The concept of retirement you have been taught is a lie!
Billions of dollars of marketing, and hundreds of thousands of financial advisors & so-called “experts” will tell you saving 10-20% of your income for 40 years will make you financially independent.
(Don’t worry. I have an answer at the end of this.)
Let me explain why….
Figures Don’t Lie, But Liars Figure
I read an article from Ben Stein, actor and economist, shared an experience he had as a boy in the 1950’s. He told his father (an economist at Harvard) that he learned the world would run out of food in the following 10 years. His father assured him it wouldn’t happen. Ben insisted that “figures don’t lie.” His father’s response was, “Figures don’t lie, but liars figure.”
Notice this Twitter post from Dave Ramsey….
Most of us would say, “It must be true.” However, if you use an online calculator, you’ll see that his math is wrong. You would have $979,000! Almost $200,000 less! He can’t even get that number right. And that’s not adding to the fact that the market DOES NOT get 12% returns consistently. Although the S&P 500 index “averages” more than 10% a year, actual yields are less than 8% a year. And those numbers don’t include fees or inflation. Read more about that HERE.
What about inflation? If we calculated inflation on a conservative number of just 5% per year (Shadow Stats has this actual inflation number much higher), your “real-feel” amount would be $139,000.
What does this mean? It means in 40 years, you would feel like you only had the equivalent of $139,000 today. Now understand that many financial advisors are advising retirees to only pull out 3% a year to allow their money to last the rest of their lifetime.
That means saving almost $1 Million in 40 years, pulling out $30,000 a year would only feel like $4,200 a year! Being a millionaire in 40 years could feel like poverty! Nailed it!
So how much would you need to save earning 6% and dealing with 5% inflation to pull out the equivalent of $60,000 a year (before taxes)? In other words, how can we save $2Million (after inflation) to live off 3% a year ($60,000/year)?
Here we go!
Saving for 40 yrs?
– Need to save $7,350 A MONTH ($88,200 a year) to accumulate over $14 Million (equivalent to $2,000,000 after inflation)
Saving for 30 yrs?
– Need to save $8,830 A MONTH (almost $106,000 a year) to accumulate $8,646,000
Saving for 20 yrs?
– Need to save $11,650/month (almost $140,000 a year) to accumulate $5,308,000!
Can you save that much?
Does this depress you? It should!
THIS IS WHY I QUIT BEING A FINANCIAL ADVISOR MORE THAN 8 YEARS AGO! I COULDN’T STAY IN INTEGRITY RUNNING NUMBERS THAT OVER-PROMISE BUT WILL UNDER-DELIVER!
It’s nearly impossible to save your way to live a middle class lifestyle!
“Thanks for the depressing topic, Chris. So what’s the answer?”
ANSWER: FOCUS ON CASH FLOW GENERATING INVESTMENTS/BUSINESSES
I learned quickly in 2006 that I didn’t need to save $2 Million to retire. I did it with closer to $2,000!
I generated streams of income that didn’t require me to be full time. In fact, I only worked about 2-4 hours a week in my business, and made about $4,000-$4,500 a month. Remember, based on traditional planning’s numbers, you would need to save $1.5 Million to live off of 3% a year ($50,000 a year).
This rocked my world! From that moment on, I realized that I wanted to create businesses where I could leverage systems to generate cash flow. This is why I am one of the few people out there teaching business owners to forget about retirement accounts, and focus more on increasing profit and systems in their businesses.
The cool thing is that we’re making sure their personal finances are in order too!
Even if real estate is your focus, I have clients that can generate that kind of income with less than $300,000, even if property values never increased! If you had $300,000 in a retirement account, a financial advisor would recommend you only pull out $9,000 A YEAR! LAME!
If you believe stuffing money in mutual funds is the way to go, I would have you consider waiting 5-10 years when you hear more Baby Boomers talking about this “Retirement Scam.”
Oh wait! They already are! , TV shows like 60 Minutes, have already done shows on this topic.
Do what’s proven to work – invest for cash flow. Avoid doing things that haven’t worked for decades – saving in retirement funds.