Are 401(k)s the Biggest Scam in America? (Money Guy vs. the Internet)

All right, BR, this first one is one that’s near and dear to us about something that we love, but it turns out the internet does not love it. Check out this video: ‘401K is the biggest scam in America. 401Ks are a scam. 401Ks are the worst investment. Screw the 401K.’ Most idiots out there go, ‘Oh, I have a 401k.’ Well, you’ve been sold a bill of goods, sweetheart. 401ks are just there to keep people at work, not trying to create financial freedom. It would make so much more sense to put it in a life insurance product or real estate. You put it into what’s called real estate and put it in a piece of real estate earning 25%. Pretty easy to do. The elites aren’t using 401ks; they’re using things like leverage life insurance. Have you heard of MPI or maybe Infinity banking? If you’re ready for this strategy, text ‘ready.'”

“Oh my gosh, do you see now? Y’all understand why I had to do the intro the way I did because these people are crazy. So it is so frustrating. There is this myth out there that exists that all these people are trying to perpetrate: that 401ks are a scam, and it’s just not true. But let’s talk about some of the individual reasons why it’s not true because if you actually watch these videos in their entirety, it walks you through the reasons why you should avoid this amazing financial building tool. And here’s the first one. This is what they say about 401ks, Bri. A lot of these influencers say, ‘Hey, there are high fees, and they take up half your money.’ True or false? Well, it’s definitely, in this moment in time, false.”

“Now, look, if we went back 15, 20 years, sure, 401ks were much more expensive. But right now, especially the bigger providers have lowered their minimums. The competition out there in the marketplace has caused administration costs to come way down. And then even the government has made some adjustments that have allowed less testing or workarounds. So it’s gotten cheaper. Technology as well as improvements in the process have made 401ks much more affordable. So even if you project it out, you look at average 401ks across all 401ks that exist right now, it’s somewhere around 1%. Well, even if you take that 1% and you take it through time for someone who’s investing in a 401k, it’s not going to get anywhere near eating away half of your money.”

“Now, there are better and worse ways to do it, but what’s the alternative here? Think about this. Okay, I don’t want to do a 401k because of the fees. What’s the recommendation? Oh, let’s go do something like whole life insurance or let’s go do something like real estate closings that have tons of fees and tons of closing costs. You have to ask, okay, where does the conflict of interest exist, and is that actual factual information or is it just hogwash? And by the way, it’s very easy to get cost plans right now. If you’re in a plan, if you’re one of the exceptions and you look at your plan and you’re like, ‘I don’t like the commissions, I don’t like the internal expenses, I don’t have a lot of index funds,’ go advocate for a lower-cost plan. Now, with fiduciary standards and other things, it’s not hard to hold your employer accountable to get them to actually do better for you and your financial future.”

“All right, so clearly high fees are not taking away half the money. Let’s look at one of the other things that these influencers say or why you should avoid 401ks. ‘You barely beat out inflation, so why bother?’ Well, first, shame. That’s a lie, a straight-up lie. Let’s give them some stats, Bri. So if you look at this, if we look at the S&P 500 compared to inflation from 1990 to 2023 and you look at the growth of $1 growing with inflation versus $1 growing in the S&P 500, the inflated $1 amount from 1990 to 2023 turns into $243. $1 invested in the S&P 500 turns into $14.37. So to say that it barely beats out inflation is absolutely asinine.”

“This is the part that bothers me. What do you think you’re buying when you buy the S&P 500? You’re buying the economy, the 500 biggest companies in the United States. So when we all are complaining, ‘Hey, the costs of groceries are going up,’ who do you think is raising the prices because of the higher cost? And then they have to push up what they’re charging customers. It’s those same companies. You have a way to not only, and by the way, that’s just inflation. Let’s not forget the reason these companies actually make so much money is that as innovation, as new technology is discovered, buying the S&P 500 lets you be part of that success, lets you be part of that expansion, and not getting caught up in letting your purchasing power get eaten away by the unfortunate impact of inflation.”

“Okay, BR, what about this other myth they like to say? ‘Hey, when you put your money to 401k, when you decide to get duped by this type of account, it’s like you’re putting your money in prison. You’re literally putting your dollar somewhere where you cannot get to it.’ Man, you do this long enough, you know that as Americans, we don’t have a problem getting access to our retirement fund. So I’ll show you some stats on that in just a second. But look, we need our money to understand what its purpose is. I talk about Army of Dollar Bills all the time. Some of your army is going to be for emergency reserves. Some of your army is going to be for buying your first house or being in your first after-tax investments. But some of your money and your army of dollar bills needs to be locked away for the future because we just as Americans are not good at being disciplined with keeping that money working for the future. It’s almost like the fact that you have to put in the 401k, and the goal is to leave it in there for a long time is intentional, is on purpose because people actually need that behavioral incentive. Because when you look at it, one of the myths that they say about 401ks is most retirees still don’t have enough savings. So why even bother? Why would you take advantage of a 401k if it’s not even working? Well, the problem is not the account, the problem is not the structure, the problem is the people. It is the behavior that they are missing, not the tool that they are using.”

“Yeah, I mean, think about this. I just made the—because we hear that these things are like putting your money in prison. That’s a false statement because we know for every dollar that’s put into a 401k, 40 cents comes out prematurely. That’s almost half. 40% of the money is coming out prematurely, on average. So we don’t have an access to retirement savings problem. We have—we don’t let our money work for us. We don’t save, we don’t invest. We yellow it up and focus on instant gratification versus deferred gratification, which is where the wealth building lives and exists. That’s exactly right. The problem is not the product; it’s the people. Listen to these stats right now. The average 401k contribution is only 7.4%. That is a far cry from the 24% savings rate you hear us talk about all the time. If you look at average 401k balances right now for those that are at or near retirement age, 54 to 64, the average 401k balance is only $28,000. Well, if you have a $28,000 401k balance, that can generate a lifetime income for you of only about $700 a month. So the problem is not the account; the problem is there’s not enough money going into the account. And even when people are doing this, 177% of folks right now have outstanding 401k loans, and 34% of people aren’t even getting their full employer match. If you listen to us any amount of time, you know that we have the financial order of operations. Brian, do you have the thing with—oh, I got the financial order of operations right here.”

“What we know is we know that step two of the Financial Order of Operations is that you go out there and get your employer free money. It is literally free money that you should not walk away from. And yet there are 34% of folks not out there going and getting that. So again, we have a behavior problem. It is a people problem, not a product problem. Well, I think it’s important to understand. I asked when we were doing our content meeting, and I would encourage everybody to go out to moneyguy.com/resources. We have a Wealth Multiplier resource that lets you actually figure out what a dollar is worth or what you need to invest to be worth a million dollars or $2 million. I want to hone in on that average 401k balance of 55 to 64 is only $27,000. That’s disappointing because I look at my wealth multiplier chart, and I know when you come out of college or even if you just get your legs underneath you at around age 22, to have $2 million, you need to invest $249 a month. That’s it. Well, you see most people end up with a tenth of that. That means they were not saving $200. They’re not even saving $25 a month. As I said, that’s—I knew when I was 18, you know, 17 years old working at the drive-thru, I could save $100 a month back then. So to find out that people aren’t even saving $25, that’s where you start to think, I don’t like the latte effect, but it’s very easy to see if we’re not even prioritizing $25 a month in our 20s, how can we expect to let our army of dollar bills reach the critical mass point that they can work harder than we can with our hands, our back, and our brains? And we know this from the data that most folks who hit millionaire status, the very first account to cross over seven figures is, in fact, their 401k. It is the account that makes someone a millionaire. So the idea that 401ks are a scam, absolute hogwash. I’m going to say myth busted. Shame.