Comments on: The Automatic Millionaire: book review and criticism

By: Gates VP

Gates VP — Sat, 30 Jan 2010 06:54:26 +0000

I'll just cross-post to my reply on another PF blog. In short, yes it's not only a really crappy book, it's fundamentally misleading.

By: John Mitchell

John Mitchell — Sat, 09 Jan 2010 13:08:47 +0000

your 401K argument leaves out compound interest. No one should put money into a 401K plan and then withdraws it one year later. At 10% compound interest your money will double every 7 1/2 years. The longer you have money in a tax deferred savings account the faster it grows compared to a taxable account. After 30 years the 401K will have substantially more money than a taxable account, even after you have paid taxes when you take it out.

By: Spencer Tolsen

Spencer Tolsen — Thu, 17 Sep 2009 19:30:25 +0000

I am often finding that math and statistics are grossly manipulated to support financial claims. It is not hard to find “different math” to support opposite claims around the internet!

In the case of the company 401k, I feel that matching funds creates an automatic win, but only up to the match. After that, Roth IRA wins in the long run and does away with the 40% tax rate scenario. Unlike current generations of retired eldery who are poor, I hope to retire rich, so tax rates during retirement are important to me.

One last thing, you do not pay taxes on taxable investments every year, only when you sell. in 1989 you could have bought Harley Davidson, McDonalds, Proctor & Gamble, and Microsoft and HELD until 2009. Only a sale creates a tax bill.

By: Marcello

Marcello — Mon, 19 Jan 2009 18:05:22 +0000

I definitely disagree on the false advertising view. 401k’s will have double the return over a 30 year period even at the higher tax rates just on the basis of tax free gains. I am not just estimating, I simply ran the calculations you have above for 10, 20 and 30 years. I think also we cannot discount employer contributions which are another integral part of 401kâ€™s.

I look forward to your full article on the topic in the future.

By: Presh Talwalkar

Presh Talwalkar — Sun, 18 Jan 2009 08:57:03 +0000

Thanks all for raising valid reasons that a 401(k) can be good. The point is I am glad you are all thinking about the issue rather than conforming to long-held opinion (the blind belief with shaky evidence Bach presents that 401(k)’s must be good).

I truly think 401(k) plans are falsely advertised as having major tax benefits when they have relatively minor ones (offset by having to lock in your money, the risks of tax increases, and lack of investment options). I will do a full article on this topic in the future.