The 401k Future

Coming changes in the retirement industry represent a seismic shift decades in the making.

Simply put, a comfortable and secure retirement can no longer be taken for granted by the vast majority of the population. Unlike the past, no single institution or corporation will come to the rescue with guarantees. Today, employees are largely on their own when preparing for the future, yet the extent to which most people will reprioritize to fund their own retirement remains to be seen.

With the looming threat of a flat-lining retirement industry, defined contribution plans like the 401(k) arguably act as a defibrillator—and a good one at that—but they’re far from a sure bet.

Step Back: How Did We Get Here?

No matter how unfashionable it might be to acknowledge past actions or inactions that have led to a current conundrum, every now and then, it’s worth a pause to consider the course of events that have led to where we are and where we’re most likely headed.

Historical Context

Rather than rehashing 50 years of history, suffice to say that globalization is largely to blame for much of the strife facing the retirement industry today. Looking back to the late 1960s, after Vietnam and before low-cost labor from Asia impacted worldwide pay scales, baby boomers became a driving force, both politically and economically, exerting significant pressure on both wages and benefits in the United States. Those were the halcyon days of labor unions, when employees, both skilled and unskilled, were given not only high wages but also high quality medical benefits and pension plans that would ensure a flow of income all the way to the grave.

The risks and costs of guaranteeing lifetime benefits didn’t escape the attention of the companies offering them, but there were no easy solutions. Some defined benefit pension plans were negotiated but then not properly funded. And others got creative with their actuarial assumptions, in some cases applying a discount rate of 8 percent or more in an attempt to deny or forestall the reality of the future cost of the guaranteed retirement plan.

When China decided to become a member of the world community, things went from bad to worse. Product production shifted into high gear in Asia at a cost that was substantially less than goods produced in the United States. And this sent U.S. companies scrambling to remain competitive, which meant reducing costs and overhead as much as possible. As a way of reducing labor costs, benefit plans were among the first expense categories that came under pressure.

Industry Context

Over the past 20 years, corporate America has increasingly done away with defined benefit plans to instead offer profit sharing plans in conjunction with 401(k) plans. Today, DB plans have all but evaporated from the landscape, with the exception of plans offered by local, state and federal governments. These employers have not felt the pressure of foreign competition, however tremendous unfunded liabilities and significantly longer life expectancies are beginning to take their toll. The strain on governments to properly fund these plans leaves few other options than to raise taxes.

Thus, the whole concept of a guaranteed lifetime benefit has gone the way of other impossible dreams. The 401(k), 403(b), and other similar plans are now the primary source of future retirement income to go along with Social Security. And employees are now largely responsible for their own retirements. So, where do we go from here?

The Much Needed Wake Up Call

Right off the bat, employees must be made to understand exactly what’s at stake. And the most effective way to make that point clear is by providing a personalized retirement readiness assessment. For some, this can feel much like a virtual ice bucket challenge, which is just what you want. The report should delineate how much employees should save for retirement, based on their specific needs, versus how much they’re saving currently. And if they’re not going to make it, they need to be told—in no uncertain terms.

Employees are not the only ones that need a wake up call. The responsibility also lies with plan providers. The new DOL ruling is an admonition to the retirement industry—that plan providers and advisors must act in the best interests of plan participants, which should mean helping to alleviate some of the retirement planning burden by providing the best possible services at fair and reasonable prices.

A Pill Worth Swallowing

Breaking the news to plan participants that need to save around 18% of their earnings can be difficult.  But there is good news to deliver as well. The key points to illustrate are the exponential benefits of even small increases in 401(k) contributions, the power of compound interest over time, and the tax savings that can be realized.

Another vital part of this conversation should be a discussion of the optimal asset allocation and investment choices based on the employee’s specific needs. When the advisor can illustrate savings growth, based on realistic rate of return assumptions, financial goals begin to seem achievable.

The employee education process is crucial to the success of the 401(k) plan. But the time and effort it takes to really get through to people—including group educational forums and one-on-one planning session—is substantial.

Increasing the Odds

No matter how much plan participants can discipline themselves to save, if they’re invested in inferior investment products, it could be all for naught. To make a real difference in people’s lives, plan fiduciaries must be hawkish when it comes to the quality of the investments options and the legitimacy of the fees.

Advisors should recommend benchmarking the plan on a continual basis, to determine the latest industry standard for investments and to identify and eliminate any excessive and unnecessary fee. This is at the heart of what it means to be a plan fiduciary—to act solely in the best interests of the plan participants, act in a prudent manner, diversify the plan’s investments, and ensure that the plan expenses are reasonable.

Through a diversified fund lineup, that includes both active and low-cost passive investment options, and by ensuring that providers are free of inherent conflicts of interest, the odds of achieving a desired level of retirement readiness can be well within grasp.

Tracking Progress

Once the right products are in place, it’s imperative to remain vigilant in ensuring that performance remains on course and individual plans stay on track. To that end, a process for the selection, monitoring and replacement of investment choices is imperative.

As those in the retirement industry for any length of time have observed, if the current course is left unchecked, the prospects are bleak. We’re trending toward a scenario where many, many people will find themselves struggling to make ends meet during retirement. That’s why, now more than ever, plans sponsors and their advisors have a duty to help.

If being in this businesses is worth doing, how much more satisfying to know that you’ve helped steer as many people as possible toward a more promising future. It’s a great challenge and it will take a concerted effort on behalf of everyone to see to it that no one is left behind.

Source: 401k Solution Beirne Wealth

What Does The 2016 Election Have To Do With Your Retirement?

The world’s financial landscape is changing…
And it could soon cause a lot of money to move out of the U.S. dollar.
So how do you protect yourself? By following China’s lead. http://wp.me/p4m7MW-li

More: Here Are the Stocks to Buy if Donald Trump Becomes President

Why I Hope Donald Trump Paid $0 in Taxes

Written by Robert Kiyosaki | Tuesday, August 16, 2016

And Why Hillary Clinton is Wrong To Attack Him On It

You can tell that the presidential race is heating up because the attack ads are heating up too. In the past, much of political advertising happened on the television. If you didn’t like it, you could change the channel. This election involves social media more than any other I can remember.

Last week, Hillary Clinton, the Democratic nominee for president, sent this out on her Twitter account:

patrickiturra.com
Twitter

Usually, the candidates choose to release their tax returns if they are running for president. Donald Trump has elected, so far, not to do this.

Last week, Hillary and Bill released their 2015 tax return to the public. This was most likely the reason they are attacking Trump on his tax returns. As The New York Times reports, Hillary and Bill paid “$3.6 million in federal taxes for an effective tax rate of about 35 percent.” Most of this income came from speeches and Hillary’s memoir.

I find it interesting that Hillary would choose to attack Donald Trump for not paying anything in taxes and celebrate that she paid so much in taxes. This to me shows that Hillary is a career politician, while Donald is a career entrepreneur. It also shows me that Donald is doing what the tax code was intended for while Hillary and Bill are being penalized for not doing what the tax code was intended for.

As I’ve learned from my Rich Dad tax advisor, Tom Wheelwright, the most patriotic thing you can do is not pay your taxes!

Let me explain.

The Tax Code is Made to Incentivize

As you probably know, the tax codes in the US and in many different countries are long and complicated. The question is, why?

The reason is that government leaders learned a long time ago that the tax codes could be used to make people and businesses do what they want by utilizing the tax code.

In short, the many credits and breaks that are found in the tax code are there precisely because the government wants you to take advantage of them. For instance, the government wants cheap housing. Because of this, there are many tax credits for affordable housing that developers and investors can take advantage of that minimize their tax liability, put more money in their pocket, and in turn, create affordable housing. Everyone wins.

There are many scenarios like this in the tax code that incentivize investors and entrepreneurs to do activities the government is looking for while rewarding those who take those actions with lower-or zero-tax burden.

Because of this, limiting your tax liability actually means you’re doing what the government wants you to do through the tax code. And that is the most patriotic thing you can do.

Why Hillary is wrong

This is why it is insanity for Hillary to criticize Donald for not paying taxes. The only way in which he would not pay taxes would be by doing things like investing and creating jobs to receive tax benefits created by the government! Conversely, the fact that Hillary and Bill paid a 35% tax rate and millions in taxes shows they are not doing what the government wants. They are not providing jobs, starting businesses, or investing in a meaningful way.

Personally, I’d rather have someone who understands how money and taxes work, how to create jobs and invest in ways our own tax code incentivizes, than one who doesn’t. This is not an endorsement of either candidate, but it is a true observation regarding this one issue.

Hillary’s tweet is capitalizing on the general ignorance around money and taxes that much of our country has. In that way, it is actually a lie and a form of fear mongering. It is an attack without legs to stand on, preying on emotions rather than appealing to logic and intellect.

But that’s what most of our politics has devolved to these days, so I’m not surprised.

Want to know more? Read Tom’s book on taxes

During the election season, you’ll hear lots of things that sound right, but fall apart upon further analysis. That’s why it pays to do your own homework, especially when it comes to money and taxes.

And that’s why you should read Tom Wheelwright’s book, Tax-Free Wealth.

Tom is a genius when it comes to taxes, and I encourage you to read his book- and to begin looking at how you can be patriotic by not paying your taxes by investing and building businesses that the government rewards with tax breaks and credits for doing exactly what they want.

Also, for more information on using the tax code to get rich, take advantage of our Rich Dad education and coaching classes that will help increase your financial education and your wallet, while decreasing your tax bill.

More to protect your money: Do You Need Insurance Against the U.S Dollar?

Written by Robert Kiyosaki | Tuesday, August 16, 2016