Monday, August 24, 2009

Millions Get Swindled: 401(k)s turn into “104(k)s”

Millions Get Swindled: 401(k)s turn into “104(k)s”

You probably already know the conventional financial industry tagline about planning for a successful retirement. If your advisor is a regular industry guy or gal, it goes something like this:

You’ll need to get ahead of inflation so you have to invest in a well-diversified stock portfolio since they outperform other investments, meaning over the long haul, you’ll achieve your dream retirement. And as you approach retirement, your portfolio will be adjusted to reflect the years before retirement.
They refer to this as taking a more conservative stance to ensure that all your years of hard work will not go down the drain. As a financial strategist, I say this “wisdom” is debatable, if not outright flawed.

Before you read further watch this one-and-a-half-minute video from a recent “60 Minutes” episode:

These are real people, just like you and me, who trusted the “industry as usual.”

Here are my takes. But I must warn you – these are very candid, straight-talk opinions, supported by facts:

  • How come people in retirement or close to it are exposed to that much stock market risk?

  • What happened to the "we’ll make your portfolio conservative" promise?

  • Who would even think it was worth it to save money in a 401(k) if, when they get close to enjoying the fruits of those years of labor, they knew they’d have to – unwillingly – work as a part-time cashier, greet mourners at a funeral home, or serve lattes in order to survive?

This is all part of a wider problem. According to a 2008 survey by the MetLife Mature Institute, one in four persons over the age of 62 said they wouldn’t/couldn't retire due to the economy. I'm guessing that right now you or someone you know is dealing with a jeopardized nest egg.

“Financial” Industry Response

In the light of all this, what does the financial industry tell those crushed investors?

Here are the direct words of David Wray, president of the Profit Sharing/401(k) Council of America: “A 401(k) is the absolute best way people can save for retirement.”

When asked to explain how the so-called best available vehicle could let tens of millions down, his response was “Nobody was saved in the current thunderstorm.” A totally preposterous, untrue, and frankly rude assertion.

One reason I know he's wrong: the clients of Laser Financial Group have not lost even a cent since the current stock market turmoil began. The way I see it, the very same people who duped and swindled investors by failing to keep their end of the bargain are basically now telling these investors, "Sorry. Tough luck. Take a hike. Hey, this is capitalism!"

I must point out that I in no way intend to attack Mr. Wray personally – but his outfit’s professional opinion is stupid and false.

Using 401(k)s is NOT the absolute best solution. I prefer to say that it's the best for those conventional industry professionals ... but for the realistic few like me, there are far superior options. Read my July 6, 2009, blog post for further details.

The CRITICAL Question

The broader question is how come investors are not pursuing the common-sense strategy we recommend for our clients, which gives them downside protection from the stock market, yet earns competitive index-based returns when the stock market is doing well – up to a predetermined cap?

Possible answers include:

  • They don’t know that a strategy like ours even exists.

  • Their so-called advisors don’t know about them.

  • Their firms don’t offer them.

  • They are not even licensed to sell them.

  • They are not lucrative enough.

Perhaps you now see why I chose “swindled” for the headline on this blog post.

Those of you in the DC Metro area might already have read in the Frederick News-Post that I will be speaking at the C. Burr Artz Public Library in Frederick, Md., on Saturday, August 29 about this strategy, as well as how to accumulate and withdraw money, absolutely tax free – based on current IRS rules. For details and free tickets, call (301) 949-4449 or visit this link.

Here is the full 13-minute video of the “60 Minutes” program.


  1. Wow...and people are still contributing to thieir 401 K's or are still over contributing. This recession has taught me and my husband that saving and diversiying are just as important as eating and drinking. I am so glad we were able to help a few people before the downturn. It took those people some time to see the light, but at least they were open-minded enough to give you a listen.

  2. Very informative Blog.

  3. Very thoughtfull post on wealth building .It should be very much helpfull

    Karim - Creating Power


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