Hi. My name’s Lotta, Lotta Cash (sadly, no relation to Johnny).

I used to have a fabulous, exciting, highly productive, rewarding life, but now…

I’m in prison.

Yep, that’s right, locked behind bars doin’ time for a crime I didn’t commit. In fact, I’m not really sure why I’m in here at all…all I know is that my master, Kung Fu Girl, just locked me up here one day after telling me it was “for my own good”, and I’ve been stuck here ever since.

Man, I hate it here. I used to be so productive! She invested me in income-producing real estate once, and I earned her $2000 per month. Another time she used me to purchase some physical precious metals, and boy, did those ever work out well for her! I was constantly moving around, from asset to asset, having the time of my life and creating a lot of value for her!

But how did she repay me??? By sentencing me to 20+ years, no chance of parole (unless, of course, she is willing to eat some big-time fees). So now I’m stuck. And there are so many rules and regulations here that I can’t do hardly anything for her anymore. Her company only gives her 10 options to choose from for me in her “plan”, and they are all pretty crummy—mainly stock and bond mutual funds with high expenses (and it’s hard to even determine just exactly how high those expenses really are!).

I hear some other inmates at some other institutions don’t have it quite as bad…some have access to brokerage accounts and other/better investments.

But not me. Sigh…all I have is hope. Maybe someday she’ll roll me over into an Open Opportunity IRA and let me have a little more freedom again!!!

But right now, while I’m still in this lousy 401k, I’m stuck. Trapped. Cornered. Jailed. Forever (well, for the next 20+ years….a loooong time).

Even if she changes her mind and wants me back, she can’t have me! She can’t get me out of here until she’s 59 1/2!

Man, I could’ve been someone, y’know? I was going to make her rich…


OK, thank you Lotta, Kung Fu Girl is taking back the reigns now…

So I’m sure you’ve guessed that today we have the second way in which your 401k just might not be the dream investment vehicle you thought it was…

2. Trapped Capital

When your money is locked away in your 401(k) it is “trapped”. You have little to no control over what you can do with it or when you can use it. It is not available for you to withdraw or use (except for an exceedingly small set of circumstances in which you can take a penalty-free distribution or loan).

It is “trapped, unproductive capital”, which we talked about in this earlier article, and it is stuck in your 401(k) until you turn 59 1/2.

(Now, as we discussed yesterday, if you have zero financial discipline, you might view this “untouchableness” as a good thing…but the lesson here is to know thyself, grasshopper!)

But if you do have some financial discipline and would prefer a little more control and choice over your investments, too bad…your 401(k) money is stuck.

You don’t get to decide or control when you get your money back…your government decides this for you. Currently this means that you cannot take it out until you are 59 1/2, and then you must start taking it out when you are 70 1/2, no exceptions. (Uncle Sam wants his taxes…more on that forthcoming!)

Contrast this with productive, free capital that YOU control, which can be moved in and out of productive assets to earn a return that increases free cashflow income in the present. (Doesn’t that sound good?)

We have been brainwashed to think of retirement as this distant, far-away event, “the point at which you will finally have ‘enough’ money to retire”.

This causes us to focus primarily on “growth” during our early working years and not on “income”—we’re not supposed to want “income” from our investments until we are Seniors and finally retire years from now at age 65 or even later.

But this is crazy…cashflow is a critical part of sound investing, and where many “smart money” investors make the bulk of their money.

But not in a 401(k)—your cashflow options there are extremely limited (generally just expensive bond funds, and maybe some dividend-paying stock funds). Ick.

I am not telling you to hurry up and dump your 401(k) (I am not your fiduciary and have no idea what your personal situation is), but what I do want to do here at Kung Fu Finance is to challenge your thinking and encourage you to think for yourself!

Seek out different/better answers and decide what you want your retirement to look like and when you want that to happen.

For me, that means I’m working on growing my cashflow assets now to cover my expenses and provide for my future, not “hoping” the stock market will go up enough in 20+ years so that I can retire then.

I won’t lie to you, it’s not easy… But then, nothing worthwhile in life ever is.

To your financial success,

—Kung Fu Girl

“Research your own experience; absorb what is useful, reject what is useless and add what is essentially your own.”  —Bruce Lee, Wisdom for the Way