Bullshit on Stilts: Tackling the bullshitology of financial decisions.

Financial Fairy Tales 3: 50% of Your 401(k) is the Government's

• Keli Alo & Mark Robinson • Season 1 • Episode 19

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Ever seen those financial ads that scream, “Half your 401(k) belongs to the government!”? They’re designed to spark fear and uncertainty about retirement savings and taxes—but how accurate is this really? In this episode, we’re pulling back the curtain on these misleading claims to help you sharpen your bullshit detector and make smarter financial decisions. 

First, let’s tackle the scary tax myths. While it’s true that taxes can impact retirement savings, most Americans don’t face the apocalyptic tax rates these ads suggest. In fact, understanding your actual tax bracket and how withdrawals work can reveal a much less frightening reality. 

Then there’s the sneaky phrase: “Let’s see if you qualify.” It sounds exclusive and tailored, right? But often, it’s a marketing tactic to hook you into an insurance product sales call rather than rescuing your retirement. Recognizing these red flags is a critical step in protecting your financial future. 

By the end of this episode, you’ll have the tools to see through some of the “financial fairy tales” spread across social media. You’ll feel confident navigating the noise and focusing on facts—not fear—when making retirement related decisions. 

Want more tips? Check out our previous Episodes #17 and #18, where we dive into Tax-Free Retirement Accounts and Tax-Free Roth Conversions, cycling through social media financial misinformation traps. Let’s get after it! 

We love to hear your thoughts, questions, and ideas. Send us a text!

Developing your financial bullshit sniffer one episode at a time.

Speaker 1:

Welcome to Bullshit on Stilts, a podcast hosted by two guys with vast financial backgrounds and great bullshit sniffers who call out the cliche crap, spackle and flap doodle spewed by so-called experts across the landscape of financial advice, identifying as doctors of bullshitology. You can count on your esteemed hosts okay, maybe knuckleheads to bring you a lively, if not deadly, mix of bullshitology. You can count on your esteemed hosts okay, maybe knuckleheads to bring you a lively, if not deadly, mix of serious analysis, hijinks and tomfoolery, all within a 99.1% bullshit-free safe space. Let's get after it, okay. So welcome back to Bullshit on Stilts. It's Kelly again.

Speaker 1:

I'm going to be flying solo one more time when it comes to wrapping up our three-part series on the financial fairy tales that one finds out in social media land while we're flipping through our phones or on our laptops or whatever we're doing. Or whatever we're doing, there's an awful lot of financial service advertising, and certainly in the last couple of episodes we've talked about two, which are the tax-free retirement account, tfra and the tax-free Roth conversion. So today we're going to take aim on bullshit on stilts, at those financial service advertisements that frame the discussion around. Let's say, 50% of your 401k you don't owe, that goes to the US government that's Uncle Sam's because you're going to owe taxes and retirement. So we're going to take aim at those outlandish, overstated statements to start creating concern on the part of the viewer and maybe get them to touch the call to action button inadvertently. So you may be asking yourself geez Kelly, I don't know what advertisements you're talking about, so I'll sort of set the table on that, so you might see the advertisement opening up, with someone talking about and framing the discussion around this If you have a million dollar 401k, well, you don't have that. In fact, half of that 401k that's the government's See, because you're going to pay taxes in retirement and so 50% of your 401k is going to go to taxes.

Speaker 1:

The stilts when oh, you got some bullshit, I got some stilts. That is the correct answer. And here's some quotes after that statement Better to know the truth, because I can show you how to get free. But quote, unquote. You have to know the truth, the truth will set you free. And then the last quote this is brilliant, but wait, I have a tax deferral, but you could have done it in a different way and all of that money would have been all yours. Give it back.

Speaker 1:

So there's sort of a natural reaction to this right In the mind of someone that doesn't do finance for a living. Their mind might be holy balls. I've been putting this money away. I've been doing it for years and years and years and now I find out that 50% of the value of my statement that's not even mine. Someone just made me very angry man. That pisses me off. Another reaction could be gee whiz, why the hell am I saving this money into this account that the government's going to get half of? I might as well stop saving and live it up now.

Speaker 1:

So many reactions to that framing of that advertisement. But the advertisement doesn't stop. See, the video changes and now there's a woman and she looks at the camera and she starts talking and she says well, I did the math. The average 401k is costing Americans 30 to 40% of their retirement income. That kind of sounds like some bullshit to me. Grandparents. They had something much better. They had pensions, worry-free retirement income as long as they lived, income that continued year after year. It was untaxed in many states and then Wall Street created this big bad thing called the 401k to basically take away the pensions and make you save all your money and blah, blah, blah, blah. Oh, by the way, that 401k it's not guaranteed, it's a hundred percent connected to the market and it's fully taxable, every red cent when you take it out. So if we stop right there and we're just gonna think, geez, what did they just say to me? This sounds like I'm getting ripped off Once again, the little guy getting ripped off by the big guy because advertisements that stoke a fear that gets people to act, and then they act on the call to action. They touch that button. They touched that button First. Claim a million dollar 401k. Well, half of that's not yours, it's the government. Now, that is an absolute mischaracterization.

Speaker 1:

When you look at the US tax return data all right, this is just the data man. There's 158 million tax returns in 2019. Of that, 104 million of those US tax returns had income tax on them. Of that, the only people that statement could possibly apply to as a percentage of tax returns filed would be 0.003% of American taxpayers. Yet this advertisement is going everywhere, almost regardless of your income, but it could only possibly apply to less than 1% of Americans, or I should say American tax filers. That's fascinating. So that's point one. Point number two sort of a reality check that, of those tax returns that paid income tax, the percentage of tax returns that paid an effective tax rate of 15% or less, that was just under 91% of the returns. 91% of 104 million tax returns paid an effective tax rate of less than 15%. Now how does that blow up to 50% of a 401k being owned by the government because of taxes? That's the thing, bullshit on stilts. Now, if you go to the next level and add the number of tax returns that happen to pay an effective tax rate of 20% or less, now you're at almost 98% of tax returns in 2019. Certified badass, I mean. Think about that. 98% of the returns filed in 2019 paid an effective tax rate of 20% or less.

Speaker 1:

But this advertisement starts by scaring you and 50% of your 401k is the government's money. It's not yours because of taxes, because you did it wrong. Bullshit on stilts. Aw boo Three that you have to know the truth. The truth will set you free.

Speaker 1:

And yet we've already dispelled the accuracy of the statement. So is that really true? 50% of my 401k is going to the taxes to Uncle Sam. Is that really the truth? And yet I think we know the answer. Incorrect answer. What else are you going to mislead me with Mr Advertisement. All right to be fair. Four is accurate, right. But wait, you could have done that a different way. And that absolutely is always true. You always have options. There's always a different way to get to point B from your starting point. If we're talking retirement, how you save and accumulate money, there's different ways to do it. No doubt. Number four that absolutely accurate. How wonderful.

Speaker 1:

So let's break down a little bit of the demonization of the 401k retirement plan. Right, this thing is actually a result of the Revenue Act of 1978, right? So this guy, ted Ben, is the guy that came up with the idea and he simply looked at that Revenue Act and interpreted the law a little bit differently. And the way he interpreted it he said hey, gee, whiz, if we apply this Revenue Act 78 language, that means employees could choose to defer some of their income into an account and that would also allow the employer to match some of that income in that same account and that later on that employee could get access to that money when they leave or they retire and certainly would be taxable. But not a bad plan, right? Brand new, brand new concept. Eventually that became recognized by the IRS and so forth, and we now know it as the 401k plan.

Speaker 1:

Oh, by the way, let's look at a few things regarding the accuracy of the environment. That existed in 1978, 1988 and so. So the advertisements comparing pensions that are better. You cannot live the income. They're wonderful, your grandparents love them, and this big bad wolf out of Wall Street changed the rules and now you're stuck with this bad 401k plan. That's the framing right. So let's look at the facts. Historically, not more than 45% of private workers were ever covered by pensions, meaning the majority of American workers didn't have a pension to fall back on upon retirement. Isn't that interesting? The fact is that less than half of workers had a pension. But the truth will set you free. Quote, unquote. Now, with regards to the 401k plans, whiz back in 1980 brand new idea only about eight percent of americans were contributing to it. But as recently as 2021, only about 43 percent are contributing to defined contribution plans 401ks, 403bs, 457s, depending on the case.

Speaker 1:

When it comes to statements like the 401k isn't guaranteed, it's 100% connected to the market, and so forth Well, those are sort of misleading as well. Right, in a 401k, you can put your money into both growth oriented or more volatile, also known as more risky investments, and you can also put them into less volatile and or safe investments, even to the tune of what's called a stable asset value fund, most likely within the 401k fund lineup. But you certainly don't have to take the roller coaster ride of the S&P 500 US stock index and that's the only option. You have, stock index, and that's the only option you have, in fact, within your 401k. Depending on how you allocate your money between stocks, bonds, cash and alternatives, your ride may very well be very smooth, very stable, and whether the return is right for you or not, that's a separate story. So it's really not guaranteed and it's really not 100% connected to the market. It really depends on how you actually invest.

Speaker 1:

Another point to just keep in mind is this Advertisements like to promise guaranteed income you can never outlive, but almost never is that going to be. An income stream that will adjust with annual inflation or otherwise known as cost of living. Increases Doesn't mean that the $100 from 1950 buys the same amount of goods and or services that $100 does in 2024. And now these advertisements typically will then slide into the last sort of bullshit on stilt statements and that proving through the use of other examples, how great of an idea this is. You know this president and that president made these solutions a part of their overall wealth management plan. That these wealthy individuals, these oil barons and land magnates and all sorts of folks have used this secret solution to retirement planning and retirement income planning that you should now see.

Speaker 1:

After knowing all of this and hearing all the truth that we've been spewing at you, you should now see if you qualify and that's a tell like no other tell when it comes to playing poker with financial service advertisements. Well, what exactly is that tell, kelly? Well, good question. I'm glad you asked me me. This guy was good.

Speaker 1:

The tell is let's see if you qualify. That qualification can only mean one thing, one thing Do you qualify, based on health underwriting questions and tests, to be offered a life insurance policy? That's that, teller. Do you qualify Bing bing, bing, bing, insurance, agent insurance product? All right, so developing your bullshit sniffer when it comes to social media financial fairy tales, all three in this series actually do originate and come from the life insurance industry and not the investment advisor or broker industry. So just know that, as we go along through figuring out some of these advertisements, you don't get duped into a 15 minute call that enters into the high pressure sales marketplace of financial service sales professionals. Thanks for joining us. We'll talk to you next time on Bullshit on Stilts. Have a great day, man.