A Different Perspective

Example: You earn 75k and need to take 50k from your government plan for some unexpected reason dictated by the vagaries of life (maybe a divorce, a health issue, a setback, or perhaps a business or other opportunity). The 50k withdrawal is treated as additional taxable income, which now totals 125k. Since you’ve used up your deductions on your “base” income already, the extra 50k is fully exposed to a higher tax rate. Plus penalties. So, you may decide to forgo the withdrawal and finance your cash need instead. Either way, the government or the financial industry is going to make a bundle on your problem. On the 50k withdrawal, the tax and penalty can be 21k or more; the interest on a line of credit can be 18k or more – if you pay it off early. (You do get to choose your poison: taxes and penalties or debt interest.) So, what caused the problem in the first place? “Loss of use” of your money you say? Go to the head of the class.

Economic Fact: Locks = loss of use of your money. Loss of use of your money = debt, debt interest expenses, and lost opportunities.

Debt, interest cost, and lost opportunities are a direct result of “loss of use” from locking up your money. The economic impact of “loss of use” of your money is huge; but, while it is felt financially it is unseen. Being unseen it is unmeasured. Being unmeasured, we accept it and don’t seek alternatives.

The “loss of use” factor is ignored at tremendous cost; typically, cost greater than Box A can produce in gains. Even if the costs and gains are equal, the net gain is zero. How will your future look at zero true gain? Inflation alone requires at least 3% growth per year just to stay even.

Yes, you will have money if you “participate”. You will have your deposits plus any growth the investments may generate. You will see the evidence in your statements. The growth inside the “box” is seen, which makes you feel good. That is the second “attraction” of these plans.

But, is what you “see” what you actually have; or, what you get? NO. A large part of what you “see” in the statements is not yours at all – it is the unpaid tax that belongs to the government. It was never yours and will never be yours. And, you have not yet accounted for the “unseen” part. The costs created from “loss of use” aren’t shown on the statement. Because of what you don’t see, there are little or no real gains.

You may certainly choose to participate for reasons of your own. Our purpose is to ensure those reasons are factual and not false perceptions created by government plan promoters. It is our recommendation that you carefully consider and measure your specific factors prior to participating or continuing participation. There is a lot of your money at stake with your decision.

 

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