Retiring on your terms: Break from the majority and take charge of your money

If you're like most practitioners, you’ve relinquished your retirement planning to a third-party fiduciary to invest in a Wall Street 401(k) for you. This is the traditional and easy route. But have you ever stopped to think about the costs of going with the status quo? To start, you lose control of your money and put it in a “lockbox” until age 59.5 to help keep Wall Street in business.

Your money is locked up in the financial markets with no access to it until age 59.5 unless you want to pay a penalty and taxes on your withdrawal. Yes, there is a tax deduction and tax deferral, but at what cost?

What use is your money if you can’t use it to buy back your time when you want to do so? You can forget about generational wealth transfer strategies. You lose the stepped-up adjustment in the cost basis of assets passed on to heirs. You also miss out on other tax benefits such as depreciation and cost segregation. Long-term capital gain tax treatment opportunities are null and void inside retirement plans.

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What will your advisor do?

When you’re ready to retire after years of watching your money go up and down on the stressful Wall Street roller coaster, what will your advisor tell you? Probably something like, “Take your money out of the market and put it into conservative investments like cash, CDs, and bonds.”

Why is this? The stock market is too volatile, and they have no confidence in the future stability of the market. After someone retires from active income, there is no ability to make up for future losses. At retirement, you’ll likely be in a higher tax bracket. (Taxes will continue to go up as the government needs more of your wealth to fund the national debt and budgetary obligations.) You’ve converted long-term capital gain profits (lower taxation) into ordinary income (higher taxation) on distribution. Worst of all, you’ve learned nothing in the process. You’ve relinquished your financial future to a money manager and know nothing about how to invest or create cash flow from your assets.

Is this really the way you want to do it? Tax deferral is great, but there are so many ways to get tax preferences/tax mitigation and still have control of your money without putting it in those constructs. I’ve seen this play out over and over again with countless colleagues. Plus, government regulations are changing. The rules of retirement plans will change, and not in your favor.

Congress’ increase to 401(k) limits is not good news

In March 2021, the US House of Representatives passed the “Strong Retirement Act of 2022,” or Secure Act 2.0,¹ “to increase retirement savings, simplify and clarify retirement plan rules, and for other purposes.” The Retirement Savings Modernization Act was introduced in September 2022,² “to bolster Americans’ retirement savings by allowing workers to diversify assets included in defined contribution plans, such as 401(k) plans. This legislation will amend the Employee Retirement Income Security Act of 1974 (ERISA) to clarify that private sector retirement plan sponsors may offer plans, including both pensions and 401(k)s, that are prudently diversified across the full range of asset classes.”

Myths and propaganda

While these amendments may sound good, they share misinformation. Congress is touting that they will provide “diverse investments with higher returns” and “a more secure retirement for millions of Americans.”

But there is no security here. Investment professionals just receive more power, choosing the “appropriate range of asset classes” for your money. No one can guarantee what the stock market will do. Your retirement funds are still locked up and you don’t have control of your money.
401(k)s are not the answer to financial freedom. If you really want to take control of your money and live your dream retirement life, look at alternative investments. I’m talking about tangible assets such as businesses and real estate, where the individual retail investor has a fair playing field, far from the manipulations of the financial markets.

With Wall Street’s volatility, alternative investing is growing rapidly and becoming more mainstream. In fact, “high net worth investors (HNWIs) are including much higher weightings of alternative investments in their portfolios than five years ago, with four in 10 investors (41%) now allocating more than 20% to the asset class,” according to the Connection Capital Alternative Investments Survey 2022.³ Findings from the study indicate, “a radical overhaul of the traditional 60% equities and 40% bonds mix in quest for superior returns and diversification,” and that “one in three plan to increase exposure to alternatives, compared to just one in seven for quoted equities.”

Why don’t people do more alternative investments?

While alternative investing is becoming more popular, it’s still considered nontraditional. This is because it’s not as easy as making financial product investments. But the payoff is significant for those willing to do the work. It takes time and effort to learn about alternative investments, find experienced people who know what they’re doing, and surround yourself with a network of like-minded and supportive people who will help you make smart decisions. After all, you are going against the status quo and will deal with many naysayers. Through all of the negativity and fear, you must take the initiative and invest in yourself.

You are not the majority

Alternative investments are not for the majority of people. But if you want to be different, live a life of freedom, and get ahead of the whole taxation/inflation game, then you need to get your money working for you. You can't do that at the gambling casino also known as Wall Street.

I've worked with hundreds of practitioners who have made the switch from Wall Street to Main Street and experienced the freedom to live on their own terms, decades ahead of a typical retirement age. This is why I tell people to stay away from 401(k)s. Don’t be part of the majority. Instead, take control of your money, stop the stress, and stay focused on your freedom.

Editor's note: This article appeared in the March 2023 print edition of Dental Economics magazine. Dentists in North America are eligible for a complimentary print subscription. Sign up here.

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