Why The Old-School Way of Retirement Is Broken – Episode 234

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[00:03] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler. Hello listeners. Welcome to this episode of the Prosperity Podcast. Today I have my co-host, Kim Butler, are you there? Yes. All right. We have an interesting topic because this topic that we’re covering today is something that actually affects everyone because the old school way of retirement no longer applies. And so people can no longer put the money into CDs or bonds or these things that were predictable for our parents or grandparents. And now they have to find this happy place between risk and growth.

[01:00] So Kim, we’re going to turn it to you so you can help us navigate and understand where is that happy place? I love it. Well, let’s first address the old school retirement idea because it is truly something that has only been around for maybe three quarters of a century. I mean, this idea of retirement did not exist in biblical times. It did not exist in the early part of even the 1900s. And yet somehow today, our society thinks that retirement is what everybody should do. And yet, thankfully, finally, some people are realizing, oh my gosh, you know, this isn’t going to work. And not only does it not work financially, which we’ll talk about in a little bit with this idea between risk and growth, but it doesn’t work on so many other levels

[01:58] for human beings. I was so thrilled to hear just the other day, my son, who’s a senior in college, graduating in about six months, says to me, Mom, some of my friends are starting to say that they don’t really want to retire either. Like they don’t, you know, they look at their parents or their grandparents and they think, gosh, that’s not how I want to live my life. And of course, he knows that’s just music to my ears because I’ve been preaching this do not retire message for gosh, as long as I can remember, at least 25 or 30 years, because I know strategic coach Dan Sullivan is also preaching that same message. And it’s because retirement does not work socially for us. It doesn’t work emotionally.

[02:48] It doesn’t work physically. It doesn’t work psychologically. And there’s so many other issues of humanness, of human being, if you will, that retirement is just not good for. And yet, because our society has this thing and there definitely are people that will be retiring, how do we do it? Like, how do we find a good measuring stick for risk? How do we find a good measuring stick for growth? And then more importantly, how do we find a happy medium in between the two? I think that’s really the question. Yes. I think that is the question. And with that, do you still look at it as a projected date until when you can no longer work or is that out of the equation? I think it should be out of the equation.

[03:40] Now, understanding that for some people, it still is in the equation. I’ll happily address it. And I will readily admit that we have clients that are going to, quote, retire. Just because I personally don’t want to doesn’t mean that everybody feels that way. But I will say that for the younger set, please, please find work you love and plan on doing it until you no longer physically or mentally can because that’s so much better of a way to live life. And take sabbaticals. Take long weekends. Take more time off. Create your life so that you don’t have this old school retirement, which says I’m going to or this old school thinking about retirement, which says I’m going to work like crazy till I’m this magical age 65,

[04:27] which, of course, means, frankly, nothing. And then I’m going to like not do anything or I’m going to, quote, retire. My husband’s definition of retirement is to take out a service. And human beings were made to serve. And so being taken out of service is not a good thing for us. So we can understand that. And yet, at the same time, let’s shift the discussion and say, OK, if you are going to shoot for that and arguably maybe at age 80, we might want to shoot for it or 90 or whatever age is appropriate for you, then how do you do it? And the challenge as we talk here in late 2017 is, as you’ve stated it, it’s a challenge of a monetary decision between risk and growth. And a lot of times we will put those two things in the same category.

[05:21] So we might say, oh, in order for our money to grow, it needs to be put at risk. Well, I disagree. That is typical financial planning. That is Wall Street talking. And it is not accurate. Your money can grow and not be at risk. But there’s a more important thing if you are going to retire, and that’s cash flow, income. And you could say, well, if my money’s growing, then it’s creating income. That is not accurate. Now, there are occasions when we can get both. But typically, if you have your dollars in something that is going to grow, that’s more of a net worth play. That’s taking 100 grand and making it 200 grand or whatever. Income is taking that same 100 grand and making sure that it can kick off,

[06:16] I’m going to use 8%, $8,000 a year every single year so that I can live my life. Because that’s what retirement requires, is income. And there’s a huge distinction that we need to make between growth and income. And I love being able to make this distinction. Because in the typical financial planning world of today, the Edward Joneses, the banks, like the CDs that you were talking about, the Charles Schwab accounts, Vanguard Fidelity, et cetera, et cetera, et cetera, those guys are scrambling, trying to figure out how to create income. Whereas in our prosperity economics world, if I can be so bold, we know exactly how to create income. And it’s because cash flow is one of our main seven principles

[07:11] of prosperity. And it’s something that we teach people how to do early on. Because you don’t want to be 60, 70 years old and having to, for example, roll over your 401K and make this huge decision of, here’s my half a million, million, whatever number it is. And I’m all of a sudden going to now try to invest for income. That’s a really scary decision. Whereas if you’ve been focusing on income all along, you’ve learned how to invest to create cash flow, it’s a much easier decision. Now, wouldn’t it actually be easier to be going after cash flow than creating a large amount of wealth? I mean, if you think about it, that’s putting money into a bridge loan or into another side cash flow project.

[08:05] Isn’t that easier than accumulating millions and millions of dollars? It is. And it’s funny that you bring that up because the bridge loan environments also have the lower minimums. And so for people starting out, it’s absolutely easier. And yet we do still want to have the ability to have our money grow because a growth reinvestment has the potential for maybe 9% or 10% or 11% or even more percent per year. Whereas an income-oriented investment tends to hover around that 7%, 8%, maybe 9% or 10%. And yet what you said is very accurate. It actually is easier to create cash flow if you know what you’re doing. And so that’s a role that we play. We can help people learn how to create cash flow. We can help people take baby steps so that they’re investing a little bit

[08:59] and literally practicing because there’s nothing that builds financial confidence like investing in something that throws a paycheck into your account every single month. I mean, you want to talk about confidence? Just get that paycheck for literally as little as two or three months, and all of a sudden you feel like you actually know what you’re doing. So the other piece to this equation is an unknown, but it’s something that we all fear. And it’s something that we all have to be involved with, even though we all hate it. And I’m talking about taxes. So what’s the difference of focusing on cash flow versus focusing on those growth vehicles when it comes to taxes? Absolutely. So a lot of times a growth vehicle is not

[09:44] going to be taxed while it’s growing. Now, forget the fact that we’re talking about maybe an IRA or 401K. Let’s just set that aside and deal with pure after-tax accounts because they’re going to be more on a level playing field. There is a big mistake that a lot of investors make, and it’s letting the tax tail wag the financial dog. And so we can laugh about that and say, all right, yes, I understand. I’m a little obsessive here about not paying tax. I get that. I don’t like writing checks to the government either. But the fact is, if you can have a cash-flowing investment that’s going to earn you, say, 7% or 8%, pay some tax. Really, earn 7% or 8%. Be happy with that. Pay some tax. Net that down to 5% or 6%, or whatever

[10:33] it’s going to be based on your tax bracket. And go on down the road. There are way too many times that we do things for taxes, that we don’t do things for taxes, that we’re too focused on paying tax and not focused enough on just being grateful that we have an awesome cash-flowing investment. That is so true. And I think the other piece to that is we don’t know what’s going to be in the tax law next year. Absolutely. So we have to go forward. I mean, in particular, this year with a bit of a blind spot. So be it. We have to go forward. And earning cash flow is way more important than is it going to be 30% or 33% taxed. That’s really nothing that we can control. And I’m a big believer in focusing on what we can control.

[11:22] So get your cash flowing and get that income. And then if you’re in the younger set, it’s super important that you have a place to put that income. Because clearly in our early stages, we don’t want to be spending that money. We want to be keeping it moving within our economy. So a very obvious one, of course, is premiums for life insurance. If you’ll invest in a bridge loan, let that pay you monthly income. Use the monthly income to pay premiums and pay the petitions for cash value life insurance. That will build that other asset up. It’ll keep that cash flow out of Starbucks and Nordstroms and wherever else it might get spent and enable you to build another asset, which then, by the way, we can borrow against and do more bridge loans.

[12:10] We have a very nice little velocity of money movement or a multiplier, if you will, because one dollar is creating cash flow, which is then paying your insurance, which is creating five or six other benefits, which then builds more dollars to create more cash flow, which creates five or six more benefits. And we just keep going around and around and around. That absolutely sounds like the way to plan things correctly. Now, you have an ebook that you’re offering to our listeners. Can you tell them what that ebook is and where they can get it? Yes, it is called Financial Planning Has Failed, and it is available only at this particular website, which I’ll give here in a minute. And the benefit of the book

[12:51] is it will elaborate more thoroughly on these bridge loans that you and I’ve talked about, a little bit of information on how to use the life insurance, and then how to use the two together. So Financial Planning Has Failed is available as an audio book, and it’s at partners4prosperity.com slash ebook. So there’s a physical download that you get right away, as well as the link to the audio. And again, that’s partners4prosperity.com slash ebook. Well, Kim, thank you so much for spending time with us today and going through and explaining what we should really be focusing on, on that cash flow. And to echo that, again, to get that download is at partners4prosperity.com forward slash ebook. Awesome.

[13:45] Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partners4prosperity.com. If you liked this episode, make sure you subscribe and leave a review.