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To fully understand the need to potentially modify your current retirement plan, you must understand how national debt, failing retirement plans, and poor ROIs (return on investments) play a predominate role in your financial security.

The National Debt

With the debt at $12.3 trillion and climbing, it is no secret that we are in the middle of an economic catastrophe. As taxpayers, the government has requisitioned us to support the baby boomers' social security, Medicare, and various other government assistance programs. The current administration has spent more in one year than the previous administration did in eight. We do not have the luxury of borrowing our way out of debt, and our country may establish a plan to repay the debt by raising taxes, cutting our benefits, or printing more money (therefore increasing inflation).  

When I hear any financial advisor recommend deferring current taxes until you start to withdraw from your IRA or 401(k) so that you will be in a lower tax bracket, it makes me cringe. First of all, why would you want to be in a lower tax bracket?  That means you are making less money! Second, who do we think is going to pay the national debt along with our parents' and grandparents' social security benefits?  Hello, Generation Y! At some point, we are all going to have to pay up!

I think you can now see this is your National Debt.

Current Retirement Plans Are a Failure

2009 marked the 30th birthday of the 401(k), and the baby boomers are the only generation that has had the time to follow this type of plan thus far.  Regardless of what the government’s intentions were when they set up the plan, this plan is not performing as needed because of the golden handcuffs and minimal market returns. Here are the hard facts for workers approaching retirement:

• 52% of workers have savings (not including home equity) of less than $25,000
• 75% of workers with no retirement savings have less than $10,000 in savings
• 35% of people over age 55 have less than $10,000
• 65% of recipients rely on social security for at least 50% of their income; 33% rely on it for 90% of their income! In 2005 the average benefit was $1,002. For a couple it was $1,501.
• Workers age 55-64, will only be able to replace an average of 9% of their income with 401k and IRA retirement savings alone.

People never plan to fail; they simply fail to plan. Saving for retirement is a must if you want financial security; however, the available options must become more transparent. Who wants to lock away their hard-earned dollars in plans that will only allow you to access your money while charging a 10% penalty?! The long list of red-tape, rules and penalties simply outweigh the decision to put a plan into action, so people fail to act.  If you spent a weekend in Vegas, how much money are you willing to gamble if you really do not understand the rules? Not much, right?

Market Returns

Brett A. Anderson, author of Last Chance Retirement, noted, “Over the last 61 years the average return in the S&P 500 index is 7.14% (before fees), and the story is worse for mutual funds. A report released in 2006 by Morningstar and the Harvard Business School revealed the performance of 4,000 mutual funds between 1996 and 2002 (pre- and post-crash of 2001) earned a 2.924% return for clients working with financial advisors.

In a 2001 study, Dalbar Inc. reported that for a 17 year period leading up to December of 2000, the S&P returned an average of 16.29% while the typical investor received a 5.32% return or 1/3 as much. It is rare for a typical investor to beat the index or even come close."

So, if most investors can not beat the index, why not bet the index?

Expert investor Bernard Baruch (1870-1965) once said, "Don't try to buy at the bottom and sell at the top. It can't be done except by liars."

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