Page 32 - Exposed Final

Most Human Resource personnel provide a risk profile form where

employees answer a bunch of questions to determine if they are an

aggressive, moderate, or conservative investor. In my opinion, risk profile

forms are worthless because people tend to be aggressive when the

market is going up (out of greed) and conservative when the market

crashes (out of fear).

Almost every Human Resource department promotes the same ideology

about the 401(k):

Max out the plan to reduce your current taxes.

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

You defer the taxes.

Everybody is doing it and all the books, magazines, and financial

gurus say it's a good idea.

Let's take a closer look at how the 401(k) really works:

Joe Example is 35 years old and decides to contribute $10,000 per

year to his 401(k) for the next 30 years. He is in a 30% tax bracket,

so he defers $3,000 in taxes over the 30-year period for a total of

$90,000. Joe was able to earn 8% over the 30-year period, growing

his nest egg to $1,223,458.

In retirement, Joe earns 6.5% on his $1,223,458 nest egg.

Producing an income of $79,525.