An experienced financial advisor, Dean Vagnozzi is widely known for his unconventional approaches in financial planning and investment. Through his firm, A Better Financial Plan, clients receive advices that are unheard of from traditional financial advisors. Dean Vagnozzi openly criticizes 401k stating that it is not the best option available for retirement planning.
The most common retirement plan that many people invest in is 401k. Perhaps they think the 401k is the best option they have. When analyzed against factors of safety, growth, liquidity, and tax-free returns, 401k is not the most solid option.
1. 401k is not safe from loss - Most people fund their 401k by using mutual funds. Characteristically, the values of mutual funds rise and fall every day, and the potential for loss ranged from 30 to 50 percent of their values.
2. 401k’s potential for growth is not consistent - People have been misguided to believe that 401k has a growth potential of 8 to 10 percent. The idea is taken from the stock market’s earning records in 100 years. However, people do not have a 100-year window to invest in 401k. The time to invest in 401k ranges from 10 to 40 years. Looking at how the stock market has performed in 10-to-40-year windows, the record shows only 3 percent growth.
3. 401k is a very illiquid investment - The money that a person puts into his or her 401k remains locked up until he or she reaches the ages of 59½. So if that person started putting money into his or her 401k at 30 years old, he or she has to wait for 29½ years before he or she gets to enjoy his or her money.
4. 401k plans are not tax-free - The taxes that accrue on the 401k are deferred, which means, the investor will pay the taxes at a future date when tax rates are expected to be higher.
A Better Financial Plan offers a better alternative to 401k and it can be accessed through www.getabfp.com.
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