That decision was called ERISA and it was the birth of the self-directed retirement account known by many as a 401(k). Once upon a time, back in the day when our grandparents and parents were working, there was an agreement between companies and employees that if someone worked for a company for a certain period of time, that money would be set aside for a secure and guaranteed retirement called a pension. During their working years, money was managed by professionals who were in the business of making sure there was enough money available to retire. Once that employee retired, the money was then transferred to another group of professionals who were in the business of knowing when people die and calculating how much money they would need until that day. That industry was the insurance industry.
Well, one day in the late 1960s Wall Street got tired of seeing all that money get transferred to insurance companies and decided to do whatever it took to get control of it, so they started spending millions trying to lobby Congress to institute an alternative retirement plan which by 1974 was officially called the Employee Retirement Income Security Act or ERISA. Inside of that tax act was the creation of self-directed retirement plans known as IRAs and 403(b)s and eventually 401(k)s and profit sharing plans, etc. Just the term “self-directed retirement account” should have been a huge warning sign. Basically, what ERISA did under the illusion of “control” is it began to divert money away from guaranteed pension accounts managed by experts and put America’s retirement future into the hands of the people who had no business or expertise around managing that pool of money, the employees themselves! The rest is history.
Today $4 trillion sits in self-directed retirement accounts and almost all of that money sits inside of one type of product that just happens to be manufactured and managed by Wall Street. I am referring of course to mutual funds. Billions of dollars a year flow into mutual funds that appear on the menus of 401(k) plans across America and the scary part is that those funds not managed by professionals, have no guarantees of lifetime income and get crushed every time there is a financial crisis. If you think I am being dramatic, AARP recently published a nationwide survey among baby boomers between 49-64 and found that 50% of them said they will never be able to retire and much of the other 50% probably were clueless and just didn’t want to admit that they might be in trouble.
So you might be wondering how you can bypass the government and your company and the insanity of attempting to self direct your most important foundational retirement asset and begin to build something that has the type of “old school” security that our grandparents knew but even better? The answer is simple. You go back to basics. You go back to having your retirement funds professionally managed during your working years, not when you retire and roll the money over to your financial advisor, because then it’s too late! You also need to look to the only industry in America that will make you contractual promises over your lifetime and beyond regarding safety of principle and lifetime income, the insurance industry. The philosophy and approach that I’m eluding to is nothing new, in fact it’s been around for decades. Most importantly it passes the 4 keys that I believe every retirement investment should have.
- Tax Free
So your homework assignment for today class is to make a list of all of your investments anywhere and everywhere and see how they score on the 4 tests above.
Next week, I will share with you the only strategic approach that I have ever seen in 32 years of being a retirement strategist that meets all 4 of those requirements and teach you how and why it works and the questions you need to answer to determine of it is right for you.
Information presented in this blog post is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information and may not be suitable for all readers. A professional adviser should be consulted before implementing any of the strategies presented.