess for $99, they can’t afford to mail you hard copies of the reports.)

As I started reading through the 22 income strategies in the book, I immediately started noticing some red flags.

The First Red Flag in The Big Black Book of Income Secrets is “Income For Life”

Do You Have As Much Saved for Retirement As the Average Person?

March 30th, 2016 by Pamela Yellen | 3 Comments

How do you think you compare to other people when it comes to how much you’ve saved for retirement?

The results of a new survey from the Employee Benefit Research Institute (EBRI) reveal some surprising insights into America’s preparedness for retirement.

Read on for the highlights of the 2016 Retirement Confidence Survey and a 6-Step Action Blueprint to make sure your money lasts as long as you do…

The survey revealed that 54% of all workers report less than $25,000 in household savings and investments, excluding the value of their primary home.

That includes 26% who say they have less than $1,000 in savings.

10% have between $25,000-$49,999 saved, 10% have between $50,000 and $99,999 saved, and 12% have between $100,000-$249,999.

And how many have saved $250,000 or more? Just 14%.

Are people close to retirement any better prepared?

The Ticking Tax Time-Bomb of Conventional Retirement Plans

March 3rd, 2016 by Pamela Yellen | Leave a Comment

One of the biggest selling points of 401(k) and IRA retirement plans is that the money you put into them isn’t taxed right away. Bring out the bubbly to celebrate, right?!

Not so fast.

First of all, some people – hopefully not you! – mistakenly believe money placed into these retirement plans is “tax free.” It isn’t. It is “tax deferred,” meaning that you will pay tax on that money when you withdraw from your retirement plan down the line.

Deferred taxes might sound good, but deferring your taxes is like putting off a visit to the dentist. The problem compounds and will only get worse.

Deferring taxes creates a dangerous potential tax time bomb because you don’t have the answers to two critical questions…

First, what will the tax rates be when you retire? And what will they be 20 or 30 years later?

Is Your Money Frozen in Your Retirement Plan?

February 25th, 2016 by Pamela Yellen | Leave a Comment

One of my biggest beefs with government-controlled retirement plans, such as 401(k)s, IRAs, 403(b)s and Roth Plans, is the total lack of liquidity. The money you’ve socked away in your conventional retirement plan is about as solidly frozen as the iceberg that sank the Titanic! And because of this, if your financial ship hits rough waters, you might end up sinking as well.

Here’s the critical question: How quickly and easily can you get your hands on all the money in your retirement account if you need it before age 59½?

We all know life happens. Cars break down. Roofs need replacing. A tough medical diagnosis can create mountains of unexpected bills to pay.

Every year many participants in employer-sponsored government-controlled retirement plans make early withdrawals for a number of reasons. And every year, the IRS collects penalties related to those early withdrawals.

In fact, in the last year for which statistics are available, the Internal Revenue Service collected $5.7 billion dollars in penalties from Americans who took out $57 billion from their retirement funds before they were supposed to. [Read more…] “Is Your Money Frozen in Your Retirement Plan?”