The 401(k) is often considered the no-brainer, gold standard of retirement plans. But far from being a bedrock retirement plan, the 401(k) started as an experiment in 1981 and still has to prove itself.


I’ve worked with hundreds of professionals. Most of them diligently saved in a 401(k), but once I explain the risks, they’re eager for alternatives. Here are 12 dangers of a 401(k) for you to consider.


1. You can be wiped out overnight.

A report on CBS’s 60 Minutes asked of 401(k)s, “What kind of retirement plan allows millions of people to lose 30-50 percent of their life savings just as they near retirement?”

Good question.

What folks don’t understand, is that you can have years of strong market gains wiped out by a single market crash,  just like what happened during the internet bubble years of 2000-2001 or the housing collapse of 2008.

It obviously can take years to recover, in many cases just in time to pay ones burial costs.


2. Administrative fees and the tyranny of compounding costs.

Don’t think corporate America has set up the 401K as a free gift.  There are endless fees associated with each account.  While they might seem small on an annual basis, over time they add up, often chewing up close to 50% of your gains.


3. There’s no cash flow for better opportunities.

The 401K takes your money and hides it away.  While this is very good in some ways it is bad in others.  Opportunities that could be exploited like the bargain environment of 2009 are taken away from folks as they are still licking wounds from their 401K losses with their money locked away in an endless roller coaster.


4. Lack of liquidity when you need it most.

Need emergency money from your 401K?  Your out of luck as the fees and penalties make burning your account seem like a better alternative.


5. Lack of knowledge encourages unconscious investing.

Folks are simple bad at investing.  When markets are going up, they feel empowered.  When markets are going down, many are in search of tall buildings featuring accessible roof levels with minimal foot traffic below.  It’s a hell ride and everyone knows it.


6. Fear of taxes leads to under utilization.

401K’s are great in that the money going in is untaxed.  The bad part is that the money is heavily taxed when you actually need it.  Why didn’t Washington, DC make the money untaxed going in and coming out?  Because there going to make a lot more money in taxes from you after than the little you put in before.


7. Higher tax brackets upon withdrawal.

The better your 401K does, the higher your tax bracket during withdrawal.  Sometimes those lawmakers are a lot smarter (for themselves) than one would think.


8. No exit strategy.

Early withdrawal penalties, over-the-top borrowing rules and daunting taxes. These are all incentives never to touch the money …  ever. Getting into a 401(k) seems simple enough. But how are you going to get your money out of it?  Many feel death at an early age is a better option than dealing with the mess our retirement system has become.


9. 401(k)s are easy targets for estate taxes.

When you die, your 401K will be taxed to death (literally).  Your heirs may prefer to simply run from the money rather than deal with years of courtroom rigamarole.


10. The government owns your 401(k) and can change the rules at will.

You may be surprised to learn this, but your 401(k) isn’t even yours.  Since you never paid taxes on the money going in, the government has twisted things in such a way in which, technically, that money belongs to them. All of it.


11. Turmoil in retirement.

Even if you retire during an up market, what happens in 3-4 years when things turn sour?   Suddenly you are out of the workforce and you lose 50% of what you have left.  How is one supposed to enjoy their golden years, when in fact their Gold is more like Lead?


12. Lost without a comprehensive plan.

You can actually go broke funding a 401K.  What if you need the annual 401K payments to pay your bills right now.  Goodbye house, goodbye wife, goodbye kids, but at least you still have that 401K plan  that will hopefully be higher (fingers crossed) when you finally retire all alone.


There’s a reason Wall Street executives don’t drive economy cars.  They system is rigged for them at your expense.  But thankfully, there are others ways to fund retirement that many have heard about, but few understand.  Some totally tax free and some with tax free elements.

All totally legal and backed by the largest insurance companies in the world.