Thinking of cutting back on contributing to your 401(k)?

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Financial turmoil from the pandemic has 54% of Americans contributing less money to their 401(k)s or IRAs. Pamela Yellen, a financial investigator notes this is not as bad as it seems.

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Thinking of cutting back on contributing to your 401(k)? Here are 3 good reasons to do that.

A contrarian investigator of retirement savings plans, Pamela has been warning for years that another big economic crash was coming, and advocating that Americans invest less in 401(k)s and save more in secure and guaranteed savings vehicles. The reasons people should cut back on 401(k) investing and put that money in secure savings have not changed, but are highlighted by the beating 401(k) investors are taking in the pandemic. They include:

  1. The Myth of Market Returns – You’re told that over the long term, you can do well in the stock market. But over the last two decades, the typical equity mutual fund investor has earned only 4.25% per year, beating inflation by only 2.1% per year, according to the DALBAR studies. Yet Wall Street has brainwashed us into believing we have to risk our money in order to get any kind of decent returns. And so we continue to blindly fund our 401(k)s like lemmings following each other off a cliff.
  2. The Tax-Deferral Scam – No one knows what tax rates will be in the future but most people believe they will only go up, due to our country’s skyrocketing debt and aging demographics. Unfortunately, if tax rates do go up and you’re successful in growing your nest egg, you’ll only be paying higher taxes on a bigger number.
  3. The “Free Money” Boondoggle – Think you are getting "free money" in the form of your employer’s 401(k) match? Think again. Research by the Center for Retirement Research found that for every dollar an employer contributes to your 401(k) match, they pay 90 cents less salary to men and 99 cents less to women on average. And now companies are cutting back or eliminating the match.

From her research, Pamela shares a time-tested retirement savings method that has none of the disadvantages of the 401(k) — one that allows people to know the guaranteed minimum value of their savings on the day they plan to tap into them, and every step along the way. Pamela calls this method Bank On Yourself, and even the "father" of the 401(k), Ted Benna — who has called the 401(k) a "monster that should be destroyed" — now says he puts most of his own money into this strategy.

About the Author:

Pamela Yellen is founder of Bank On Yourself, a financial investigator and the author of two New York Times best-selling books. Readers can get a free copy of her latest book, "Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans — and How to Avoid Them," here for a limited time.