For such a smart guy, what was Ben Stein thinking?

I think Ben Stein is a really smart guy most of the time. So much so that I read his book, “Yes, You Can Still Retire Comfortably! The baby-boom retirement crisis and how to beat it.” So what is my beef? It seems to me Ben contradicted himself.

Ben Stein lists 21 basic rules of retirement. #5 is “consider the tax implications of everything you do.”  Loved it as that rule seems more important to consider in your financial planning than ever.  BUT it seems he contradicts himself with his rule #4 which he says is to max out your retirement plans every year.

When talking about how much income you will need to retirement, Ben makes the statement…”the income from your tax-deferred savings accounts (except for ROTH IRAs) will be taxed as ordinary income as it is withdrawn—even if it consists of reinvested dividends and capital gains—and who knows how high future tax rates will be? Over the course of the 20th century, they ranged from zero to MORE THAN 90 PERCENT, so even if you could predict your future investment returns to three decimal places, the unknown rate at which you may be taxed would be enough to make you throw up your pencil in despair.”

His book also states “while you were growing your nest egg, we assumed that most of your personal savings were captive in your 401k account. These have notoriously poor choices and high expenses.” TIME magazine seems to back Mr. Stein in an article of theirs which states the 401k is “a lousy vehicle and a financial flop.”

As I speak at financial education workshops, I ask the question of my audience, “Do you think taxes will be lower, the same, or higher when you retire?” In each group of people the vast majority of the group, if not the entire group, respond that they believe taxes will be higher when they retire.  Experts such as Ed Slott, Harry Dent, and Patrick Kelly agree with my attendees!

So here’s my beef. If I am to consider the tax implications of everything I do financially and I believe tax rates will be higher in the future, then maxing out my 401k is probably not a wise choice. The free money I have access to through matching is something I should consider taking advantage of, weighing that against the “poor choices and high expenses” of my company’s particular plan. Maybe my company offers great options?

Another question I ask in our educational forums is “Why is contributing to a 401k your primary means of retirement planning?” The answer I frequently get is “to save taxes.” But we are not SAVING taxes, we are putting off taxes. What else are we putting off? We are putting off the tax calculation!

If you are like most people and believe tax rates must rise to pay the piper in this country, if you believe that income tax rates are still low looking at history, then do you think building a bigger retirement to share with your silent partner Uncle Sam by maxing out your 401k is in your best interest or should you be looking for other options and alternatives that may be more beneficial in regard to it’s tax implications for you?