Sweet Hop is an online marketplace curating the best in premium seating at stadiums, arenas, and amphitheaters nationwide. With Sweet Hop's 100% ticket guarantee, no hidden fees, and the personal high-level service you expect with a premium purchase, you can relax knowing you'll receive the luxury experience you deserve. Visit SweetHop.com today to book your premium tickets to your favorite teams, artists, and all the must-see live events to Sweet Hop around LA.

It's more than just a ticket. Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge, skills, insight, and encouragement you need to live a rich and meaningful life now, while building a plan for financial freedom in 10 years or less. My name is Joshua Sheets, and I'm your host.

And today, we continue with a myth-busting show, "Why Your 401(k) Won't Make You Rich." Information for today's show comes in via a comment that was recently posted just this week here in our Radical Personal Finance community Facebook group. A listener writes in and said this, "Joshua has expressed repeatedly that people don't get rich using 401(k)s, and I just heard another podcaster express similar sentiment.

Am I missing something? I do really well working as an employee and have zero interest in running my own business except possibly adding real estate to my portfolio. I've been investing 100% in stocks since I graduated from college, and I'm happy with my personal rate of return. I understand that most people don't get rich with 401(k)s, but to me, it appears the problem is not with 401(k) or the process, but the fact that people are not saving enough money and/or choosing bad investments.

What am I missing?" Various community members piped in with good contributions, but I thought this was a valuable topic for today's show. There are many things that I like about the structure of a 401(k) plan and there are many things that I don't like about the structure of a 401(k) plan.

I thought about doing today's show 21 Things I Hate About 401(k)s. But if I do that, it'll take away from the central objection that I have to looking at a 401(k) as a primary engine of wealth building. The objection is this. It's not that you can't get rich using a 401(k).

It's that the 401(k) is not causing you to get rich. You can put about $18,000 into a 401(k) and defer that in as far as your personal deferment right now under the current tax law numbers. You can put more than that in if you're over 50 and your employer might put additional contributions and matches in and you could set up additional ways to get more money into it as well.

Some accounts could be designed to be able to get as much of it as about $50,000 per year into the account. Obviously, if you invest $18,000 per year into an account and you do that over the course of 40 years and you earn say 8% interest rate and you start with nothing, over the course of 40 years, you can get rich using a 401(k).

The calculation on that would come out to be about $5,036,000 if you were to contribute that $18,000 level over the course of 40 years. It's not that you can't get rich using a 401(k). It's that the 401(k) is not what's making you rich. Here, I want to just focus today on the question of causation versus correlation.

It's my opinion that 401(k) and wealth that's built in 401(k) is correlated to people who are rich but there's not a causative relationship. Let me expand. The question of causation versus correlation is one of the most significant logical fallacies and areas of research that we all need to continually keep in mind.

I never find that I can let my guard down because I often look at a factor and I'll think that this factor A is causing effect B and then something else will happen. I'll come along and say, "Wait a second. Is there something else going on?" This happens in a lot of areas in our own life, a lot of areas of policy, of – just everywhere throughout society.

Let's start with an example just to make this very, very clear. It's been measured and observed that as ice cream sales increase, the rate of drowning deaths increase sharply as well. This is my favorite example because it's true and it's measurable. As ice cream sales increase, the rate of drowning deaths increase sharply as well.

So the obvious conclusion is that ice cream consumption causes drowning. After all, isn't that why your mother and your grandmother said, "No, you can't go swimming right after you eat lunch. You have to wait a while for the food to settle," because ice cream consumption causes drowning. Is that the right conclusion?

That example should immediately spark it. You're thinking, "Well, no. That's not the right conclusion. I can't see how ice cream causes drowning. Could there not be another factor going on here?" So the simple obvious factor between these is that you have to look at the time of year. What's the calendar time of year and what is the effect of the temperature on ice cream sales and also what's the effect of temperature on the number of people that are swimming?

More ice cream is sold during the hot summer months than during colder times of year. It's also during the hot summer months that people are more likely to be engaged in activities around the water such as swimming. Because more people are going to be engaged in activities around the water, there's a good chance that more of them will drown because of their time in the water.

So that would be the more fundamental relationship. Now even that, you could say that there's not necessarily a causative relationship. It's not that summer causes drowning deaths. But the fundamental factor that's influencing both of these things is the time of year, not the fact of eating ice cream. If you grasp that concept and you start looking into areas in your life and you start looking at areas in society, you find yourself questioning a lot of commonly accepted wisdom.

I've done many shows on education, the common – the idea of government education, how to improve schooling, things like that. This is a common debate. I've never seen any evidence for example that spending more money on schooling improves the outcome and the results. The consistent theme that people claim is that if we spend more money on schooling, we tax citizens higher, spend more money on schooling, then we spend more money and we do that, then we'll be able to improve the outcome and the results.

But I've never seen any evidence of that. It might exist. I'm not an education specialist. I've just never seen any evidence of that. I've seen lots of evidence that seemingly the fundamental factor or at least one of perhaps two or three fundamental factors that improves educational outcomes is parental involvement.

The more involved that you can get a parent in a child's education and their schooling process, the better the outcome. That doesn't cost money. And so that's just a politically charged example to demonstrate that this exists throughout society. We all have areas in our lives that we're confusing the factors involved and we all should be – try to seek to be aware of them and search those things out.

So to state the matter clearly and then expand and try to give some more proof for my case, it's my claim that high 401(k) account balances aren't causing people to be wealthy. It's my claim that high 401(k) balances are correlated with people who are doing other things to become wealthy.

Let's talk through this by using the format of the factors needed to build wealth. If we're going to do a calculation using a financial calculator, there are a total of five possible numbers that we can use and we can only solve for one of them at a time. In this case, the number that we're going to solve for is going to be the FV function on a financial calculator, the future value.

And the goal is how do we get a high future value. If we're starting off, we're in the beginning or middle of our careers and we're looking forward to retirement age and we say, "I want to have a lot of money in an account, high future value. How do I get there?" Well, there are four factors that will contribute to my reaching that high future value.

Those four factors are N, the number of payments, specifically how long am I investing. Am I investing for five years, 25 years, or 50 years? I is the rate of interest. What is the actual realized rate of interest that I receive on my investments? For this, we have to take the gross interest rate, the gross gain on the portfolio and pull off our taxes and our fees.

PV is our present value. That's what we start at. Do we start with a lot of money or a little money? And then payment is how much money do we put into the account every month or every year. With those four factors, we can calculate what our future value is going to be.

You want your number of payments to be as long as possible, all things being equal. The longer you can invest, the more money that you'll have at the end of your investment time period. Whenever possible, you want that I, the interest rate, to be as high as possible. All else being equal, the higher the interest rate, the more money we'll have at the end of our investment term.

We want that number of that payment to be as high as possible. All else being equal, the more money we can save into the account every month or every year, the more money we'll have at the end of the investment period. And finally, we want to start with as high of a beginning value as possible because all else being equal, the larger our portfolio is at the beginning of our investment term, the higher our future wealth will be.

The only one of those variables that the idea of a 401(k) account directly impacts is possibly the interest rate because it possibly helps us to defer some taxation, which helps the money to grow more consistently and at a lower cost over time. That's the primary factor. If you have an employer match, it might affect your payment as well.

So I guess I shouldn't say the only. Forgive me. If you have an employer match, it might affect your payment as well. But these are not the biggest factors in building wealth. Rather, in my experience and opinion, the biggest factors are going to be how big is the payment that's going into the account.

That's going to be driven by your level of income and your level of expenses and how much money you can save and the length of time that you can contribute. Those are going to be bigger factors for most people than the amount of interest and a small employer match.

Access to and participation in 401(k) plans is correlated to people who have a higher income and who can invest for a longer period of time than people who don't have access to 401(k)s. Let me draw this out by sake of an example. I want to stereotype here and use two stereotypes to illustrate the differences between possible career paths and their influence on 401(k) accounts.

Stereotyping is always dangerous because it means that you're looking at populations rather than individuals. And I don't like that because I like to recognize that any individual can change and grow and improve. But I think here it's valuable. Let's compare the career trajectory between a lower class blue collar worker working in the trades versus an upper class college educated white collar worker who's starting off in a large corporation working in a corporate job.

Here I'm thinking of a few friends of mine who would fit these stereotypes on either end very, very well. For our lower class blue collar worker, we're going to use the trade of working as an electrician. The skill of working as an electrician is a very valuable skill. And when an electrician advances in their career up through journeyman and master electrician level, they can earn an excellent wage.

But the career trajectory starts with an entry level job. It starts with – it's not minimum wage. Construction employers can't get workers at minimum wage. But it starts at say in today's world, $10 to $11 an hour and it will go up from there. White collar worker goes to college.

Let's say a son of college educated parents, dual income college educated parents, parents stress education, goes to a middle to upper level college, works his way through the college sorting mechanism and comes out the other side and gets a job working as an entry level or mid-level white collar worker, perhaps an analyst, something like that.

Let's talk through some of these factors. First factor, starting value of the portfolio, the present value of the portfolio. In this case, I want to hold both of these at zero. Both of our workers, neither of our workers start with any money. They both start with zero. However, if you think of people that you may know, somebody who's just starting off in their career as a – coming out of a lower class and going into a blue collar profession, are they likely to have more of a starting point than somebody who's upper class and going into a white collar profession?

In my experience, the upper class person may have something like their parents have given them a car or helped them to buy a car, whereas the lower class blue collar worker may have needed to start by saving up money for a car. Just the fact of – here we're going to say the upper class person has a college education, college degree.

That's a tremendous asset that many times an upper class person's parents have paid for, for them. Whereas a lower class blue collar worker, if they've gotten a college degree or getting a college degree or pursuing something like trade school, they're going to be doing that – paying for that themselves oftentimes.

So even if we start with an account value at zero, there's a good chance that an upper class white collar worker will start with more money as reflected in parents gave them a car, parents helped with a college degree, parents are helping with things to set up a household, independent household, buying furniture, helping with all of those basic expenses.

That will have an impact on how much the upper class white collar worker can save for something like retirement. So for both of these examples, we're going to hold their PV, their present value, their starting value of their account at zero. But even if we do that, our upper class white collar worker stereotype is going to start with a higher embedded advantage because of the other factors where their parents have helped them.

Why am I drawing a distinction here between a lower class blue collar worker and an upper class white collar entry level worker? Primarily, I'm drawing this distinction because the blue collar worker is not going to have access to a 401(k) and the white collar worker is. Again, my argument here is that these things are correlated.

Correlated. And so people who have access to 401(k)s are much more likely to be this upper class white collar worker. My friend that I'm picturing in my head as my stereotype for the lower class electrician is one of the hardest working, most intelligent people that I know of and dedicated to his skill and to his craft.

He started his career. He came out of high school, got a high school degree. College was not for him. But he started his career working in various trades, wandered around a little bit between a few different professions, tile, electrician, plumbing, etc. until he finally settled into a job working as an entry level electrician due to a family friend who gave him an opportunity.

Started off with no knowledge but applied himself very, very diligently to his trade. But the structure of the companies that he was working for during the beginning of his career do not lend themselves to access to 401(k)s. A majority of workers in the United States of America do not work for large corporations with big 401(k) plans.

They simply don't. They work for small and medium-sized businesses that are more independent. Most of these businesses don't provide 401(k) plans nor should they. If I were consulting with an owner of a small electrician – electrical company with let's say, you know, three, four, five vans on the road, two workers in each van going around and doing electrical work, I would never recommend to that particular company that they offer a 401(k) for their employees.

The administrative fees on 401(k) plans are comparatively very high. The rate of participation in 401(k) plans for workers in this segment of society is very, very low. It makes it very difficult for the business owner to even participate himself because if he's running a crew with a bunch of electricians working in it, they're likely to just say, "I want the money," and his participation rate is going to be so low that the owner may not even be able to make his own contributions.

So you have an expensive plan with low participation and most of the employees don't seem to value contributing to the 401(k) plan. There are a few who do, but most don't. So 401(k) is usually not an appropriate setup for that type of company. Now if we contrast that with a more corporate approach, even a company that has say 40 or 50 employees, now all of a sudden a 401(k) can work and people who are working in that more white-collar corporate environment tend to prefer something like a 401(k) as part of their compensation package.

They participate at higher rates and so it works better in that situation. My friend who started off his career working as an electrician never had access to a 401(k) for the first 10 to 15 years of his career. He worked very diligently, worked his way up in the profession, learned his skills, went to school at night to learn electrical skills, worked a lot on the side.

But all of his employers along the way were small employers that didn't even offer a 401(k) and his lifestyle, he was continually going from one company to the next to get a better offer. His lifestyle was so busy, it didn't lend itself well to being able to save into a 401(k).

It took my friend about 15 years of hard work, moving from company to company, building skills, studying, going to school at night, learning to become a master electrician, passing various tests before he was able to transition out of residential and commercial electrical work and move into a position at – with a job at a local power plant working for a local electric company where now he's working for a large corporation that offers a 401(k) plan.

If I compare that with another friend of mine that I went to college with, she started her career working in marketing, got a basic marketing degree, basic business degree, started her career with a relatively entry-level job. But on day one of her career, had access to a 401(k). Because of her time spent in college and because of the type of job that she got, on day one of her career, she was in a situation where she could earn more money than my friend who was working as an electrician, especially if only measured in 40 hours a week.

And because of her parental support network, her expenses were lower and she was able to participate in her 401(k) from day one. So simple access to a 401(k) is going to be correlated with people who earn higher incomes and who have higher potential for wage growth over time. If you think about many white-collar jobs here, if I think about my friend, when she started her career, she didn't have a lot of income.

She didn't have a lot of skill. She had a basic college degree and not a lot of skill. But as she's building her skills, she's becoming more valuable in the marketplace. As she's learning and studying the practice of effective marketing, she's also working in a corporate environment with other people.

And these other people, her career has a higher growth trajectory than does the career of most blue-collar workers. Most lower-class blue-collar workers are going to reach a point in their skill where they are replaceable. If you work on a factory floor, the factory is going to train you with the basic skills.

And then once you top out, your income is going to stagnate because there's not – unless you transition to management skills or unless you transition to entrepreneurship, there's not a lot of room for your wage to go up. If you start your career as an electrician, you begin your earning career with $10 or $20 an hour and then you go up from there with steady hourly wages as you increase your skills and capability.

If you don't make the switch to management, you're going to top out at about $30 an hour, $60,000 per year. But the challenge is many people who work best in careers like the trades are not people who are well-suited to management. They're not people who are well-suited to entrepreneurship.

Contrast that with the lifestyle and approach of a white-collar worker. It's a much easier transition for many white-collar workers to transition to skills of management or possibly entrepreneurship to where their incomes can continue to grow. They don't top out early in their career once they reach the height of their technical skill.

Because of these fundamental characteristics of the careers, the white-collar upper-class worker has the ability to start saving earlier because they're starting with a higher beginning salary. They have the ability to save more in the beginning because they've invested in education. Their starting salary is starting stronger and their expenses are likely to be a little bit lower versus somebody who has been scraping along starting in the trades working on an hourly basis.

So they can save more. Huge factor, because the career income continues to grow significantly, they can save more during the middle and later part of their career. If you compare my friend who started in marketing, relatively entry-level wages, she started at $35,000 per year. But if you compare her earnings to an average electrician also at about 45 or 50 years old, if she just continues to learn a little bit, to practice skills with other people, to practice some management, it's very likely that she could be in mid-level marketing management and marketing strategy for a large company.

Her income at 45 should be much higher than somebody who is a technical worker. She doesn't have to be light years smarter. She doesn't have to be light years ahead. She's just got to be a little bit ahead. Just the fact that she's gone through the college sorting process demonstrates that her intellectual capacity and her cognitive ability is going to be well-suited to additional learning throughout her career.

That is not necessarily the case with somebody who starts their career working as a server at a local restaurant and continues working as a server or starts as a customer sales associate at a local retail store and continues working as a customer service associate at a local retail store.

Length of career makes a huge difference as well. With somebody who works in a lower-class blue-collar profession, there is a shortness, a shortened career just simply due to the physical structure of the job. Many workers – I want to say a majority, but I can't confirm majority. Many, many blue-collar workers go home from their job every single day in pain, physically hurting from the work that they've done, whether it's because they're standing on a factory floor, standing in a restaurant, standing as a service associate, working in a physically demanding trade such as electrician, such as plumbing, etc., working in a physically demanding occupation such as law enforcement or something similar to that.

Many, many workers go home physically hurting every day. And this takes a toll on your body over the course of a career. A 55-year-old tradesman is reaching the end of his effective working career if he's still working in the physical trades, if he's still pulling wires, doing pipe. It doesn't have to be that way.

But 30, 40, 50 years of use of your body is going to have an effect on your ability to be as productive. And if that person has not managed to transition to a management circle or to a business ownership circle, they're going to have a difficult time having a long career in the trades.

Contrast that to a white-collar worker. A white-collar worker who's reaching 55 years old is at the height of their career and could very reasonably and easily continue it for another 15, 20, 25 years if their company will permit it without any abatement in productivity because their productivity and their career is not tied to their physical capacity.

It's tied to their mental capacity, their cognitive ability, the specific skills of their career. So they can work longer, which means they can continue contributing to the 401(k) for longer. When you start factoring together these different factors, starting earlier, making more money, working longer, all of these things lead to a higher lifetime earnings for the white-collar worker who fundamentally is likely to have access to a 401(k) as compared to a lower-class blue-collar worker who is less likely to even have access to a 401(k).

The amount of your income is going to be one of the biggest drivers. The amount of your income I believe is the biggest driver in your ability to accumulate wealth. When the listener asked the question in the thread, a few people commented. But we had two people pipe in with their contributions, two people who – both of whom have appeared on the show previously, Fritz Gilbert who writes at theretirementmanifesto.com and Rocky Lalvani who writes and blogs at Richersoul.com.

Both of them contributed and said, "We are 401(k) millionaires. It can be done." But because I've interviewed both of these men on the show, I responded and said, "Both of you prove my point. Both of you are experienced career people who have earned – I don't know their exact salary but just due to their job descriptions, I'm sure it's in excess of $100,000 a year.

You're six-figure income earners and if you use that high income and you apply some skills of thrift to that high income, you've been able to save a lot of money. And yes, the 401(k) has worked for you but you also would have gotten wealthy simply because of your income and your thriftiness if the 401(k) weren't available to you." The 401(k)s didn't make them rich.

Their high income, high rate of savings and wise investment decisions made them rich. And the structure of the 401(k) because of their corporate jobs worked well as a useful tool on their way to wealth. Let's talk about interest finally. I think that the person who has access to a 401(k) meaning the structural difference, white-collar workers working in medium to larger corporations versus blue-collar workers working in smaller corporations who don't have access to 401(k)s, the person working in that is probably on the whole more likely to have access to better investment information.

Wealthy people talk about money. Rich families talk about money. And if you're a white-collar, you graduated from college, your parents are working professionals, it's more likely that one of them is probably going to have something to do with some aspect of finance, whether corporate finance or in the investment business of some kind, or at least that the topics of money are not going to be taboo.

There's a higher subscription rate to the Wall Street Journal among upper-class elites than among lower-class blue-collar families. And so simply being around the topics of finance are going to lead to somebody being more comfortable with the topic of investing, which is going to lead to somebody being more comfortable with actually contributing their money to an investment account held within a 401(k).

Possibly it might also lead to making better investment decisions. Even somebody who's not working in finance, if they just have a cursory relationship with the financial literature, every now and then they glance at the Wall Street Journal, every now and then they pick up Money magazine. When they're going through an airport, they pick up a book on money.

They tune into a podcast on money. They look on CNN Money and read an article about index funds. They're likely to recognize some simple truths such as asset allocation matters. But these truths are not self-evident. It's not self-evident that when you're sitting down filling out your 401(k) investment contributions, you should construct a portfolio consisting of various asset classes.

There's a higher chance that the lower-class blue-collar worker, if they have access to a 401(k), is going to sit down and choose mutual funds within the 401(k) based upon their stated return for last year. There's also a higher chance that they're going to move routinely out of them. I've seen it so many times in giving financial advice to people.

The information is sitting there, but if people don't seek it out, they're unlikely to make good decisions. It's hard to read anything related to money and not recognize that investment expenses matter. But who's more likely to be reading about money? The white-collar worker who, as they fire up their computer, just takes a quick look at CNN Money or Yahoo Finance?

Or the person who's a blue-collar worker and doesn't work in front of a computer every day? You be the judge. There are some factors that can go against the white-collar worker, the most important of which is lifestyle factors. Living in a fancier house, spending more money on fancier vacations, buying fancier, more expensive cars.

Those things can go against the white-collar worker. But on the whole, everything is tilted in favor of them becoming wealthy with or without a 401(k) plan. And it's my opinion that the 401(k) has a relationship more of correlation to their wealth than of causation. That statement is not rigorously researched.

It is not verified by statistical analysis. It's an opinion drawn from observation. It could be wrong, but I have not seen any evidence that it is. As I close today's show, I want to make one thing very, very clear. None of these factors are an excuse for not becoming wealthy if a person has that as a goal.

The blue-collar worker can become wealthy. Every day on this show, you hear me talk about the strategies, tactics, and techniques that lead to wealth. None of these are exclusively available to somebody because they come from the upper-class elite or because they come from the lower class. It's available. And the information is here available every day, just on my show, if nowhere else.

There's no reason why you can't become very wealthy in a blue-collar occupation, especially if you have access to some of the tools. I think here I have a listener of the show that's corresponded with me somewhat frequently who works as a truck driver for one of the large packaged companies.

And this listener is a millionaire. They've worked at this packaged company as a truck delivery person for a long time. They listen to my show and many other things while they're doing their work. They have access to a 401(k) and that's a blue-collar profession, but they become very wealthy, high income, good access to these structures, and the 401(k) has worked effectively.

There's no reason why you can't use the tools at your disposal. So I don't make any excuses for where someone is. But this is why I discount the value of a 401(k) because it's not the fundamental cause. The secret is not getting people to contribute more money into a 401(k).

What was it? A few years ago, President Obama lobbied for and passed the MyRA program. Remember that? I haven't kept a close eye on the program over the last couple of years. But it was talked about as being a way for people who don't have access to a 401(k) to be able to gain access to an investment account that is simple, that allows automatic contribution from their paychecks into this account and thus make it simpler for them to save even if their employer doesn't offer a 401(k).

Is there anything wrong with that? Well, because the accounts are invested in government securities, that tweaks my conspiracy bug a little bit that one of the primary motivation may be to build and continue to build a market for government securities, but that's hard to prove. This tweaks me a little bit.

My major complaint is it's not going to solve anything. I haven't seen what's the participation and what's going on with that program, but it's not going to solve anything. The reason that poor people don't contribute money to retirement accounts is not that they don't have access to a retirement account.

If you had the knowledge, the income, the inclination, just because you're poor doesn't mean you can't go down to a computer, use a computer at your local library or use your phone, open an account at Vanguard.com and put money into an IRA that gets automatically deducted from your bank account.

You don't need something special, a special program created, a whole new structure called the MyRA for you to participate. You don't need it. The MyRA program is not going to help poor people. What's going to help poor people is learning to make more money, increasing income, learning to be more thrifty, to be as frugal as possible in their circumstances so they can save more money and learning to invest wisely.

If I were bulk up poor, earning a low income, I would not be buying government securities as my primary tool of investment. I think that's a dumb way to approach investing, especially when you're at the beginning of your career or at the lower levels of career earnings. I don't think my discussion here is comprehensive.

There are other factors as well. For example, there's a correlation between people who have access to 401(k) accounts to have access to other types of benefits. White collar workers have much more stable financial lives than do blue collar workers. A white collar worker who has access to a 401(k) plan probably also has access to other programs of insurance.

They have access to group health insurance. A white collar worker who has access to a 401(k) plan and access to group health insurance is going to worry less about the month-to-month needs of their household. If something happens that's difficult for them from a health perspective, they're going to be more well-covered.

They probably have a group disability program. They probably have a health insurance program. They have vacation time, sick time, et cetera. So they're going to be able to get through difficult circumstances more easily than a blue collar worker. This leads to a more stable financial life. This leads to them being able to save more consistently over time.

Blue collar worker generally doesn't have access to many of those programs, often doesn't have access to group health insurance. If they have health insurance, it's often going to be what they've found in the broader marketplace. Many small employers don't offer health insurance programs and so they may be going with whatever they can find on the Affordable Care Act, Obamacare health exchanges online, which those programs are not – they're not exactly Cadillac programs.

In addition, there's a higher degree of uncertainty in the financial life. They generally don't have access to nor are they educated about something like disability income insurance. The white collar worker, if they get laid off, often gets laid off with a severance package of some kind. If you get laid off from a job working as an electrician, there's no severance.

You go find another job. Often a white collar worker will have a much more stable flow of wages. Many times in the blue collar professions, wages will fluctuate significantly based upon the amount of work that your employer has. If you're working in the construction industry and your employer is struggling for work, you simply get furloughed without pay and you have to wait for that employer to get more jobs or you have to go and find a different job with a different employer.

So there are many other factors. We could analyze this question forever. But this is the fundamental reason why I am not convinced that a 401(k) is the massive golden ticket to wealth. If you have access to a 401(k), you should very seriously consider participating. I have things I don't like about 401(k) plans.

That should be evident. But I'm not – it's not cut and dry. I think in general, you always want to take advantage of the employer match. That's free money. You always want to take advantage of the employer match. You probably want to take advantage of additional contributions to the 401(k) because for most people who have access to a 401(k), the only thing they can do to improve their tax planning is to make contributions to the 401(k) because they're employees and they don't have other areas of investment.

The only thing they can do is to make contributions to the 401(k) and so that's probably the best thing to do. In addition to that, many times, the people who are participating in a 401(k) have their primary career and that should be their primary focus because the earning potential of focusing on that career is going to be higher than just about any other activity.

So if you have access to a 401(k), you probably should make that a primary tool of your wealth-building plan. But don't confuse that tool with being the cause of your wealth. Simply not. The cause of your wealth is going to be increasing your income to a high level. When you have a higher income, that makes it easier for you to live a nice lifestyle which when approached with an appropriate amount of thrift can leave many tens of thousands of dollars available for you to save and invest.

So high income, reduce lifestyle through thrift, free up a lot of money to save and invest. The more money you can free up to save and invest, the richer you'll be in the future and then focus on investing that wisely. Focus on doing that within the context of the 401(k).

That will reduce taxes, search very carefully on the fees and expenses of the program, you want to lower those fees and expenses as much as possible, and study carefully your asset allocation to maximize the potential for long-term return. If you do that consistently over the course of a long career, you very likely with a high degree of probability will wind up having a lot of money in your 401(k) and I'll rejoice with you about that.

But I won't think that it was access to the 401(k) that made you rich. I'll repeat ad nauseum, you got rich because you earned a lot of money, you saved a lot of money and you invested wisely. That's Joshua's myth busting on 401(k)s. Don't confuse causation with correlation. Thank you for listening to today's show.

That's it for today. If you'd like to support the work that I do here to help me get rich, I don't have a 401(k) but I'm still getting rich. If you found value in this discussion and you'd like to contribute directly to it, please consider becoming a patron of the show.

Figure out how much this was worth to you or how much my show is worth to you on a monthly basis. Take 10% of that number and sign up at RadicalPersonalFinance.com/patron and send it to me, RadicalPersonalFinance.com/patron. I'm deeply grateful to several new of you patrons who have recently signed up in the last few weeks, deeply grateful for your contribution.

RadicalPersonalFinance.com/patron. This show is part of the Radical Life Media network of podcasts and resources. Find out more at RadicalLifeMedia.com. Struggling with your electric bill? Get an energy assist from SDG&E and save. You may qualify for an 18% discount. Visit sdge.com/fera to find out more.