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On TikTok, the go-to social-media site for Gen Z, a new thread of retirement advice is taking root that is contrary to decades of financial planning, and it has money experts alarmed.
Using hashtags #money, #401(k) and #retirement, some influencers on the site are saying the 401(k) is a scam — and, more worrisome, that there’s a better retirement solution. And it’s a hill they’re willing to die on.
What would they rather you do? For the most part, the gist is to take any tax-deferred contributions you might make above your company’s match and put it toward variable life insurance policies of one sort or another. One of the most popular suggestions is indexed universal life (IUL), which is a kind of cash-value life insurance policy where you pay premiums to build up value based on the performance of the S&P 500 index or a similar measure. Another is called maximum premium indexing (MPI), which is a kind of hybrid life insurance and retirement plan that gets billed as an alternative to Roth IRAs.
These kinds of products are sold on commission, of course, and the posts about them are not always public-awareness campaigns. The proliferation of these messages has angered financial advisers, who say that this is bad advice and prevents the good messages to get through.
“It makes you want to just slam your head into the desk,” said AJ Campo, a CPA whose firm is based in New Jersey and who participates in social media through LinkedIn, Facebook and #taxtwitter discussions. “TikTok is just littered with horrendous information.”
What’s so wrong with the 401(k)?
The general argument against tax-deferred savings in workplace retirement accounts is mostly about the restrictions — contribution caps; limited investment choices within plans; rules for accessing money before age 59 ½ (unless qualifying for a hardship withdrawal or taking a loan); taxes on withdrawals; and required minimum distributions at retirement age. The Money Mom, for instance, says, “The 59 ½ rule, I’ll just never be OK with that.”
There are, indeed, some legitimate concerns about 401(k) plans. Financial pros perennially debate the value of target-date funds, which are widely prevalent in 401(k)s, because of their high fees and varying strategies for investment management. Congress and the IRS are also constantly changing the rules with legislation like the Secure Act and Secure 2.0, so obviously, it’s an imperfect system that can be tweaked.
But these influencers are attacking the idea of tax-deferred savings, as well as the value of consistent savings in a segregated account for retirement. The videos make tax-deferred savings sound old-fashioned, slow and worthless, even though such plans are considered the cornerstone of sound retirement strategy by most experts. The life insurance products they promote offer get-rich-quick promises instead.
But any form of variable life insurance involves a complicated contract that comes with high fees and concerns about investment management. There are also rules for access to money, and there are also tax issues. It’s not a product that is good for every situation, so people should read the details carefully and talk about the suitability of the investment with a professional who is a fiduciary — meaning the adviser is bound to work in their best interest and is not concerned about their own commission.
“It’s bull—, complete bull—,” said Ramit Sethi, founder of the advice empire of I Will Teach You To Be Rich. “The amount of scams for whole life insurance, indexed universal life and all their associated cousins — it’s hard to believe.”
Why misinformation rules
Getting popular on TikTok is not about who is most right, however. “If you want to make a viral video, you go after somebody’s sacred cow,” said Brad Klontz, a financial psychologist and certified financial planner. And you do it while putting on makeup, or some other visual gimmick while you talk to the camera.
Klontz said he thinks his credentials, which include eight books and decades of experience, actually work against him in social-media zones geared toward quick hits to lure in young viewers. “I’m a doctor, and it just hurts you on TikTok, really,” he said. He now creates videos for the site, trying to figure out how to counter the misinformation out there.
“You have to be compelling and establish relationships,” Klontz said. “I know a lot of really good financial influencers who give out good messages, but you have to make it interesting to watch.”
One of Klontz’s more successful videos wasn’t on a financial topic at all — but was on a study technique for young people. Another was a video that followed his young son walking through a casino, with the message: “My son is only 9 years old and he already knows that the ONLY people flexing luxury brands on social media are BROKE AND INSECURE.”
“You’ll be poor forever if you have this mindset. But I have to take my message and make it interesting, so I don’t sound like a professor,” said Klontz.
Campo said he wishes Klontz and others like him good luck. “You could have a full-time job going on TikTok to dispel the misinformation there.”
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