By BOB CUNNINGHAM
In case you didn’t already recognize the signs, this site is new… and is published by a blogging newbie. I don’t mind admitting that. I’ve been writing professionally nearly 30 years, for established publications and as a freelancer, but BuildWealthEarly.com represents my first foray into the blogosphere.
And as I was contemplating my next post, and briefly reviewing what I’ve released so far, it occurred to me that I have failed to share this blog’s true message – my actual philosophy on personal finance, and the often contrarian angle from which this subject matter will be provided in the coming weeks, months, and (hopefully) years.
Yes, I established in my introductory post that I am not a financial professional in the sense that I sport a bunch of impressive designations in front of my name – my only official title is as a licensed life insurance agent in California – but instead I am relying on a combination of my “PhD in the School of Hard Knocks” and some diligent research over the last decade-plus.
Still, I hadn’t truly shared my perspective – so here it is:
“Most of what you have learned about money, either from your parents, teachers/professors, or from so-called gurus, is NOT truly in your best interest.”
There are many, many valid basic points that I would never try to contradict – spend less, save more, know what you’re investing in, etc. This is mostly common sense that doesn’t require you to read it in a blog post in order to recognize it as fiscal wisdom.
But the American system of, shall we call it, “public economics,” is mostly baloney. Our system is still the best in the world, in my opinion, but it falls shy of being truly valuable across the board for most citizens. Far from it, actually.
I will give you one example now – trust me, you will get plenty more in future posts. The 401K Plan. We have been told that your company’s 401K plan is far and away the best way for an individual to save for retirement. Put every dollar in that you can muster, many experts recommend.
As Col. Sherman Potter said on the 20th century TV show, “M*A*S*H*, at least once, “Monkey muffins!”
OK, so how would you react if I offered you the following savings plan? My strategy that I recommend to you is not liquid, meaning that once you put money into this instrument, you cannot retrieve it (for an emergency or any other reason) until the government says you can – beginning at age 59 1/2 and with the account open at least five years – unless you wish to pay a 10% penalty for the privilege. This strategy frequently charges you among the highest fees in the industry, as much as 2.5% of your holdings annually, and gives you little if any say in what specific investments your money will go into. This strategy says to save a small amount on income taxes now, by having your contributions taken from your paycheck pre-tax, but pay a much larger gross amount of taxes in the future, when you are finally allowed to access the dough. Oh, and if you happen not to need your money when you get past retirement age, well, that is irrelevant because when you turn 70 1/2 the government forces you to withdraw a minimum amount, the failure to do so costing you not only the taxes you would owe but IN ADDITION, a 50% penalty tax for good measure.
What do ya think? Sound like a good way to go?
I just described the primary characteristics of the typical company-sponsored 401K plan. Does Uncle Sam rock or what?
Now, to be fair, the 401K does have one desirable trait – the possibility of a company match. Many companies offer some sort of matching funds to your contribution – a percentage of what you put in based on a percentage of your income. But here’s the kicker – not every company offers a match. In fact, according to multiple sources, the percentage of companies which offer matches, among those that sport 401K plans at all, is declining.
Under most typical circumstances, it makes sense for folks to contribute enough to their 401K plan in order to maximize the benefit of any company match. But not always, and never a penny more than what counts toward the match. There are simply other strategies available, which virtually anyone can utilize, that are significantly more beneficial than what Washington D.C. has laid out for you.
And very soon, we will be going into those. Thanks for reading.
DISCLAIMER: This post represents the author’s opinion only, sometimes based on and supported by cited numbers and sometimes not. In no way should any part or all of the content of this post be interpreted as official financial advice, nor does it represent an intention to solicit readers into a specific strategy or investment. Profitability is NEVER guaranteed. Invest at your own risk.