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401k Plans help the average person to save up for retirement. Then again it isn’t the only way to prepare for retirement. One interesting way to look at 401k plans is not for a final goal, but as security.

Let me explain, 401k plans work great if you are looking to retire after 40 years or more of working. But if you want to retire after just a few years they are not exactly the best plans available.

There are a few reasons for this. One reason is that 401k plans are typically overdiversified and try to play it very safe. This can be an ok way to get a slow but steady growth, but if you want to make huge returns and retire early from your savings the only way to really do it is by opening your own account and attempting to learn stock market trading.

Only by trading and taking slightly “bigger risks” are you able to make higher returns on your money and thus being able to retire early. It may take some time and be a lot of work but I believe anyone can learn how the market works and learn to make a somewhat good return from it.

The slow returns are not the only disadvantages to the 401k. The 401k plan also has a maximum 401k contribution this puts a limit on the amount of money which you are able to invest for the future. Therefore if you do have some additional income after maxing out your 401k and want to invest more you may be unable to.

There is one other reason why a 401k does not work so well for an early retirement. You cannot take out a 401k withdrawal early unless you want to be hit with a 10% penalty on it.

So you cannot take money from your account without paying a penalty unless of course you are at least 59 1/2, not very friendly if you want to retire early.

On the other hand investing in a personal account means you can still invest and you are able to use that money however you want to. You do have to pay taxes on all gains that you make, however you can use it whenever you want without having to pay an extra penalty.

So, in conclusion a 401k is normally a safe way to save up for your retirement and perfect if you are not planning on retiring for a while. But if you want to retire earlier then that one great strategy you can use is to have a private trading account so you can look for the big gains, but also invest into your 401k just in case it does not work out.

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