Reaching The Tipping Point – Episode 025

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Again, lucky enough to have my co-host and bestselling financial author, Kim Butler. Welcome, Kim. Thank you, Todd. Very happy to be here today. We’re going to be talking about retirement today, which those of you who have listened to our shows in the past knows that as a concept, we absolutely don’t believe in it. Retirement, the definition is to literally to be removed from service.

[00:55] I think of like an old hacksaw blade or something being tossed out in the trash can as retirement, and I don’t think anybody wants to be treated that way. I think we need to have purpose, we need to create value. We’ve talked about that before, so we’re not going to go there now, but according to the Wall Street Journal, there is now more money coming out of 401Ks as there is money going in. So again, millennials are saving less and baby boomers who are retiring are spending more. So we’ve reached the tipping point where we’re draining the entire retirement system. What do you think of that, Kim? Well, I think it’s time because it will help people wake up to realize that the 401K is maybe not the best thing since sliced bread.

[01:51] Before we go there too far, a hacksaw blade? Where did you come up with that? That is a very visual image, an old hacksaw blade. I had a job when I was a young kid and I forget what I used to have to cut up, but I would start with this box of hacksaw blades every morning and you would cut until you couldn’t cut anymore and then throw that one away and put a new one in. And when I think of retirement, that’s what I think of, is I think of this box of blades just kind of chucked away to the side. And I don’t mean that in a negative way to anybody. What I mean is that, like I said, people need to be able to create value for other people. And there’s a lot of people who retire and do that through volunteering

[02:36] and all kinds of things. I just don’t ever want to be set aside. Set aside, taken out of service. That’s our favorite definition of retirement, for sure, and definitely not a good one. So, yes, back to this 401k article. It is amazing that that’s finally taken place, that the transition has occurred where there is more coming out of the 401ks than going in. And I’m disappointed that it’s they’re identifying that it’s because people aren’t saving as much because clearly we need to get our younger people saving better. But if I were a young person, I wouldn’t want to save in the 401k either. And we’ve gone over this before, but I think it’s so valuable to be clear that one of the biggest problems with the whole 401k environment is it

[03:22] goes directly against our seven principles of prosperity. Ten ways till Sunday, I guess you could say. I realize we only have seven, but that’s not the same. It’s ten ways till Sunday. Why is it ten? I don’t know that. But if we look at these seven things, we can see not only what’s going on in the millennials minds, but we can maybe see what’s going on in the retirees minds and why that switch over from funding to withdrawals is happening. And the scary question is, what is that going to do to the stock market? Now, of course, we don’t have a crystal ball, but you feel like taking any stabs? Well, the first thing it says is that the retirement industry itself needs to be worried because those of us who are paid by people who work inside the

[04:15] retirement industry, the underfunding will cause problems there first. My personal thing is I want to take this positively. I want to think of the fact that the people are finding more constructive things to do. Like, say, for example, instead of putting your money into a 401k, you bought a rental property that wouldn’t be demonstrated in these figures. But yet you still would be helping your cash flow and preparing for the future. Absolutely. So if we do take a look from the savers standpoint, anything that we can do to build our own wealth, where it’s in our control, where it’s helping us think from a prosperous standpoint, where we’re paying attention to opportunity costs. And that’s, I think, what’s keeping a lot of

[05:05] the millennials from putting money in the 401k is good. They’re paying attention to opportunity costs and realizing that 401k money is locked up till 59.5, which means I cannot use it for anything else. And that’s a real biggie. And then furthermore, they can’t move it. They can’t multiply it. They can’t create cash flow out of it. And so consequently, they’re not contributing to it. And that is all good. From the retiree side, we want to take a look at what is happening that the retirees are starting to pull more money out. And obviously, this is a necessary thing when they start to need that income. And it helps, again, further our message, which is to keep working. If you are 65, 70, you’ll want to keep working because people are going to

[05:54] live so much longer these days. And inflation is just the biggest drain on our wealth. And inflation gets worse the longer our time frame goes. So a 70 year old person that could easily live 30 or possibly even 40 years, a healthy 70 year old could live to 110 these days fairly easily. The impact that inflation has on those dollars are critical. And so taking money out of the 401K, while it may make the most sense to go ahead and get that money out of the stock market, get it used, we need to make sure that those people are still working and possibly even saving the money. So they may be taking the money out of the 401K, paying the tax, which is obviously the necessary step that has to occur.

[06:41] But then ideally, they’re working so that they’re spending their working income and they’re saving their after tax 401K into some type of an environment where maybe it’s never taxed again or maybe where some very good dollar growth can occur so that their monies are able to beat inflation. Got it. And would just like to point out that when we talk about 401Ks, most 401Ks are invested in some type of a fund. The fund is in some way invested in the stock market. The stock market is an auction process. This is the simplest way to think about it. And if a lot of people start removing money at the same time, we’ve talked about the liquidity issue before. If you go to an auction and they’re auctioning 10 cars and there’s a

[07:36] thousand people there, people are probably going to get a pretty good price for their car. If there’s a thousand cars and 10 people there, you’ve got the opposite type problem. So if a lot of people start removing money from the 401K, removing money from the stock market, the price of the stocks themselves start to decline. And that means a bigger percentage of your total retirement is being taken out. So 10,000 out of 100,000 is a lot less, I guess, than 10,000 out of 200,000. So your amount of time that you’re going to have to live on that money is going to be less because of a lot of people moving that money out all at the same time. Did I make that more complicated or simple? Well, I think it was a good illustration.

[08:30] And I guess if we get a lot of questions on it, then we’ll know that it was complicated, but we’re always happy to help. We welcome questions coming into the blog. You can send those in to Kim at partners number four, Prosperity.com or our hello at P4P E-Zine, which is where we email you from on our client E-Zine and our newsletter and that has links to the blog posts, both the podcast blog and the printed blog. So we’ll know soon, Todd, if we complicated it, then we’ll get more questions and that’s awesome. We’re always happy to help. Let’s talk a little bit more about some ideas that people that are taking money out of their 401Ks could do. We’ve got a couple of alternative investments. We can just do a quick summary on those so that people are aware

[09:20] of where 401K dollars could be invested in if they were able to keep working and spend their working money and continue to save their 401K money. Which one shall we tackle first? Got it. I think the first thing I would like to tackle is those of you who are retired and now have control of those 401K dollars. I’d like for you to address the concept of a self-directed IRA. What is that and why would I want one? Sure, a self-directed IRA is often used when it’s time to roll over the 401K into an IRA. One of your choices is a regular IRA, a rollover IRA is technically what it’s called, which basically would be back into mutual funds in the stock market and right in the same problem, except that instead of at a company, it would be with you individually, hence

[10:11] the name individual retirement account. But a self-directed IRA is the same type of IRA umbrella, so there’s no taxation, there’s no penalty if you are below 59.5 For moving the money from the 401K plan to this self-directed IRA, the difference is that the self-directed enables you to invest in alternative investments, typically non mutual funds, stock market oriented. And we have two that we absolutely love to work with that we’ll just briefly cover here. And then when it’s appropriate, typically those minimums are 50 and a hundred thousand dollars. Oftentimes you have to be an accredited investor to invest in them, but not always. And so there’s some specificity that we would need to have in

[10:59] a conversation, but the self-directed IRA will open up the door for you to have these alternative investments be available to you, whereas a regular IRA typically does not. Got it. And speaking as the no BS money guy, I want to remember back to 2008 when we saw the big market correction and then remind everyone that we have seen some pretty incredible returns in the market, especially 2010, 2011, 2012. I really believe that we are probably at that correction point again. So the big buzzword now is non correlated investments, Kim. Well, non correlated means that they don’t flow up or down with the stock market, that they either don’t move around at all, or they certainly don’t go down with the stock market.

[11:54] And so a non correlated asset is going to protect your wealth and make the principle be sustained in the time of a market crash or correction. So whether you think we’re having one sooner or later, almost every client that I talk to realizes that we will have one at some point and we really like these alternative investments because they aren’t correlated. They have, in fact, literally nothing to do with the stock market. And that’s a very valuable environment because we don’t have to worry about stock market crashes or corrections cutting our 401Ks in half. The old joke of my 401K is now a 201K is kind of funny unless it applies to you. Got it. And just so that everybody understands, with a one

[12:42] year commitment, we are seeing rates of return of about seven percent. We’re also seeing some liquid accounts that you could use to accumulate money, again, paying in that four to five percent range, which compared to what they’re offering at the banks these days, I think is is is very, very much encouraging. But again, we were talking about the self-directed IRA. I would anybody who has money that is under their control retirement money, people who have gone ahead and retired or maybe you’ve moved to another job and you have a retirement account, I challenge you to educate yourself about the self-directed IRA. Kim, are you back with us? Yes, and it is a very helpful tool. And picking back up on our alternatives, we’ve got

[13:32] just nice low double digit returns available. There’s a couple different environments that we have. Some of them are a little bit longer term, more like seven or eight years, but places where income can get created. Cash flow so important these days for people to be thinking about whether it’s cash flow to use to pay your life insurance premium, cash flow used to live on or cash flow used just to continue to reinvest. Those environments, these alternative investments all create some type of cash flow, some of them a little more regular than others, but very helpful tools to make available. And again, our hardest and fastest rule, rule number one is don’t lose money. And our rule number two is don’t lose money.

[14:20] And then what’s rule number three? Think about cash flow, not net worth. So again, there are investments out there that are safe, we’ll get you those rates of return. Again, just thinking outside the box a little bit, we invite you to go to partners, the number four, prosperity.com. And Kim, I think you got a gift for our listeners today, don’t you? I do, and I’m so excited to say that we have an audio book available. It’s the financial planning has failed ebook that I read took me about an hour into a microphone for you, so listeners like to listen. And that is available at partners number four prosperity.com slash ebook. There’s a PDF that you can download, but there’s also an audio version that you

[15:07] are welcome to grab. That’s partners number four prosperity.com slash ebook. And then just for the heck of it, I did have to look up 10 ways to Sunday. Yeah. And it is technically six ways to Sunday, not 10 ways to Sunday. And it simply means that Sunday is one day and there are six other days in the week. So it actually means all other possibilities except Sunday. How funny. Well, thank you. I’m very glad to have known that. Super. Well, again, this is No BS Money Guy Todd Strobel for the Prosperity Podcast. Once again, thanks so much to our best selling financial author and co-host, Kim Butler. Take care, everybody. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you,

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