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15 Reasons Why Your 401(k) May Be Your Riskiest Investment

By Garrett Gunderson

Financial institutions are genius marketers. They are able to get millions of Americans to hand over their money with very little thought taken, very little knowledge of the so-called investments offered, and even less control of their investments.

When the evidence is plainly presented, it becomes overwhelmingly clear that putting money into 401(k)s and similar qualified plans is not investing at all — it is one of the riskiest gambles for most individuals. Read the following reasons why I say this, and ask yourself if it’s time to reconsider your 401(k).

1. Limited Opportunity For Cash Flow

Qualified retirement plans, such as 401(k)s and IRAs, do not provide immediate cash flow, which means that you cannot benefit from them through velocity and utilization. The theory is that letting the money sit allows it to compound, but for most people this really means that it stagnates.

Most people will not choose to utilize these funds even when a particularly compelling opportunity arises that will make them far more than the 401(k) would, even accounting for the penalties. This means that numerous legitimate opportunities are passed by as people stay “in it for the long haul.”

2. Lack of Liquidity

The money is tied up with penalties attached for early withdrawal. Although there are a few technicalities that allow penalty-free withdrawals, the restrictions are so numerous that very few know how to get around them.

3. Market Dependency

The performance of the funds is dependent upon market factors that most individuals do not have the knowledge nor the ability to understand or mitigate.

This means that your retirement plans are based on unknowable projections, making for a dangerous and uncertain planning environment. Uncertainty causes fear, and fear leads to mistakes, worry, scarcity, and ultimately lost hopes and dreams. Do you want to live your ideal life only if the market cooperates?

4. The Match Myth

“Take the match — it’s a guaranteed 100 percent return before you even get started in the market!” You’ve heard that before, right?

The problem is that it’s a complete myth — were it true most 401(k) savers could end up with literally billions of dollars at retirement. What is the true impact on the bottom line to you? When do you utilize the match?

5. Lack of Knowledge

How much do you really know about your 401(k)? Do you know what happens to the money? Do you know what funds you’re invested in? Do you know the companies that your funds are invested in? Have you seen financials for these companies and do you know their key executives?

Do you know the fund manager by name, her history, her investment philosophy, her performance? How can you expect to gain a return from something you know so little about? How can you create real, tangible value in the world in the 401(k) scenario?

And how can this be called investing? Without full knowledge of an investment, placing money amounts to little more than gambling, which is the desire to get something for nothing. The “something-for-nothing” attitude – no matter now subconscious – is exceedingly destructive.

6. Administrative Fees

The funds are subject to various administrative fees in addition to expense ratios and 12-b1 fees (for marketing expenses). This is a fact which most people and even many advisors ignore. This means that your returns will be negatively impacted and your projections can be substantially off.

7. Under-Utilization Because of Tax Deferral

If you don’t like paying taxes today, why would you want to pay them any more in the future? In other words, the tax deferral aspect, which is touted as a great boon, is actually a primary factor contributing to qualified plan money being notoriously under-utilized.

Most retirees let the money sit, even during their retirement years, for fear of triggering tax consequences. If you just have to pay the taxes as a later date how is it a tax advantage? The reason there is no tax paid is because you have deferred income by never taking constructive receipt of your earning and instead deferring them into a qualified plan.

8. Higher Tax Brackets Upon Withdrawal

Closely related to the previous problem, the other issue with taxes is that most advice fails to take into consideration the likelihood of you being in a higher tax bracket during your retirement years than you were previously.

Think about it: If you have achieved any measure of success living the accumulation theory, you should actually be in a higher tax bracket at retirement, although most advisors project that you will be in a lower tax bracket.

So this means that deferring your taxes results in a far greater tax burden than would otherwise be incurred using different products and strategies than the conventional route. It’s profound irony that people project healthy returns on their qualified plan while also projecting that they will be in a lower tax bracket at retirement.

9. Estate Taxes

401(k)s are sitting ducks for estate taxes. Much qualified plan money is never utilized by those who actually accumulated it because they hold off so long on withdrawing it in fear of paying taxes.

Yet when the money is passed on to the next generation, there is not only an income tax that can be triggered, it may be subject to an estate tax that there is no internal provision to avoid either. So when the money is passed to the next generation, the government taking a healthy chunk before it passes hands. This begs the question of who is the real beneficiary of the program.

10. No Exit Strategy

Getting into a 401(k) seems simple enough. In fact, many companies start employees’ 401(k) contributions automatically upon hiring them. They sound great – you’re getting a match, tax deferral, a wide choice of funds relating to your risk tolerance.

But how are you going to get out of it? How many people take this into consideration when they start contributions? How many people understand the penalty and tax consequences? Most people don’t fully realize the implications until it’s too late, and so their qualified plan money sits unutilized.

In that case, what is the real rate of return of your money? Once again, in that scenario, who are the real beneficiaries? Not them, and not their heirs to a large extent – it’s the institutions and the government.

11. Subject to Government Control and Change

Did you know your 401(k) does not even technically belong to you? Read the fine print and you will find that it is what’s called an “FBO” (For Benefit Of). In other words, it’s technically owned by the government, but provided for your benefit. It’s essentially a tax code.

If history proves to be a reliable guide, 401(k) funds are therefore in great jeopardy. In the same way that the government raises and lowers taxes at their whim, what is to keep them from changing the rules and taking the money that you so diligently saved?

12. Golden Handcuffs

Are you at your current job because it aligns with your passions and purpose, or because of the great benefits? Are you just holding on long enough until your qualified plan funds are fully vested? Are there ways that you could create more wealth and opportunity by living your Soul Purpose, rather than being attached to the deceptive security of a 401(k)?

13. Disinvesting

Suppose you’ve retired and want to begin taking interest payments from your qualified plan. You project that you can withdraw 6 percent a year, based on an average return of 8 percent a year. However, what happens to your principal when the funds are volatile and the market experiences down years?

Your funds may be receiving an average 8 percent annually, but that means that some years will be lower, some will be higher. If in one year your fund is down 10 percent, you’re tapping into your principal to take your interest withdrawal. At that point, you have only two choices: 1) start withdrawing principal, or 2) leave the money alone until your funds are up again.

14. No Holistic Plan

I’ve witnessed on many occasions people whose finances are in shambles and although they have much more pressing needs, they diligently contribute to their 401(k). They’ve been convinced to do so, of course, because of the match, tax deferral, etc. It’s like a person trying to take care of a scraped knee when their wrist is slit.

What they really need is a macroeconomic approach to their finances that will help them identify, prioritize, and manage all pieces of their financial puzzle, with all pieces coordinated and working together.

15. Neglect of Stewardship

Ultimately, the most destructive aspect of 401(k)s is that they cause many individuals to abdicate their responsibility, abandon self-reliance, and neglect their stewardship over their own prosperity.

People think that if they just throw enough money at the “experts” that somehow, some way, and without their direct involvement they will end up thirty years later with a lot of money. And when things don’t turn out that way they think they can blame others – despite the fact that they only have themselves to blame.


Qualified plans are promoted on such a wide scale because those promoting it have vested interests – and their interests don’t necessarily coincide with yours.

If you currently contribute to a 401(k), stop and think about it for a minute. What is it really doing for you, now and in the future?

The desire to save money for retirement is wise and prudent, but after reading the above, do you think it’s possible to find other investment philosophies, products, and strategies that would meet your financial objectives much more quickly and safely than a qualified plan? Are you really comfortable exposing yourself to this much risk?

How can you mitigate your risk, increase your returns, and create safe and sustainable investments? How can you create more control and better exit strategies, reduce your tax burden, and increase your cash flow?

Your financial future depends on your answers to these questions.


Garrett Gunderson is an entrepreneur, financial coach, the founder of Freedom FastTrack, and the primary author of the New York Times bestseller Killing Sacred Cows: Overcoming the Financial Myths that are Destroying Your Prosperity.

Garrett loves inspiring others to turn their potential into production. He has dedicated his life to living and teaching a unique concept known as Soul Purpose that reveals how anyone can live a more prosperous and rewarding life.

As a finance and business productivity coach, Garrett instructs both large and small groups of business owners and financial service professionals nationwide.

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  1. Neglected to mention that with taxes on the rise, even if you are not in a higher tax bracket, the current tax burden being assumed by the current administration MUST result in catastrophically higher taxes in future, so the money is almost certainly going to be taxed more then than now.

  2. I’m hoping to see another article telling about the kinds of investments that people should put their retirement money into. Without an additional article, this one is not going to be very helpful.


  1. […] at your money. Things that aren’t so traditional. One example is Garrett Gunderson, and his recent post highlights how these ’safe’ investments may actually be risky. I couldn’t agree […]

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