401(k) - Is It A "Monster"?

Posted on Sept 22nd, 2023

Ted Benna, called the "father of the 401(k)", created the first employer-based retirement savings program. He went on record speaking with Smart Money Magazine and stated that he feels like his creation has turned into a "monster" that "should be blown up."

Despite the fact that the creator of the 401(k) saying these words, the reality is that millions of Americans put their money into their company sponsored 401(k) retirement plan every single pay period. The 401(k) quickly became the dominant retirement funding vehicle for working Americans, who have $3 trillion in these plans. It's mainly for the purpose of making sure that we are not financially broken during our retirement years. 

Many pondering their retirement years have the goal of building $1 million in their retirement accounts. The reality of the statistics show that only around 10% of retirees actually retire with a million or more. The data for the median group of retirees is even more eye opening! The median group of those 65 to 74 years old have $164,000 in their retirement account while those 75 and older have $83,000 saved for retirement.

What Is A 401(k)?

A 401(k) is a type of "qualified" retirement plan that allows you to set money aside for retirement on a tax-deferred basis. Contributions are deducted from your paychecks via a salary deferral. Your employer can also offer a matching contribution. The IRS limits the amount you can and your employer can contribute each year. For 2024, the contribution is limited to $23,000. Workers over the age of 50 can contribute an additional $7,500 per year.

With a traditional 401(k), contributions are made using pre-tax dollars. Any money you contribute is automatically deducted from your taxable income from the year. 

Traditional 401(k) plans allow you to invest in a variety of securities, including mutual funds and exchange-traded funds. Target-date funds are also a popular option. These funds automatically adjust your asset allocation based on your target retirement date.

There’s no death benefit component with a 401(k). This is money you save during your working years that you can tap into in retirement. 

What Reasons Did Ted Benna Have For Saying The 401(k) Was A "Monster"?

The 401(k) Tax-Deferral

In our immediate-gratification society, deferring your taxes by funding your 401(k) sounds so good, doesn’t it?

But when the tax bill eventually arrives, it won’t ask you to pay what your tax liability would have been if you’d been paying taxes all along. That bill will tell you what your tax liability is at the time your taxes are due.

Conventional wisdom says you’ll come out ahead by deferring taxes. After all, doesn’t that mean your entire contribution can go to work for you immediately? Unfortunately, like many assumptions about personal finance, this simply isn’t true.

The root of the problem, is that people assume that if they’re paying 22% tax on the money today, they’ll likely owe at least 22% tax on other income in retirement. But that’s perhaps not how it will pan out.

You’re way more likely to have a lower income in retirement than you have today, so you’ll likely be in a lower tax bracket in the future. You can see this from current retirees. Instead of earning a household income of $70,784 (the median household income), they’re earning just $47,620. After the standard deduction, they only owe $1,992 in taxes each year, which is a 4.2% effective tax rate. You’re paying 22% tax today to save 4.2% in retirement. I'm sure most would consider that much less than ideal.

The 401(k) Employer "Free Money"

Who doesn’t love getting “free money” in the form of the 401(k) employer match? Do you really believe your employer is giving you something for nothing? 

The Center for Retirement Research did a study based on tax data and found that for every dollar an employer contributes to your 401(k) match, they pay 90 cents less salary to men and 99 cents less to women on average. Translation: That means your employer is essentially pulling money out of your paycheck to contribute to your 401(k).  And you’re really netting pennies, not dollars, in matching funds. 

Plus, you don’t even get all of the employer match during the first 4-6 years you work for the company – you need to be “vested” first. If you leave your job before that, you typically don’t get the full match.

Funding A 401(k) Limits Your Control Over Accessing Your Money

With a 401(k), you generally can’t tap into this money penalty-free before the age of 59.5, even in the case of a hardship withdrawal. You may be able to avoid a tax penalty if you’re withdrawing money for qualified medical expenses but you’d still owe income tax on the distribution. You could take out a 401(k) loan instead but that also has tax implications. If you separate from your employer with an outstanding loan balance and fail to repay the loan in full, the entire amount can be treated as a taxable distribution.

Qualified distributions in retirement are taxable at your regular income tax rate. And if you pass away with a balance in your 401(k), the beneficiary who inherits the money will have to pay taxes on it.

Unless you’re still working with the same employer, you’re required to begin taking minimum distributions from a 401(k) beginning at age 72. Failing to do so can trigger a tax penalty equivalent to 50% of the amount you were required to withdraw.

Your Retirement Money is Exposed to Market Volatility

Most of the money in 401(k)s are invested in mutual funds. You’re told that over the long term, you can do well in the stock market. But over the last 20 years, the average equity mutual fund investor has earned only 4.25% per year, beating inflation by only 2.1% per year, according to the DALBAR studies. Asset allocation investors averaged only 2.89% per year, beating inflation by less than 1% per year.

Many Retirees That Have A 401(k) Have To Go Back To Work

It's worth noting that the retirement landscape has changed in recent years, and some studies have indicated that a significant number of retirees continue to work after retiring. According to a 2020 survey by the Transamerica Center for Retirement Studies, around 46% of American workers expect to work in some capacity during their retirement. This can include part-time work, self-employment, or freelance work.

So we see almost HALF of us who have a retirement account and diligently put money in that account so we could enjoy our retirement without financial burden or needing to work, have found that 30 - 40 year dream collapse before their very eyes.

What Did, The "Father" Of The 401(k), Ted Benna Do With His Money?

Benna’s admission that he has, in his words, “put most of my money” into properly structured high cash value, dividend-paying whole life insurance policies most commonly known as "Infinite Banking" type insurance plans.

Related: What Is The Infinite Banking Concept?

Benna says these plans avoid the dangers that traditional retirement plan accounts face. Another reason he likes this type of plan is because of its tax advantages. You can access your principal and growth with no taxes due, under current tax law. Your cash value can easily and immediately be tapped for any purpose at all, and your plan can continue growing as though you never touched a dime of it.

You have control of your money without government penalties or restrictions on how much income you can take or when you can take it. Your plan doesn’t go backward when the markets tumble. Your principal and growth are locked in. It’s not subject to market risks.

Related: 401(k) vs. Indexed Universal Life Insurance - Which Is Better? 

How To Find An Old 401(k)

Contact Your Former Employer.

The most straightforward approach to check up on a previous 401(k) plan is to contact the human resources department or a third-party administrator (TPA) at the company where you used to work.

U.S. Department of Labor's Employee Benefits Security Administration

The U.S. Department of Labor has a database for people looking for retirement plans that have been abandoned. This database will help you determine if the plan has been terminated and who to contact.

National Registry of Unclaimed Retirement Benefits

Your former employer might have left money for you in a retirement account. You can check to see if they did by going to unclaimedretirementbenefits.com.

Pension Benefit Guaranty Corporation

The Pension Benefit Guaranty Corporation’s Missing Participants Program has recently been expanded to include 401(k) plans.


While we know that millions of Americans put their money into their company sponsored 401(k) retirement plan every single pay period, the questions that remains for each of us to answer is, Is the 401(k) the "Monster" that its creator Ted Benna claimed it to be? Is the 401(k) retirement plan the best option for achieving your goals? Only YOU can answer those questions.

One common question we get is…

“Can I use money from my 401(k)/IRA/403(b)/TSA to fund a "Infinite Banking" type insurance policy – and what are the tax consequences?”

Moving money from a conventional tax-deferred retirement account into a "Infinite Banking" type policy is a common method people use to fund a policy. We invite you to schedule a free 30-minute consultation with our experts so we can help you answer the question of if you should use your 401(k) money and what the tax implications would be . During this time, we'll listen to your unique circumstances, answer your questions, and offer insights tailored to your needs.

At Family For Life Insurance, we understand the weight of the decisions you're making and the significance of your retirement future. Our expertise is rooted in guiding individuals and families like yours toward financial security and prosperity during the times you will need it the most. We're here to be your partner on this transformative journey.

Should you have any questions, contact us today at (443) 768-8238 or email us at [email protected].

Remember, the quality of your retirement years begins with the choices you make today.

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