Modern Day Financial Planning – A Fraudulent Myth?

What is behind the hype of “qualified plans”?
(401k, IRA, TSA, and similar plans.)

6: Maximum “contributions” promote the illusion “this is so good we’ve got to limit it!”.

7: Plan administrators consistently break laws requiring “full disclosure” and “investment suitability”. Out of hundreds of participants interviewed, NOT ONE knew the facts or completed a fact finder to determine if participation was even appropriate for them.

8: Most participants anticipate lower taxes at retirement. However, deductions for mortgage interest and children will be gone. Income tax rates, not capital gains rates, are applied to every penny taken from qualified plans. Tax rates are subject to the whims of Congress. At one time the marginal rate was 70%! Does it make any sense to defer payment of 15% only to pay 30%, maybe even 70%, later?

9: Much of estate planning is about schemes to bypass children and pass plan money to later generations, hoping to avoid the “tax bomb” built into 401(k), IRA, and similar plans. This proves the problem, and begs the question “do I even know who I’m saving my money for?” We urge you to ask yourself that question now, and to make sure that what you do will achieve what you actually want.

 

Whether its fraud nor not, financial planning totally fails to acknowledge the economics of personal finance. “Features” of 401(k), IRA, and TSA type plans are only attractive on paper, the financial planner’s “showroom”. But, we don’t live in showrooms. We have real cash flow needs, face real change, uncertainty, and events in our lives over which we have no control. We believe that plans must be “tested” against the environment of reality, not the artificial “boy in the bubble” environment.

Food for thought: In Africa, monkeys are caught by cutting a hole in a tethered coconut and placing a nut inside. With the monkey’s hand closed around the nut, it can’t be removed. Rather than give it up, the monkey is caught. Isn’t there a correlation to financial freedom?

If you skipped forward to Chapter 4, click here to return to where you left off in Chapter 3.

 

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