A Contrarian's Musings On Retirement Accounts

When we are young, we are pushed, implored, and downright coerced to invest in retirement accounts. I, like everyone else I knew, did so.

The financial planner's reasoning goes somewhat thus:

If you 'invest' in retirement accounts when you are young, you will defer paying taxes on the income you invest. When you retire, you will be earning less money, and will be in a lower tax bracket. Thus, when you take money out of your retirement account, you will be taxed less than had you been paying taxes on the earnings all along.

Your financial planner will also have told you how much you can afford in a mortgage. and about the beautiful mortgage interest tax breaks. Don’t worry about owing more than you will earn in ten years of working! It’s OK! You will get a big tax break!

So it’s mostly about how to avoid, or defer, paying taxes. Who doesn't want to avoid taxes?

After forty years of experience with retirement accounts, I have a bit to add to this advice.

Don't do it.

Here’s why.

This strategy is based on many assumptions

• your income will be lower in retirement than when you are working your ass off earning money
• you will remain well employed for the duration
• taxes will not rise
• the stock market, over time, will only go up
• you will remain healthy for decades on end while you work work work and earn earn earn
• you will live to retirement

Financial planners are blind to the FACT that there will be market dips and crashes. They do not prepare you for the FACT that when the markets crash, you might just be out of a job just like a lot of other people. Don't forget, you will still have to pay your whopping mortgage or lose your home. You will need some of that money you 'invested.'

Your income will likely be higher than it was when you first started 'investing,' so that, in addition to paying a penalty for taking back your money before the forty or more years of 'investing' it are up, you will pay more in taxes than you would have had you not 'invested' it in the first place.

But wait! Your planner did think of these! Easy peasy solution!

Undoubtedly, the planner will have told you to sock a fair chunk of your earnings into cash equivalent bank instruments, such as savings accounts and CDs, so that in the event your income dries up (illness, job loss, recession, death in the family etc) you will persevere. Less money in your pocket now is OK, because you can always borrow money from a bank. Just keep that credit score up there! No problems!

Of course, death is always a possibility, so another favorite suggestion from these geniuses is life insurance. Easy solution! You and your partner just have to send hefty monthly "premiums" for expensive financial instruments from banks called life insurance.

If you follow this strategy, on the advice of expert financial planners, you will be socking away money into banks via:

• huge mortgages
• credit card payments
• life insurance
• savings accounts
• retirement accounts

You will have little money to use for living in the moment. But it’s OK! In fifty years, you will be glad you did!

Here’s what my trajectory was, after doing all I was told to do by three different geniuses.

Even though I initially invested in socially responsible money market funds, whenever I looked I found that all these funds had morphed into investments in either banks or the war machine. I must not understand the meaning of “socially responsible”. I would switch things up, but the next time I looked, the same thing had happened.

I had been very successful in the restaurant business. My income went up and up every year for thirty years, and my investments with it. I bought several properties, all financed by mortgages. I borrowed money to have the toys that successful people in America have. I was riding high.

In 2008, recession hit. My business failed spectacularly. I could no longer pay the mortgage on my house, against which I had borrowed quite a bit to open another restaurant. My husband was diagnosed with a fatal illness and could not work at all. I had three children, all chronically ill.

I blew through my savings in short order. NOTE: when SHTF, you go through your money much faster! The geniuses didn’t tell me that! Eventually I started cashing in my IRA’s etc, which had all tanked (2008!) and were worth no more than my initial investment. My income the previous year had been my highest ever, just like everyone's before a crash, so in addition to paying a penalty for withdrawing early, I was taxed at an even higher rate than had I just payed the taxes in the first place. I would have had more money if I had stashed all those 'investments' under my mattress. When my children and I were eating salted pasta for dinner most every night because I couldn’t afford meat and veggies, I had a true vision: in a few more months time trying to protect my credit rating and continuing to pay all my mortgages, credit cards, life insurance etc, I would have nothing left, and still face losing my home. I stopped paying my mortgage so that we could eat. I watched my stellar credit rating tank.

I’m happy to report that I subsequently waged war with a bank for twelve years, and won.

There’s much more to my story but this post is long enough. I can tell you that things got better for me, once I stopped listening to expert advice about what to do with MY money.

In general, this Is the strategy I have since followed with excellent financial results:

• Stop borrowing money. It is a trap
• Stop caring about your credit rating. It is a trap. 
• Stop investing in bank produced financial instruments. They are all traps. 
• Stop listening to financial experts. They have been trained to lead you into traps

Alternatives:

• cryptocurrencies, not through exchanges
• precious metals
• musical instruments
• art
• land

Listen only to yourself in all things. No one else knows more than you do about ANYTHING that concerns you.

This was also my entry to The Silver Blogger Community's initiative on Hive, Silver Prompts.

footer by @mondoshawan

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image by @wales, Dean Moriarty