Chapter 3 Summary:
The over-promotion of tax-deferred retirement accounts is a conspiracy that benefits the big financial firms. The lack of liquidity in these plans is a trap that allows financial firms and mutual funds to continue to collect their management fees for longer periods of time. The resulting lack of liquidity greatly limits the financial flexibility of the account owners.
The big financial firms like to promote tax-deferred accounts because delayed taxes allow these accounts to grow larger resulting in larger asset based management fees to the firms. However, these firms de-emphasize to their clients that only part of these retirement accounts actually belong to the owner, while a huge chunk, in fact, belongs to the government. They also nearly never discuss that the owner is paying management fees for the government’s share of the account.
Firms further downplay the huge tax bomb waiting at retirement by making ridiculous statements, such as:
“Don’t worry about taxes during retirement because you will have less taxable income in retirement and will be in a lower tax bracket.”
Both of these assumptions are just not true in real life.
Remember how the big financial firms are paid: the size of the account multiplied by the length of time held. It is easy to see how their advice and marketing are geared to ensuring greater profits for themselves. And this ingrained advice has corrupted our financial beliefs and concepts of retirement savings.
It’s time to snap out of it and think for yourself! An investor who thinks critically knows that tax-deferred retirement accounts are seldom the best options.
However, don’t think that the limitations of tax-differed accounts are an excuse not to save and build net worth, which is a must. As the following chapters reveal, tax-deferred accounts are not the only way to save for retirement.