EconomicPolicyJournal.com posted a write up(full article here) about 401k’s being a scam. Economics needs
to be studied with eyes wide open and take in various aspects of thought. Here are a few points in the article. I recommend you read the whole piece.
CONS of 401Ks
Let’s look at it conceptually for a second and then I will look at the cons.
You are paid money by an employer. You have that money in your hands for five seconds, and then it is whisked away into this account and you can’t look at it again for another 20-35 years unless you want to pay a massive penalty.
Will you be alive in 30 years? Hopefully! Else you will never see that money again.
Ok, that’s my first problem with 401k. I like to have total control over money that is called mine.
Ok, let’s look at the cons:
1) You can’t predict your tax rate 30 years from now.
This completely destroys the whole “tax-deferred” argument.
Let’s say you put money in your 401k at the age of 29. You are making much less money than you probably will be at the age of 59.
So your tax rate is less than your tax rate at 59, forgetting completely that taxes might be raised also (we just don’t know) between now and then.
So we don’t really know if you are saving money on taxes or not. You are simply having your money taken from you for 30 years.
Also, when you take money out of your 401k, you are taking out more than you put in (chances are, because your expenses are higher). So your tax rate will almost certainly be higher. Again, ruining the entire point of putting in pre-tax income.