Five 401(k) Myths Killing Your Returns

When can you retire? I would love to retire by 40. Whatever your retirement date is, we all need to know how to find answers to the following questions:

  • Is my 401(k) doing the best it possibly can?

  • If and when the markets go down, can I afford the loss based on my retirement date?

  • Am I on track to retire by my targeted date?

In my journey to find these answers, I discovered five myths that have made me pause and re-think how I invest in my retirement, also known as my 401(k).

Myth 1. 401(k)'s are a proven retirement tool.

The $4.8 TRILLION 401(k) industry is about to be TESTED for the FIRST TIME as the Baby-boomer cohort retires

Myth 2: 401(k) advisers have YOUR BEST interest at heart.

The government ALLOWS 401(k) ADVISERS to NOT have OUR BEST INTERESTS at heart (until January 2018 at the earliest).

Myth 3. 401(k)'s are the BEST investment vehicle for retirement.

Invest up to your employers' company match. FREE MONEY.

Myth 4. My 401(k) have reasonable fees that always justify their returns.

BEWARE the FEES (both reported and hidden). They can eat over 66% of your potential returns.

Myth 5. You will be in a lower tax bracket when you retire.

You will be REQUIRED to take disbursements that will erode your principal investment once retired. The more you have saved, the higher the taxes.

The next blog will cover how to set that retirement date more firmly and answer the above questions.

For more details on the 5 myths, read below...

Thanks and look forward to seeing you around.

-Kevin Peterson

++++++++++++++++++++++++++ Myth 1. 401(k)'s are a proven retirement tool.

Fact: With the Revenue Act of 1978, the 401(k) section of the Internal Revenue code was born. Baby boomers born between 1946 and 1964 total roughly 76 million Americans, and after the age of 70.5, are now REQUIRED to pull funds out of this $4.8 TRILLION industry.

Myth 2: 401(k) advisors have YOUR BEST interest at heart.

Fact: In 2018, the ERISA fiduciary rule is scheduled to take effect, which means that until then, fiduciaries/ investment brokers are NOT REQUIRED BY LAW to have your best interests in mind. Until this law takes effect, fiduciaries and brokers are only required to recommend suitable investments, which allow them to steer you, their client, towards investments with unnecessarily high costs. The other sad fact? This only applies to ERISA (i.e. 401(k) and IRA funds) and prior investments are grandfathered in. For further research:

Myth 3. 401(k)'s are the BEST investment vehicle for retirement.

Fact: Partially correct. The matching portion from your company is the best value for your 401(k) investing as these matching funds are free money. However, here in the US the average corporate match is 2.7%. Any contribution above the corporate match should look at alternate investment vehicles with a fiduciary, NOT a BROKER. (

Myth 4. My 401(k) is FEE free, i.e. the government pays for everything.

Fact: 401K companies are for profit companies that charge management fees, averaging between .05% to 4.00%. If you had accumulated $1,000,000 over the course of 30 years with an annual return of 6.5%, look at the costs of those fees over time.

In 2012, Congress tried to force 401(k) providers to better disclose fees but as of this post, the average investor is unaware of the different fees they are paying (e.g. sales and advertising fees, front end load fee, back end load fee, redemption fee, Rule 12b-1 fee, account maintenance fee...).

If you want to learn more but are short on time, I recommend watching the 45 minute PBS Frontline documentary called "The Retirement Gamble."

Myth 5. You will be in a lower tax bracket when you retire.

Fact: You will be taxed on how much you withdraw from non-Roth IRA investments; e.g. if you withdraw $60,000 a year from your 401(k), then you will be taxed on that as income. 401(k)'s and traditional IRA's mandate Required Minimum Distributions (RMD) at the age of 70.5 and if you inherit an IRA, you have 5 years to disburse all funds and pay income tax on all disbursements.

Based on infrastructure and social health costs, there is a high likelihood of taxes increasing when you are able to withdraw your funds in the near or far future.


  • What are some myths you have found regarding your 401(k)/ retirement accounts?

  • What's been your biggest lessons learned about retirement accounts?

Please post your comments below! Let's share and grow together.

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