A 100% Employer Match On 401Ks – The Best Thing Since Sliced Bread?

by | BiggerPockets.com

One of the things I like most about writing on BiggerPockets Blog is the comments and questions from readers. Some of those comments inspired this article, as they compelled a reasoned answer worthy of more exposure than the comment section for one article. The article in question can be found here. Whenever I encourage folks to either gut their 401k/IRA or roll it over to a Solo 401k, some recoil in horror at not takin’ long term advantage of the ‘free money’ routinely contributed to the accounts by their employers. On the surface it seems reasonable to accept that free money as a turbo charged way to a golden retirement. Some are more tempered in their objections.  They proffered  the reasoning that limiting the taxpayer’s contribution up to the amount of the employer match would act as merely a small part of the person’s retirement plan. Supplemental retirement income if you will.

Let’s take that approach to it’s maximum benefit  

  • We’ll assume they contribute $15,000 yearly with a 100% employer match, for 30 years
  • Since they’re effortlessly, and without risk, doubling their money annually, they don’t ever lose money
  • This results in an account totaling $900,000. The average 58 year old man has less than $100,000.
  • A post retirement yield of 4% will be used to create the supplemental income stream

We’ve assumed 30 years in a row without a penny lost. Warren would be proud. 🙂 And yeah, before ya bring it up, I know there’s likely no employer in the country giving a dollar for dollar match near or at the maximum allowed employee contribution. But there’s a point to be made here. Since such a microscopic percentage of folks hit retirement — even with a healthy employer match — of anywhere near $300,000, much less nearly a million bucks, this extreme example should be illustrative.

At the 4% rate Wall Street financial experts recommend for post retirement yield projections, this would produce a supplemental income of $36,000 a year before state & federal income taxes. We’ll be kind and project an after tax figure of roughly $30,000. A figure to be proud of, given it’s status of merely supplemental. We would, of course, assume this taxpayer invested well in whatever was their prime retirement income vehicle(s), and did exceptionally well. We’ll assume it was real estate. 🙂

In fact, let’s assume that after 30 years they ended up with an impressive real estate retirement income of $100,000/yr.

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An Alternative Approach

  • We’ll take the same yearly $15,000 contribution, but make it a $10,000 after tax amount
  • $5,000 will go towards the annual premium for an EIUL — 30 years of premiums indexed to inflation
  • $5,000 will go towards the annual contribution to their new Solo 401k Roth — again, for 30 years
  • They’ll invest in discounted notes in the Solo — we’ll assume they pay off an average of every 5 years
  • Note payments will be invested as appropriate, based up the ability to acquire new notes

As in the first approach, they’ll invest and do very well in real estate. They’ll end up with an enviable retirement income from their real estate investment efforts — $100,000. However, let’s concentrate instead on the ‘supplemental’ income they’ll create with the $10,000 a year they’ve been allotted.

First the EIUL

I brought in the expert in the EIUL arena, David Shafer, a fellow BiggerPockets contributor. I told him we were dealing with a 35 year old man, who’d be taking the after tax leftovers of his former annual $15,000 401k contribution, and puttin’ half of it — $5,000 — into an EIUL, indexed for inflation. At first, Dave said he’d run the analysis based upon our guy livin’ ’til 90. Anticipating somebody askin’ about the possibility of him living to 100, I insisted that age be used. It lowered the ultimate income at retirement, but also lowered the possibility of those who’d object to him ‘only’ living to 90. 🙂 Summarizing, Dave had him payin’ premiums for 30 years then triggering the income, probably around 66.

The income our intrepid investor would be receiving ’til 100 years old would be $96,250 annually — every single penny of it TAX FREE.

If he comes to an untimely end before 100, his heirs would receive any cash value in the policy — again, TAX FREE. See, by IRC definition, unlike your handy dandy job related 401k, cash value in the EIUL is not even considered to be part of the estate. Heirs like that.

The remaining $5,000 a year goes into his new Solo 401k, on the Roth side

He contributes the $5,000/yr for five years, yielding interest of just 4%. At the front end of the sixth year he adds that year’s $5,000, which brings his total to that point to approximately $32,000. He acquires his first discounted note/trust deed. It’s face value is around $49,000, with payments adding up to roughly $5,160 a year.

Years 6-10 his payments accumulate to around $25,800. His note pays off, net proceeds amounting to about $47,300. He takes this payoff, adds the accumulated payments to it, and with the princely sum of $65,000 (he started a slush fund of about $8,000) he acquires a new discounted note for $100,000. The payments from years 11-15 amount to about $52,600. The note payoff proceeds are, give or take, $96,500. He then sets aside another $12,000 for the slush fund, now totaling over $20,000, and acquires notes with a face value of approximately $211,000. Payments total $22,200/yr, which comes to $44,400 in the first two years (years 16 & 17), which he prudently uses to acquire another note, this time for $68,000. Those payments total $7,160/yr. Total annual payments are now $7,160 + $22,200 = $29,360. In two more years that adds up to a tad more than $59,000. He buys another note with a face value of $90,000, with annual payments totaling around $9,470. $7,160 + $22,200 + $9,470 = $38,830 a year in note payments received by his tax free retirement account — which he administers.

He rinses and repeats ’til his 30 years are up. His income at retirement is well over $100,000 from this approach — all of which is tax free by definition. But we’ll say it’s ‘only’ $100,000. ‘Course, that’ll keep increasing as notes pay off and he acquires larger ones to replace them.

Raises In Retirement — the name of my new band. 🙂

Let’s Review

The alternative I propose to using your 401k as a source of supplemental income turns out to be a major part of your overall Purposeful Plan for retirement.

The EIUL income ends up being $96,250/yrtax free ’til you’re 100.

The Solo 401k (Roth) provides at least $100,000/yragain, tax free. It also increases at random intervals ’til you’re gone. We love income increases in retirement.

That’s almost $200,000 a year in tax free retirement income. Hardly supplemental. 🙂

Add to this 20-35 years of prudent real estate investing, and your retirement will indeed prove to be magnificently abundant. In fact, since they both produced $100,000 a year from real estate investing, the difference comes in the other paths they pursued. One of ’em retires with $136,000 a year, most of it taxable, and all of which will be taxable when the depreciation runs out.

The other guy will be living on just under $300,000 a year, the vast majority of which — over 2/3 — is tax free by definition.

‘Course we must all make our own choices. Which method appeals to you? Go ahead, take your time. No rush.
Photo: Vagabond Shutterbug

About Author

Jeff Brown

Licensed since 1969, broker/owner since 1977. Extensively trained and experienced in tax deferred exchanges, and long term retirement planning.


  1. Great post with good illustration of what can happen purposefully. Ah, if I was thirty again. Right now $100,000 a year tax free sounds great, but at 4% inflation in thirty years you’ll need around $350,000. Too many folks don’t figure in inflation in their retirement or taxes. One needs an 8% growth just to stay even, not depleting their investments.

  2. Glen Sonnenberg on


    While I’m not going to debate your strategy, you’re short-changing the 401k strategy in my opinion. Using a historical stock market rate of return of 6-7% the person who contributed $15k a year would end up with ~$1.2-1.5M WITHOUT the company match. Your doubling the contribution to get to $900k doesn’t match the potential growth of compounding interest for 30 years. If they simply switched that contribution to a Roth 401k then that would be tax free also. Lastly, using a simple calculator, $1M of that could purchase an immediate annuity at 65 of around $60k+ of income. That would seem more prudent than relying on the 4% rule and you’d still have some money left over for other expenses. It may still not perform as well as your strategy but it doesn’t appear to fall as short as your article makes it look. Just my $0.02.


    • Jeff Brown

      Hey Glen — I won’t/can’t assail your point. Here’s the problem though. Pick 1,000 taxpayers our there who’ve been contributing like banchees for the last 30 years. You’d be hard pressed to fine 10-20 who’ve come within shoutin’ distance of a 7 figure 401k balance.

      I know what the numbers are, and your quote of them is accurate. They’re simply not reflected in the real life bottom lines of real folks. In fact, Dalbar, a company specializing partially in tracking typical 401k yields has said consistently that the historical numbers you accurately quoted, are really, when inside a 401k, barely averaging 3.5%/yr, And that’s a 20 year average.

      Again, if Americans were doin’ so well with the employer plan strategy, we wouldn’t be having this conversation. It’s failing hugely, and virtually at a universal clip.

      • Glen Sonnenberg on


        I tend to agree with your assertion that 401k’s aren’t the “answer” to retirement for most people. However, I believe that has more to do with a lack of understanding of how much it will actually take to retire and a lack of ability to follow through consistently for a period of 30 years. Life happens and most people aren’t disciplined enough resist the urge to sacrifice their retirement savings as a solution to financial problems they may run into from time-to-time. I actually like some of your strategies although I’m still not sold on the EIUL portion. Seems like too many moving parts/components and I distrust insurance companies and their ability to find loopholes and various ways, given the complexity of these policies, to screw me (for lack of a better word). Of course, 401k plans are doing the same thing behind the scenes with their fees so it’s hard to find a place to invest where that’s not the case. 🙂

        One thing I’d like to know more about. You regularly discuss buying discounted notes but I don’t hear much in the discussion about specifically WHY the notes are discounted. I know there are NPV calculations that go into how these notes are valued but I suspect there are other risks involved (related to their potential for non-performance) which you don’t discuss much that affect their value. I’d like to read/listen to you discuss some of the downsides of note-buying. Perhaps some worst-case scenarios along with what to do about them and how to avoid them. The risks are there otherwise the notes wouldn’t be such a good deal. I know you’re an enthusiastic supporter but I’m always looking to understand the downside. 🙂 Thanks for your contributions.


  3. Braden Smith on

    This post leaves out some important info. First of all, how many people know what EIUL even stands for? The article doesn’t explain or describe it at all. I know what it is, but many I am sure do not. Secondly, it doesn’t explain that this scenario requires a discretionary income far above what the average person has available to them, especially for someone that has the time to use the 30 years needed. Third, any money you pull out of a UL policy is not tax free, nor expense free. It is considered a loan, and interest must be paid on that loan, sometimes as high as 8%. If it is not paid back, then it is income and is taxed as such. And, if you continue to pull money from the UL it will eventually deplete the cash value and the death benefit as well. (Nothing is tax free in this world. You either pay it going in or coming out, but you pay it one way or another.)

    All types of UL policies are a deemed a bad investment by just about every financial guru out there, such as Dave Ramsey, Clark Howard, Suze Orman, etc. There are so many costs associated with them that are NOT mentioned by those who sell them. The fees involved are rarely mentioned, like the Cost of Insurance, Premium Loads, Surrender Charges and Admin Fees. Depending on the policy, these expenses could be at least 2-3% or more. Even if there was a down market year and your policy remained flat, you will lose money because of the fees and expenses of your policy. Some ULs have a minimum interest they will earn, but it is not typically not high enough to insure you don’t lose money when you take these things into account.

    Most people get caught up in the hype and lure of earning all this money “tax free”, and see the tremendous growth shown in the illustrations that are based on best case scenarios, but it is tax deferred, NOT tax free and rarely does the best case scenario play out like it is supposed to, nor is inflation taken into account. Life insurance is best to be used as life insurance. It is not an investment, nor was it meant to be. UL policies shift the risk off the insurer and on to the insured. Not to mention that with a UL, it needs to be managed on a regular basis or you may find out too late that it’s not performing as it was supposed to. And if you don’t plan to keep it for a full 30 years or so, it’s definitely not a good idea. Don’t forget about the huge commissions (up to 100% or more for some) these policies pay to your agent, which comes from your money!

    Want a better way to invest in real estate and earn tax free… check into using a self directed Roth IRA. By the way, I am an insurance broker who sells life insurance… just fyi.

    Here are a few links that may help clarify things for some:

    More info on loans from a UL:
    Exactly like a conventional loan, you’ll be charged interest ranging anywhere from 5 percent to 9 percent on the loan. Unpaid interest will be added to your loan amount and will be subject to compounding. That’s right — you’ll be paying interest on your interest.

    What people don’t realize is that interest has to be paid. You’re going to pay it either out of your pocket or you’re going to borrow it (from your policy). It’s exactly like borrowing on your home equity line. Just run an illustration of that and see what happens to your home equity.

    If you have a variable universal life policy, you may also be charged an “opportunity cost,” which is the difference between what your collateral was making in the investment account and what it will make in the guaranteed account. For example, if the invested portion of your account was earning 6 percent and the guaranteed fund earns a fixed 4.5 percent, you can add the difference, or 1.5 percent, to your interest rate to cover the earnings your insurer will forfeit by pulling that loan money out of the market.

    Then there’s the dividend issue. Dividends in life insurance are not like dividends in the stock market, which are a return on your money. Instead, they’re essentially a return of premium, a return of your money, in part as a result of market exposure. When that loan collateral is pulled out of the market, your dividend will very likely go down for as long as you have the loan, further inflating your loan cost.

    • Braden, you are totally wrong with about everything you wrote. I don’t have time to address everything but here is just a smatter of the things you got factually wrong. The loans in an EIUL don’t always have a cost. Many companies offer a “wash loan” that equalizes the loan interest with the interest earned ending up with no charge on the loan. Loans are not considered income and ARE NOT TAXED. Personally I send an expense chart along with an internal rate of return chart which calculates returns after expenses to every person I send an illustration too. These expenses end up costing somewhere between .4% and 1.8% depending upon age, gender and premium payment timing. That is disclosed to every one of my clients. If you are an insurance broker and don’t know these things then you need to understand them. You don’t have to like the product, but at least learn about them instead of regurgitating all the factually wrong information about them on the internet.

      • Braden Smith on

        I in no way commented trying to start an argument with you, but I can see by the tone of your reply that is what you are looking for which is to be expected from someone who only sells EIULs that pay huge commissions. I simply wanted to show the readers a different perspective on these UL policies that so many agents, brokers and financial planners push on their clients making all kinds of claims about them, but not disclosing all the information. This is because they have the highest commissions available to them, so many agents, brokers and financial planners are focused on the sale and commission and not the clients best interest. I am not saying you do this, but you know that many agents, brokers and financial planners do. And you didn’t even mention the SELF DIRECTED ROTH IRA which was the whole point of my post. Better vehicle to invest in REAL ESTATE which this site is about… REAL ESTATE INVESTING, not insurance products!

        For any that would like more info on using a self directed IRA to invest in real estate, check out the book Leverage Your IRA: Maximize Your Profits with Real Estate as a starting point which can be found on Amazon for cheap! http://www.amazon.com/Leverage-Your-IRA-Maximize-ebook/dp/B0051BCWYU

        Most people mistakenly believe that their IRA must be invested in bank CDs, the stock market, or mutual funds. Few Investors realize that the IRS has always permitted real estate to be held inside IRA retirement accounts. Investments in real estate with a Self-Directed IRA LLC are fully permissible under the Employee Retirement Income Security Act of 1974 (ERISA). IRS rules permit you to engage in almost any type of real estate investment, aside generally from any investment involving a disqualified person. In addition, the IRS states the following on their website: “…..IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.”

        The skinny on ULs: The way a life insurance policy becomes a retirement planning vehicle goes something like this: You overfund the life insurance policy on the front end and grow the cash value of the policy quickly. With a large cash value, you can easily pay the life insurance cost inside the policy and grow the cash value tax free. Then, at retirement, you can withdraw money up to what you put into it (tax basis) and then borrow whatever else you need. Because you are technically not withdrawing gains (you are loaning them to yourself), when you die, the money becomes tax-free. The death benefit is reduced by outstanding loans.

        The potential tax benefits advertised by the agents who sell them are true. There is no current tax due on any investment gains inside the UL policy. If you invest in a 401(k) or IRA, you do not have to pay tax until you withdraw it either, but you may or may not have access to such plans or be allowed to save enough. To justify the advantages a UL can offer, there are significant considerations which must be made, and I feel few people are really well qualified for a UL policy. You ultimately have to die for the proceeds to be income tax free, and if you are not careful or are unable to fund it properly, the policy could become a huge tax bomb waiting to go off.

        In response to your comments:
        “The loans in an EIUL don’t always have a cost. Many companies offer a “wash loan” that equalizes the loan interest with the interest earned ending up with no charge on the loan.” – That comment makes no sense. That is insurance land double speak. That is still a cost of the loan if the interest earned is used to pay the loan interest.

        ” Loans are not considered income and ARE NOT TAXED.” – I didn’t say loans were income and taxed. I said if you don’t pay back the loan it is income and is taxed. True, these policies are designed to allow loans, and proceeds from policy loans aren’t taxed. But once you go down that path of borrowing from the policy for tax-free income in retirement, you’re likely locking yourself in to keeping the policy going for the rest of your life. The reason is that if the policy lapses (like when you take too much money out of it), you’ll owe income tax on the investment earnings you’ve pulled out. If that tax liability occurs late in retirement and you’re not flush with cash from other sources, you could have a nasty problem on your hands, i.e. a huge tax burden that the IRS will want in lump sum!

        If it isn’t loan, then it is a withdrawal, either full or partial. Either way there is a cost. If you pull money as a withdrawal, the withdrawals are subject to contingent deferred sales charges and may also have additional fees defined by the contract, like surrender fees. Withdrawals will permanently lower the death benefit of the contract at the time of the withdrawal. Withdrawals are taken out premiums first and then gains, so it is possible to take a tax-free withdrawal from the values of the policy (this assumes the policy is not a MEC, i.e. “modified endowment contract”). Withdrawals are considered a material change and cause the policy to be tested for MEC. As a result of a withdrawal, the policy may become a MEC and could lose its tax advantages. Withdrawing values will affect the long-term viability of the plan. The cash values removed by loan are no longer earning the interest expected, so the cash values will not grow as expected. To some extent this issue is mitigated by the corresponding lower death benefit.

        One other thing I forgot to mention about ULs – many have a cap to the amount you can earn. I can think of a couple right off the top of my head that have a minimum of 3% and a maximum of 15%. So if your investment component does better than 15%, you still only get the 15% and the insurance company keeps the rest. These things are designed for the insurance company to make a lot of money and fast. That is why in the first several years you will have very little cash value built up.

        And I also failed to mention that the actual cost of the insurance, the death benefit goes up over time. It is annually increasing term insurance. All Universal Life policies are a side fund (money market for regular UL, mutual fund-like separate accounts for VUL, and index fund-like accounts for EIUL) plus annually renewable, or one year increasing premium term insurance for the death benefit.

        “You don’t have to like the product, but at least learn about them instead of regurgitating all the factually wrong information about them on the internet.” – Really? That’s your reply? Sure, there are plenty of sites with wrong information, but for you to insinuate that all of my info is simply “regurgitated factually wrong information” is an insult and I refuse to engage in such discussion, not to mention that nothing I stated is false, of which you did not show what, how or why any of it is false.

        How about info from the Consumer Federation of America? – http://www.consumerfed.org/elements/www.consumerfed.org/file/finance/VariableUniversalLife2007ReportPackage.pdf

        How about info from Forbes? http://www.forbes.com/sites/investor/2012/09/13/retirement-disaster-looms-for-universal-life-policyholders/

        “Hidden in those policies was this potential time bomb: if the projected investment returns fail to materialize, the insurance company can make up the difference by reducing the cash value—taking money out of your cash value savings account—right down to zero, if necessary. And when that’s exhausted, they can require the policyholder to make up the difference in the death benefit premiums, or risk the policy expiring worthless.

        Unlike the 1980s and 1990s when many universal policies were sold, today’s interest rates languish at historic lows. In the past 12 years the stock markets have suffered two historic collapses. For those reaching retirement age now—coupled with the housing bust and a crippled economy—this is a recipe for failure, and it’s starting to hit home.

        Universal life policyholders who faithfully paid all the minimum premium payments all those years are discovering that the cash values that were to be their retirement nest eggs are nearly exhausted, and many are having to cough up huge payments just to keep the death benefit from lapsing.

        For example, people who bought universal life policies when they were in their early thirties, with a $100,000 death benefit, might have faithfully paid minimum premiums of about $3,500 year in and year out thinking all was well and they were building their nest eggs. When they were younger and cheaper to insure, they were–those premiums went into the cash value buckets and earned untaxed dividends.

        But as they got older, the “real” premium—the cost of insuring them—rose. A person in his or her late 50s might have a policy whose cost of insurance—the real premiums—have doubled. Five years further on, the real premium could jump to tens of thousands of dollars.

        Most policyholders don’t realize they have a problem, until one day they need the cash value or discover that they will be left without even the life insurance.”

        • Glen Sonnenberg on

          This discussion is precisely the reason why I have my doubts about using life insurance in this way. The insurance companies aren’t stupid and they have an army of lawyers and actuaries writing their contracts. It would seem that most of these contracts probably serve their interests more than they do the customer. I can understand the niche that these policies might fill but I don’t think that it’s a very big one and given the complexity it seems unlikely that they are appropriate for most “average” people. Throw in the fact that some insurance agents have shall we say “less than honorable” intentions in getting their customers into these policies, it makes it hard see the true benefits and/or when they would be appropriate. I’m sure there are situations where they make sense but this article is suggesting that this is a superior way to plan for retirement income for the average person and I’m not convinced that’s the case.

        • Braden, this is what you wrote:

          Third, any money you pull out of a UL policy is not tax free, nor expense free. It is considered a loan, and interest must be paid on that loan, sometimes as high as 8%. If it is not paid back, then it is income and is taxed as such. And, if you continue to pull money from the UL it will eventually deplete the cash value and the death benefit as well. (Nothing is tax free in this world. You either pay it going in or coming out, but you pay it one way or another.)

          This is misleading at best and everything you say after it lacks credibility. Then you try to confuse readers by adding in links and thoughts about variable universal life, which you know is not what we are talking about. So who was “trying to start an argument?”

          Jeff’s article wasn’t written to inform people everything there is to know about EIULs, he couldn’t do that even if he wanted to because he is a real estate guy not an insurance guy. So the question is why did you post in such a negative way? What is your agenda?

          Finally, 15 years ago your attempt to create doubt about EIULs might have been a fair and honest appraisal, but we now know how the product reacts in poor markets. We have a history of EIULs and the returns they have delivered. We know how the insurance companies react. So to be fair shouldn’t you offer up what they have actually done as a starting point to any critique? That is something else I do for my clients.

          As to your opinion of insurance agents in general, I would agree. Most put there commissions ahead of their clients interests. That is why few actually structure these policies for maximum performance [and reduced risk], because it lowers the amount of commission. But, the same can be said about real estate agents and mortgage originators. In fact, I saw much more questionable sales in the mortgage industry than I have ever seen in the insurance industry. Where were all those real estate agents who told their clients you are overpaying for this house or this is a bubble market, don’t buy now, etc.?

          My clients tend to be highly successful people who go into an EIUL fully informed and knowledgeable. Some create their own spreadsheets working through multiple possible results. Funny thing is every time someone likes you gets on here and stirs the pot I get multiple calls from folks interested in learning about EIULs. We go through multiple calls and e-mails, look closely at 40 page illustrations, answer all questions before we get to a point of deciding if an EIUL works for their particular situation. I already have two requests from last night to call folks back.

          Bottom line I sleep well at night knowing I have given my clients all the information they need to make an informed decision. Some purchase, some do not, but that is sales.

  4. Jeff, you (and David Shafer) advocate ONE WAY to plan and save for retirement.

    The individual has to ask himself/herself “is the method that you advocate the BEST way FOR ME to save for my retirement?”

    As you noted in your response to Glen and consistently point out in your blog, workers simply don’t consistently contribute to their retirement plans at work. Why then do you expect this same population to voluntarily contribute to an EIUL when there is no compunction to do so?

    I have posted other criticisms of your strategies elsewhere. I won’t repeat them here.

    • Jeff Brown

      Hey Kevin — I don’t advocate just one way, cuz it’s nonsensical to assume one size fits all. I’ve never ever said folks don’t/won’t contribute to their 401Ks, as my experience is the exact opposite. They do, and to ever increasing disappointing results.

      You and I agree though that it’s what best for the individual. What’s their comfort zone? What options are actually on their real life menu. I know one thing for sure. My way definitely isn’t your way, which is fine with both of us. It’s all in the results, and if your way gets you the originally desired results, then your way is the right approach for you.

      What can’t be argued is the virtually universal failure of 401Ks to even provide Social Security level income. It’s a joke, pure and simple.

      • There are PLENTY of people at Apple, Google, Microsoft and hundreds of other companies who are happy with their company-sponsored retirement plans. Everyone? Of course not.

        How do you make your claim (above in your response to Glen) that almost all 401k participants fall short of their goals IF they have been regular contributors?

        • Jeff Brown

          It’s not my claim, Kevin. It’s the claim of Dalbar. They’ve been analyzing average annual yields for 401Ks for years, Every year they publish the newest 20 year average. It’s remained comfortably under 4% for quite some time. That’s why we don’t see the huge majority of Americans retiring anywhere near well via their 401Ks.

        • Glen Sonnenberg on

          I went and got one of Dalbar’s reports just to see what Jeff is referring to. Interestingly, the report doesn’t discuss hidden fees or flaws related to the 401k system as much as investor behavior. It appears that the majority of the difference between investor returns vs market returns has to do with investor mistakes (market-timing, risk/loss aversion, fad/herd behavior, lack of discipline, etc.) rather than problems inherent to 401k’s. That’s not to say the problem doesn’t exist but it’s more related to human nature than it is to private, tax-deferred investment accounts. I suspect that over the period of 30 years, it might be just as difficult for people to follow through with any type of investment. For example, I’ve read that making a late premium payment to an EIUL can result in serious consequences regarding policy guarantees. It seems likely that someone who would raid/neglect their 401k might be just as vulnerable to skipping/missing a premium payment and incurring similar negative consequences related to their retirement. Not sure that problem is solvable though. 🙂

      • Kevin, it not just that people stop contributing or take money out of their mutual funds inside an 401K it is when they do it combined with the huge downside movements. The problem is that people cash out their 401K when they are in financial peril which usually corresponds with large negative movements in their value. Dalbar sells their data to the mutual fund industry as such its reports analysis soft peddles that and other issues [sequence of return risk for example]. An EIUL does not go negative on its value so the consequences aren’t as dangerous to folks who need to use the money. You also avoid penalties and taxes by taking a loan on your cash value in an EIUL that you might incur when taking money out of an 401K.

  5. Glen Sonnenberg, I agree with your comment. There seems to be something about investor behavior that curtails the investors’ results. I think life events play a big part … but planning for something 30 or 50 years into the future also means that those expenditures have a much lower current priority … even if someone points out the consequences today. Most investors feel they can play “catch up.”

  6. Jeff
    This is awesome! I have an immediate family member with a seven figure 401k. The investment statement looks much more impressive than the disbursements.
    Just think of the possibilities if you had a two income earning family. The possibilities are very exciting.

  7. Wow… if I even pretended or thought I understood the original article. I definitley am lost after reading through the posts. You fellows want to tell me how to find someone who can explain all of this in layman? Retirement for Dummies? Anyone?

    • Sadly, Regina, it seems to me that the answer to building retirement wealth isn’t found in one place.

      When you speak to a traditional financial planner, they are probably going to discuss mutual funds. Highly unlikely that they will talk about real estate, considering they make no money at that. (I always chuckle reading http://shaferfinancial.wordpress.com/2008/04/21/retirement-strategies-redux-old-school-v-my-way/, which kind of shows the fallacy of the typical financial advisor).

      If you talk to a real estate guy like Jeff Brown, he’ll point out that RE is one investment item that has a history of building strong wealth. But, unlike the majority of agents, Jeff Brown also says that the whole answer isn’t there. He also points out other things like EIULs contribute in a solid way.

      Hence, you need to find someone that is not only an expert in EIULs and also focused on building retirement wealth for you and NOT padding their own pockets. Real tricky.

      To top it off, you can also build wealth with stocks. Go read http://www.dividendmantra.com/ and http://www.dividendgrowthinvestor.com/ for some perspective on that.

      Good luck finding one person that will advise you to pursue all these courses. You also need to find the right CPA who can help you craft the most tax advantageous plan. It’s kind of like finding the right medical specialists. Ultimately it’s YOUR responsibility to learn enough about each of these to make judgments about the experts you tap to help you build a real plan. You can’t let the experts do it all for you; you must manage your experts[1].

      [1] – http://www.turnquistwealthbuilders.com/2012/05/guarding-yourself-from-experts.html

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