The Real Cost of Funding Your Retirement Entirely with a 401(k)

You work hard to save money on a tax-deferred basis so you will have more money after tax.  Then you go to retire and have to pay tax on 100 percent of the money you take out of the 401(k).  So if you thought paying taxes on your annual income was horrible, wait until retirement if all you’ve planned to retire on is a 401(k) or IRA!  Just because the amount you take out as income during retirement is smaller, doesn’t mean you will be in a lower tax bracket.

This illustration sums up the frustration of a tax-deferred retirement account. As you save money into a 401(k), the annual fees are large and loads for early withdrawals will cost even more money. In addition, the market risks cause losses 4 out of 7 years on average.  How is it possible to have enough money for retirement?    

Now, let’s assume that even with all the leaks that are possible with a tax-deferred account such as the fees, market risks, and penalties, you have been able to accumulate a good sum of money for retirement.  When you start taking income, this large sum is wholly taxed, 100 percent! Since you deferred your taxes, now you have a much larger number to pay taxes on. I ask: why would anyone fund their entire retirement using a 401(k) or IRA? It makes no sense. Of course, if your employer is willing to offer matching contributions, then a 401(k) can be one way to help build a retirement, but to rely solely on this kind of investment is foolish in my opinion.

Take a look at the above illustration one more time and ask yourself, “Does it make sense to defer my income taxes?” By deferring your income taxes, you subject all your money to fees, load, market risks and penalties over 40 years.  This cost can eat up all tax savings.  And when you turn on income, now you pay much more in taxes than ever before.  With few tax deductions, you might struggle to have enough retirement income to live on.  Please consider other options than the 401(k) or an IRA. I have loads of information to share with you on all the grand possibilities for retirement you should consider. Contact me today:  

Earn a $1,000 Credit for Saving…

The following information is taken directly from the IRS’s Web site on the Retirement Savings Contribution Credit (Saver’s Credit) program:


You may be able to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan.

You’re eligible for the credit if you’re:

  • Age 18 or older;
  • Not a full-time student; and
  • Not claimed as a dependent on another person’s return.

See the instructions for Form 8880, Credit for Qualified Retirement Savings Contributions, for the definition of a full-time student.

Amount of the credit

The amount of the credit is 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A). Use the chart below to calculate your credit.

*Single, married filing separately, or qualifying widow(er)

2017 Saver’s Credit

Credit Rate

Married Filing Jointly

Head of Household

All Other Filers*

50% of your contribution

AGI not more than $37,000

AGI not more than $27,750

AGI not more than $18,500

20% of your contribution

$37,001 – $40,000

$27,751 – $30,000

$18,501 – $20,000

10% of your contribution

$40,001 – $62,000

$30,001 – $46,500

$20,001 – $31,000

0% of your contribution

more than $62,000

more than $46,500

more than $31,000

The Saver’s Credit can be taken for your contributions to a traditional or Roth IRA; your 401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) or governmental 457(b) plan; and your voluntary after-tax employee contributions to your qualified retirement and 403(b) plans.

Rollover contributions (money that you moved from another retirement plan or IRA) aren’t eligible for the Saver’s Credit. Also, your eligible contributions may be reduced by any recent distributions you received from a retirement plan or IRA.

Example: Jill, who works at a retail store, is married and earned $37,000 in 2016. Jill’s husband was unemployed in 2016 and didn’t have any earnings. Jill contributed $1,000 to her IRA in 2016. After deducting her IRA contribution, the adjusted gross income shown on her joint return is $36,000. Jill may claim a 50% credit, $500, for her $1,000 IRA contribution.

In my experience, anytime you can get “free” money, go for it.  There are many people making less than $36,000 a year and to receive a $1,000 credit for saving $2,000 can make a big difference over 10 and 20 years.  In the above example for Jill, she is trying to save 10 percent of her annual income every year, so in her case that’s $3,600. When she adds this $1,000 credit to that annual 10 percent savings and keeps this money safe over 30 years it will grow to $265,000.  That’s a little over a quarter of a million dollars and an average annual growth rate of 8 percent! 

This may not seem to be a big deal, but a “free” $1,000 a year for someone making $30-35,000 annually, is like getting a 33 percent bonus.  If you will prepare a Get Out of Debt report and a Spending Plan using the Money Mastery tools, you will find even more money.  The younger you start, the better it will be.  Contact me for more information:

Retirement Crisis is Happening Now Because Most Employers Have Switched from Defining Life-long Pension Benefits to Defining Yearly 401(k) Contributions

Lack of adequate income at retirement is the next gigantic financial shoe to fall, and it is going to fall hard.   

Consider in 1981 nearly two out of three workers had a quality pension plan, not a 401(k).  Employers would agree to pay 60 percent of the last 25 years’ salary each month for the life of the employee and their spouse.  This was not a “do it yourself” 401(k) like what employers “offer” today.  This was not “everyone is on their own and good luck.”  This was not a “you have to be your own investment adviser.”  It was cash-solid and backed by life insurance companies with guarantees.  

Let me explain a defined contribution plan.   In today’s world, most people have a 401(k) where an employer defines what they can afford to place into your individual tax-deferred account (a 401(k) or 403(b) or 457, etc.) as a percent of your income.  Example:  5 percent of your salary would be saved for you in this tax-deferred plan.  Sometimes you are required to save the same amount or the employer will not contribute anything.  The cost to the employer for doing this plan is just the 5 percent and administration expenses.  If your salary is $60,000, then the employer puts $3,000 each year into the plan.  

Now let me explain the cost of a defined pension plan. This is  where the employer promises to pay, say 60 percent of your income to you at retirement using the top three years of your salary as the average. Plus they will pay this for your lifetime and continue to pay it to your spouse after you die.  Let’s put some numbers to this kind of a plan.  If your salary is $60,000 then you would get paid $36,000 per year for life.  Assuming you live to age 83 and you turn on this pension at age 68, you will receive $540,000 (and let’s not forget, if your spouse continues to live on after you, this $36,000 per year will continue, thus increasing that $540,000 amount possibly).  

How much money will it take your employer to deposit enough in your accountmoney-nest-egg each year to achieve this $36,000/year goal?  Answer:  $7,000 a year, as long as the employer can earn 5 percent on this money.  Let’s say the employer can only get earnings of 2 percent each year?  Then they would be required to deposit into your pension account $10,500 a year.  Don’t miss this point: Under the old pension plans, the employer assumed all the risk!  Even if the funds lost money, the employer had to make up the difference.  This got so expensive employers could not afford to offer pensions anymore and started switching over to defining the annual amount they could put into you account using deferred 401(k)s.

When people retired at age 65 and died at age 69, the employer was in good shape financially.  But think of how long people are living today.  If a couple reaches age 65, they will live well into their 80’s.  No employer can afford to pay this kind of money.  Using my example above, the difference is either $3,000 a year or $10,500.  Which do you think your employer can afford?

The Social Security Administration states that 90 percent of all retired folks are totally dependent upon their Social Security monthly income.  For those retiring right now, that income isn’t half bad, but as more people retire and the system becomes drained, there won’t be much of that income to live on. Therefore, people will have to work longer, even into their late 70’s.  And what about other things that eat into traditional retirement savings programs such as IRAs and 401(k)s, things like fraud, inflation,, out-living income, needing long-term care, market risk, lack of organization, more taxation, not understanding how to get the most out of Social Security, and a host of other problems attending retirement decisions?

What is the answer to the nonsense of the traditional retirement “planning” formula?

To be successful in retirement, a person must think in terms of the following:

First, stop going with the herd and start looking at new options for funding retirement that are a lot less risky than a 401(k).

Second, learn how to control spending so you don’t add any more debts to your load.

Third, learn how to pay off all debt quickly, including your mortgage, in under 10 years. Impossible you say? Not hardly. It is mathematically possible for anyone with five or more debts to eliminate all of them in under 10 years by applying debt Power Down principles.

Fourth, change the way you think about accumulating money for retirement.  A person has to switch from focussing on a rate of return, and start locking down guaranteed income for life.  Most people work and try to save, but want the best return.  How well was that retirement strategy working for those people who were ready to retire in 2008?  When you lose 40 percent of your nest egg because you had it in a 401(k) that was invested in the market, you have to keep working.  If those folks locked down a guaranteed income for life, they would not have lost one penny.

The conclusion to draw here is anyone that has a 401(k) or it’s look-a-like, has to be their own investment adviser.  They have to assume all the risk. They have to be the one in control, but unfortunately, they don’t control what happens in the market. I hope you know that no one else has your best interest at heart.  If you are going to continue playing the defined contributions game it is imperative that you become a savvy and skilled investor, something that takes a lot of time and effort, in addition to working your job and taking care of family. If you would prefer to take a different retirement road, one that does not require that you learn how to play the stock market in order to build a solid financial future, please contact me: or visit There are lots of ways to build wealth on ANY income that do not involve defined contribution plans. Learn about them now!   

Government Can Do Everything Bigger and Better, Right?

This post is a follow-on to a blog I wrote last week, New “Fiduciary Rules” Handed Down from Department of Labor Will Change Your Life, about new Department of Labor rulings spear-headed by Obama that strengthen fiduciary standards for those involved in giving advice about investment securities in an effort to protect the consumer.  How many different ways can I tell you this rule is like droppings from a bull, horse, or sheep?   In my humble opinion, the U.S. government is stupid thinking it can do better than private enterprise.

Here’s why I think this. The Financial Industry Regulatory Agency, or FINRA, is the regulating arm for investing in securities.  It has already established sound financial due-diligence practices that have been protecting the consumer for 50 years.  So why this new set of rulings?

Here is why I think the U.S. Department of Labor created tougher standards:  With stiffer regulations, if a financial adviser makes a mistake, or the market melts down again like it did in 2008, attorneys can sue and we know what happens when attorneys get greedy…

There was no evidence of abuse by FINRA or financial advisers who voluntarily work under its regulating arm when the Department of Labor announced these new rulings, so to me it is like a “solution” looking for a problem.  My counsel is to avoid all qualified retirement plans, like 401(k), 403(b), SEP, IRAs, and even Roth IRAs.  Learn how to create tax-free retirement income you cannot outlive and leave Wall Street and government regulations to the birds.  To learn how, contact me:, 801-292-1099.


15 Major Issues to Consider before Retiring…

Many folks get to retirement and don’t know what their options are.  They don’t know who to discuss these issues with and they often make decisions without regards to the following:

  1. Ongoing retirement fund management fees
  2. Investment options
  3. Taxes
  4. Oversimplification/overly complicated retirement options
  5. Distributions
  6. Mortality credits
  7. Early withdrawal penalty
  8. Loans
  9. Required minimum distributions
  10. Creditor protection
  11. Sequence of returns problem
  12. Inflation
  13. Liquidity
  14. Social Security benefits
  15. Health issues


Retirement fund management fees. Within the last five years, newly designed fixed indexed annuities offer safety and a very good rate of return, with no ongoing fees, as you would experience with a 401(k) or IRA.  

Investment options. There must be well over 6,000 different places to invest your retirement money.  Wall Street money managers want to manage your money for your lifetime and beyond.  It can create headaches and heartaches for those who do not know how to evaluate these options.  In my experience, I have found that annuities offer a good choice here.  An insurance annuitant is guaranteed never to lose money, and you can receive guaranteed income you cannot outlive.  Plus, the insurance company will contractually double your income if you need to use a long-term-care facility.  And even though the money is in your personal IRA, your spouse can benefit from the income and the long-term care provisions just the same.

Taxes.  When you are within 10 years of retiring, you would be wise to consult a CPA who specializes in tax planning.  This is so you can learn how to keep Social Security benefits from becoming subject to income tax.  This will save at least $5,000 or more each year.  

Over simplification/excessive complexity. Investors having trouble keeping track of multiple retirement accounts, including defined contribution plans and traditional IRAs may want to “simplify” their financial lives.  Their tendency is to create one IRA and roll all money into one place.  This sounds good, but doesn’t work very well.  Many times you will want to turn on income, but you don’t want all your money coming as income, you may want some cash for liquid needs.  If you have separate accounts, you can turn on income with one or two of these accounts, or not all.  Carefully examine your future years as you make these decision.  Using annuities, really keeps your life simple — there’s no more market risk, yet growth keeps well ahead of inflation.

Distributions options.  A person can take earlier-than-age-59.5 withdrawals and not pay the 10 percent penalty due on early withdrawals by using tax code 72(t).  You can also convert to a Roth IRA and after five  years withdraw the principal without having to pay the 10 percent penalty for early withdrawal.  

Mortality credits.  As you get older, the multiplier used to calculate your monthly income gets larger because you Cemeterywill die sooner.  You get the “credit” for living longer.  There mortality credits are more important than any rate-of-return.  

Early withdrawal penalty.   Sometimes you will have a penalty when withdrawing retirement money earlier than age 59.5.  

Loans.  Some retirement plans allow borrowing.  Usually the amount is one-half the account, or $50,000, whichever is less.  One advantage in borrowing from yourself is that the borrowed amount is no longer subject to market risk, and you are paying interest right back to yourself.  Make sure you know the rules for borrowing from retirement funds, because several laws have changed over the past several years.

Required minimum distributions.  When an owner of an IRA account reaches 70.5, they are required to start taking retirement income based on life expectancy.  This amounts to about 5 percent of the total value in the IRA. However this 5 percent will grow each year as you become older.  The government does not want your money to go untaxed forever.  Consider converting the IRA money to a Roth before reaching this age to avoid this problem. In addition, required minimum distribution issues are accentuated upon your death.  Your beneficiaries will receive this money either taxed, or if you have converted this money to a Roth IRA then the distribution will be taxed over a lifetime. Your children can S-T-R-E-T-C-H this distribution but when you calculate the taxes paid over a lifetime it is a huge number!  Work with a qualified professional who knows how the system works in order to make the best possible plans for your beneficiaries,

Creditor protection. Federal law protects the assets in defined contribution plans (such as 401(k)s) from creditors in case of a lawsuit. But, since IRAs are governed by state law, protection for an IRA in case of a lawsuit varies.

Sequence of returns. Be aware that you will run out of money very quickly if you start to take income at the same time the market loses money. Timing is very important when dealing with retirement funds linked to Wall Street.

SocialSecurityInflation.  Regardless of what the Consumer Price Index says, inflation is real and your money is losing value every day.  While some items will not cost more over time, others will double in price.  I suggest you keep your own list of goods and services and track it how inflation affects the prices for these items yourself.  You will see inflation growing at a very steady pace every year.  You must have a solution for this quiet money killer.

Liquidity.  Emergencies will happen.  It is important to have some cash on hand for these events, then you don’t have to disrupt retirement income as the years come and go.

Social Security benefits.  Ninety-two percent of all retirees are totally dependent upon these benefits.  You must learn what these benefits are ten years before you will need them, or risk losing $40,000 to $100,000.

Health issues. Can you think of anything that does not change?  Weather?  Attitudes?  Relationships?  Weight? Everything changes, including your health, especially as you age. Plan to get organized so whatever may happen, you are prepared and have a plan for taking care of your health issues as you get older, including the possible need for long-term care. Not doing so means you risk losing all your retirement funds to care facilities or home health care.

Why Pay 401(k) Fund Managers to Lose Your Retirement Money for You?

In the late 1930’s and 1940’s, pension plans were becoming popular to attract and keep quality employees.  The investment choice for pensions were insurance companies.  They offered the best return for the least amount of risk.  Wall Street and mutual funds hadn’t yet become available to the little guy, so safe insurance companies were used exclusively.

All through the Great Depression and World War II and up to 1974, pension funds were guaranteed and spread out over millions of lives. Workers did not change jobs, so portability was not an issue.  Investment risks for retirement funds were nothing like they are today. Insurance companies spread the investment risk out over millions of people.  Think about this:  No one ever lost any money, not ever! These pensions offered guaranteed, predictable income for life, including a spouse!

But then in the late 1960’s and early 1970’s, traditional pensions started getting too expensive to fund. Enter Wall Street. It got in bed with the U.S. government to help create IRA and 401(k) plans and this really changed the retirement game.  This required the employee to become an “investor” of sorts and play the market, even though the average worker knows nothing about how to go about doing this. To this day, employees think their employer is “in charge of my retirement,” not realizing that it is their responsibility to manage and watch carefully their 401(k) or IRA.  Because Pay yourself firstmost people do not have the time, education, or inclination to play the market such that they can put 401(k) money into riskier investments that will produce a greater rate of return (albeit with a lot greater risk), they tend to put their money in more conservative stocks and mutual funds. Returns on such funds average around 6 percent, which doesn’t even keep up with their debt interest rates, so essentially employees aren’t really making much headway towards saving for retirement, especially if they are in debt.

To help employees feel like they are being taken care of, an employer will often have money managers hold an annual meeting to talk about repositioning money to reduce investment risk, maximize rate-of-return, and blah- blah-blah.  

So how does all this help you? Are you, the employee, learning how to invest?  Are you learning how to save money?  Are you learning about tax savings?  What, if anything, are you learning about managing your own money?  Remember this is your money, your retirement, your need-to-know. Certainly you are the person who needs to be handling your money, not your employer!  But Wall Street will say, “Leave it to us because we know best and we are the money managers.  We have been trained, and we are licensed… so you cannot sue us when we screw up and lose your money.”

Did you know, Wall Street charges fees of 1 to 3.5% on average to do this marvelous investing for you?  What that means is that you have to earn 1 to 3.5% before you get any growth.  So when you post 5% growth one year, it means you actually earned 8.5%, and paid 3.5% in management fees. In 2008, when the market took a dive of 43 percent, Wall Street still charged the 1 to 3.5% for the right to lose your money.  And what if you are lucky enough to Salespersongrow your 401(k) to a $400,000 balance? The management fee of 1 to 3.5% is still placed on that total, each and every year.  This adds up to a ton of money!  And come on, how hard is it, really, to manage $150 billion?  Certain parameters need to be chosen by the person in charge, but once done, the computer groups the money, then spreads it out, orders are executed and it goes quick.  So why do they charge this 1 to 3.5% each year?  To me these fees seem excessive, even if certainly they do have costs involved in managing your money.  In the coming months and years I think you will see the U.S. Department of Labor establish new regulations that seriously change how fund managers get compensated and held responsible as a fiduciary.

Remember Sadly, in the 401(k) and IRA game, you are your own investment adviser — you, without any training, without research data, and without any assistance — you are it.  And you get to pay large fees every year to someone else for this privilege of “not know what you are doing.”

Thankfully there are wonderful alternatives!  I urge you to learn about them.  Email me at or call 801-292-1099.

Getting to a ZERO Tax Bracket

This is a follow up to a previous post, How to Legally and Ethically Stop Paying Income Tax, about the importance of getting all income into a tax-free environment. This post will discuss how to make all qualified money tax-free.

Let’s say you have $100,000 in an IRA, or an old 401(k) that you control.  You are much younger than age 59 ½ years and you are in a 20 percent tax bracket.  The goal here is to not pay 10 percent penalty for early distribution.

The IRS rule on this stipulates that all tax-deferred accounts are locked into the investment until the money “matures.” Typically money in these accounts matures when the investor turns age 59½. Any and all funds taken out of thee accounts prior to their maturity date are subject to 10 percent prematurity fees in addition to any income tax incurred by the withdrawal.  Section 72(t) essentially allows investors to forgo the 10 percent fee by making a series of substantially equal periodic payments.

Here is an example in plain English:  Using the 72(t) rule, a person age 52 with $100,000 can withdraw $3,981 each year until age 59.5 and not pay the 10 percent penalty.  The money can be spent on anything you wish.  If you want, use some of this money to pay the income tax on this $3,981.

Other ways you could spend this money?

  • Deposit into a whole life insurance policy and keep it in a tax-free environment for the rest of your life.  This money can be used over and over again as needed.
  • Pay down debt and save interest expense.
  • Invest this money and attempt to make more.

Whatever you want to use this money for, at least it isn’t compounding your income tax for the future. In future blogs I will show how to properly structure a whole life insurance policy to maximize its benefit to you while living.

Required Minimum Distributions Are a Real Tax Problem

Our government wants to get paid.  Tax rules require all people reaching age 70.5 (after April 1 of the year in which you turn 70.5) to begin drawing income from their IRA or 401(k) — that’s so those deferred taxes you have been waiting to pay will now be turned over to the IRS.   It believes you have waited long enough to use your money and now it’s time they want to use it, too. If you don’t need the money and won’t start taking this income, then the IRS will force you to by charging a 50 percent penalty plus the ordinary income tax if you don’t!

The required yearly payout on a $200,000 tax-deferred fund at the age Taxof 70.5 is $7,299. You will then need to pay tax on this amount at
whatever tax bracket you are in at age 70.5.  To add insult to injury, this additional income may force your Social Security benefits for the year to be included in your income on your tax returns. You could then lose an additional $5,000 to $6,000 as you pay tax on the Social Security benefit as well!

Following are the rules for including Social Security benefits for income tax purposes:

  • If you file a federal tax return as an “individual” and your combined income* is:
    • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $34,000, up to 85 percent of your benefits may be taxable.
  • If you file a joint return, and you and your spouse have a combined income* that is:
    • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
    • more than $44,000, up to 85 percent of your benefits may be taxable.
  • If you are married and file a separate tax return, you probably will pay taxes on your benefits.

*Your adjusted gross income 
+ nontaxable interest 
+ ½ of your Social Security benefits 
= your “combined income.”  

A simple solution to the taxing of your Social Security benefits is to convert any deferred accounts like IRAs and 401(k)s into a Roth IRA. Converting to a Roth, however, only makes sense if you have the time to pay the taxes on your funds now, since with Roth IRAs you must pay the income tax up front, or in other words on the “seed.” A tax-deferred program such as a 401(k) defers the tax until later, with the assumption that you will be in a lower tax bracket later in life and thus pay less taxes but this isn’t necessarily true, as I have pointed out with the Social Security benefit. Plus, if you have done what you should and have planned well, you should have a lot more money than you did in your working years! Of course you will not be in a lower tax brackSeedet at retirement, and shouldn’t be! So now, not only do you have to pay a higher percentage of tax due to your increased income, but you must also pay tax on not only that which you initially invested in your fund (and on what your employer contributed as well) but on all the earnings the fund has accrued over the years. This means you will pay tax on the “crop.” What would you prefer, being taxed on the seed or the crop? Most people don’t think about this when they are dumping money into their employer-sponsored programs.

If you can, pay tax now, once, and be done rather than paying tax later with every distribution you take every year and possibly for the Social Security benefit for that year as well for the rest of your life. 



Are You Ready

Do You Know How to Calculate Your Actual Rate of Return on Retirement Funds?

I recently wrote about the importance of avoiding market risks as you get within ten years of retirement, to give you time to recapture any losses before you turn on the income stream.  While that is very important, there is still much more to calculating how much you will have in retirement than just this. Recently, a client told me they had achieved a 17 percent return over the last two years in their 401(k) account.  He was very excited.  I asked him to go back to 2008 and examine his growth rate since then. He said he was far ahead and doing very well, and that he was getting a 12 percent growth rDebt Negotiationate, higher than anyone else.  His answer seemed very questionable to me, so together we examined the numbers and discovered that my client had forgotten to withdraw his own monthly deposits and employer’s match, which skewed his actual rate of return to look higher than it was. When we adjusted for this error, he wasn’t even getting the same level of money as he was in 2008, before the market bombed.

Which makes a huge point:

  • How many people know how to properly calculate rate of return on their 401(k) or IRA?
  • How many people know how to forecast the amount of money they will have in their retirement account at age 65?
  • How would a person go about determining how long this money will last during retirement?

Since this knowledge is critical to your financial future, I suggest you learn how to accurately calculate these numbers or contact a professional who can prepare these numbers for you.

May I add some insight that will help you?

First, predetermine what your spending level will be at retirement.   This mean you need to pick an age. Then build a spending plan as if you were retired.

Second, determine what level of income you will need to live comfortably.  Now work backwards to today.  If the number you need today is more than what you will have, then what do you do?  The obvious answers are:

  1. Work longer hours today, or
  2. Work more years, or
  3. Spend less by cutting some of these expenses you have listed.

As you make these decisions now you will have a much calmer heart as you approach retirement.  One future problem to address is how long will you live in retirement?  I will return with more suggestions.

The Real Facts about Market Risk

My calculations show the returns on all investment accounts average an annual 3.8 percent rate. I read many investment account brochures and study the associated graphs, which show returns at 11.9 percent.  But personal interviews with my clients always indicates that the more accurate rate of return is around 3.8 percent (or to make it easy we’ll just round up to 4 percent), nothing close to the 11.9 percent advertised.  If you need more proof than this, I beg you to do your own calculations, and make sure you take those calculations over a long period of time, not just the last five years.  If you conclude that your rate of return is close to mine, a simple 4 percent, then lock down the investments that are earning you this return so you are getting a nice steady (but low) profit. I now want to use this rate to make a gigantic point.

Since we can assume a low but steady 4 percent overall rate of return, why would you allow the risk of losing a much, much larger amount of money if the market changes dramatically in a few months?  In other words, 4 percent is all you will ever “average” so why would you leave your money at risk of losing so much more (like in 2008 where many people lost as much as 43 percent) just to end up with what we have established is what you’ll get over time (say 30 years) of 4 percent? You know you will never average more than about 4 percent, so again, why risk a much greater loss, only to end up with 4 percent average in the end?  I am asking this question over and over again because people just don’t seem to get this at all.
Timing seems to be everything when it comes to market risk.  If the timing goes against you just before you retire, you will be forced to wait a long time before taking out money to live on.  And with less money, if you start taking this money as planned, you will run out a lot quicker.  In my experience, you must avoid market risk when you arrive at age 55, or when you are within ten years of retiring.  Do your own research and find out how long it takes for the market to return to where it was before a big drop.  Judge for yourself when to move money to avoid market risk.  In case you didn’t know it, you are in charge.  The HR person is not, nor is your employer in charge of your retirement.  Nobody else cares as much about your money as you do.

If you are not going to be satisfied with just 4 percent then you have two choices:

1)  You can spend countless hours learning how to play the market and become and expert investor and take on huge risks in an attempt to make more than just 4 percent


2) You can save lots of time and money and learn more secure ways to invest your money other than just in a 401(k) or IRA, such as real estate, equipment leasing, etc.

I urge you to learn more about Money Mastery Principle 10: “Money in motion creates more money,” and the secrets of the great money masters in maximizing their resources and learning how to get their money to do more for them than just sit in a tax-deferred government retirement program.