I Have Given Up on the 401(k) Plan

After having invested tens of thousands of dollars in 401(k) plans that I had to bail out of, I have finally realized that this is just a waste of time and money.  The tax-deferred model only works if you can keep that money in your plan until you retire.  I know I am not making bad financial decisions because I don’t buy a lot of stuff.  I had to take money out of my retirement plans to deal with medical bills and to catch up on other bills when I lost a couple of jobs.  The 10% penalty just sucks all the life out of the 401(k) plan.

I admire anyone whose financial life is stable enough to keep them afloat until retirement.  But I have many friends who are in the same boat I am.  They pay their mortgages by sacrificing on their retirement, and after the real estate collapse of 2009 no one is harboring any illusions of being able to retire on the equity of their homes.  Add to that the costs of upgrading homes before you can sell them and suddenly those 401(k) plans look like big dead weights on the family balance sheet.

From now on when I invest in the stock market, if I do that again, I will just use after-tax money so I know I don’t have to pay any penalties if an emergency comes up.  The rules for these plans are completely unrealistic.

You could almost make more money by buying a new car and leaving it in your garage for 5 years.  If you bring a used 0-mileage car to the market 5 years later you’ll get a better return on your investment than if you have to bob up and down with the stock market for five years and then withdraw your money at a 10% penalty.

I don’t mind paying taxes on what I make but adding 10% because I cannot keep my money invested is just asking too much.  That 10% penalty was supposed to be an incentive to keep your money in the retirement plan.  As far as I am concerned it’s an incentive to NOT invest in a 401(k).