Epic Real Estate Investing - 401K Millionaire: Fact or Fiction? | 808

Episode Date: October 17, 2019

Matt discusses the recent headlines that the number of 401K millionaires hits an all-time high. That’s factual, but what’s actual? Tune in and find out! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit R-E-I-Aase.com.

Here's Matt. Hi, I'm Matt Terrio, CEO of Epic Real Estate. And have you read the headlines lately about 401ks? They're all over the place. The number of 401k millionaires, it's hit an all-time high. That's factual. But what is actual? And what do I mean by that?

Let's take a look. And let's look at how it impacts you specifically. And you deserve to listen until the very end. After I'm done, if you'd like some help and you want to brainstorm some ideas about what your next steps are, At the end, I'll show you how to do that, okay? Okay, so let's dive in. As hard as I've been on the 401k over the years, let's give it a little bit of credit.

I mean, after all, things are looking up for the 401K, right? The average balance, it's up 6%. And the number of 401k millionaires is at an all-time high. So it is indeed a plan that you could follow. It's not a great plan, but it's definitely better than no plan at all. I mean, if you voluntarily enroll in a 401k, it will force you to save.

And historically, it does indeed produce a noticeable return. I mean, if you're okay with 4, 5, 6%, maybe 7% on a good day, and you're okay giving up control of your finances to someone else, hoping that they do a good job for you, then it is an option. And it looks like this. So let's look at this axis here. Okay? The vertical axis represents our cash flow.

That's our monthly income that we would like to receive in retirement. That would allow us to live comfortably without having to work. work. And then here's our time. And right here, this is the retirement date, 60 years or so. And here we are right now. All right. So the goal is right here. This is the deadline, so to speak. And to live comfortably in retirement, it's going to be a different answer for everybody. But what I'm going to use is just the median household income in America, which is about 5K a month. It's about 4,300 bucks a month. I'm just going to use 5K, be a little optimistic, and keep the math simple as well. So 5K a month, that's what we're looking for. So right there at

5K a month, we want to hit this. And coincidentally, at 5K a month, if you were to receive 6% on your retirement account on your 401k in retirement, that balance would have to be $1 million. So right here is what we're looking for. This is little mark right there. When these two intersect, we want to hit $1 million. All right. And that's at 6%. And you can live on $5,000 a month. You expect to receive $5,000 a month indefinitely.

Okay. So here's the plan is you start here, wherever you are, and you start putting money away into this 401K plan. You start locking it up because you can't touch it until you hit this retirement age, right? So he just lock it up, saving, saving, saving, saving, saving, saving, and then boom, on this magical day, if you did everything correctly, you've reached up to a million dollars, and now you can enjoy your retirement indefinitely. So this number, the people that are hitting this, is at an all-time high. So what would it take for you to reach that one million

dollar mark in your 401k. Because people are now doing at a bigger rate than ever. And the total number of 401k millionaires are at an all-time high. And that is factual. It's 196,000 of them to be exact. Sounds like a lot, doesn't it? But not so fast. You see, there are almost 60 million people enrolled in 401ks of which makes our 196,000 401k millionaires. They amount to less than 1% of the 401k participants. less than 1%. 0.2% is the real number. And that is actual. In Fidelity and Vanguard,

the two biggest 401K facilitators report that the average 401K balance today of 65-year-olds is $209,984. The average 401k account value for an investor, 65 years and older was $209,984. Now, this sounds like a good number. And it is a good number, but there's a problem.

That number is pulled higher by a smaller number of super savers and high income earners, the medium balance where half have more and half have less, that's what you want to look at. Among those 65 and older, look, it's a measy $64,811. And if that were you, and you were accustomed to making $60,000 a year during the years that you were working, your 401k will hit zero within one year of retirement. If you're one of the fortunate ones and you retire with the average balance of $200,000, then that only gives you a few more years before you're tapped out too. And it's back off to the workforce you go. Welcome to Walmart comes to

mind. And maybe I'm being a little facetious with that particular comment, but you do indeed see people well into their retirement age greeting you as you entered the store, don't you? Was that a part of their plan? No, it wasn't. But it is now their reality. So what's the point of the 401k if three or four years after you've retired, you've got to go back to work. If that's your end goal, then, hey, it's a good plan. But if that's not where you want to go, why would you even entertain a 401k as an option? Locking up your money for decades that won't get you to where you want to go is insane. That's a plan to fail. The 401K, it's a broken vehicle that's been sold to you as a solution. It's not enough, nor will it be. I mean, even if you do it right,

Most people don't make enough money to save enough. And even if you did, the government won't allow you to put enough into it annually that would get you to where you want to go in any reasonable amount of time. Yeah, but still, how can you turn down the employer match? It's free money. And my 401K, it's done great the last decade. It's working for me just fine. And Susie Ormond, she said this and Dave Ramsey, he said that. I know.

I've heard it all before here in the comments. And I can understand why this conversation, why it upsets so many. But don't get mad. It's just math. I mean, regardless of how you may feel about the subject, it's not going to change the math. Listen, if you're happy with where you are financially, then don't listen to me. Keep doing what you're doing. And if you are happy with where you're headed, are you sure you're going to end up where you think you are?

Some people are making it to a million dollars. The headlines are telling us that more and more people are making it happen. So what are they doing that 99.8% of the others aren't? You want to know, right? Yeah, so did I. So I did a ton of research on the necessary steps that one needs to take to become a 401k millionaire. And I filtered out all the naysayers. I pushed aside the skeptics and the cynics.

And I only listened to the advocates of the 401K in search of their. specific instructions to make the 401k produce $1 million by the age of 60. And I found these 401k experts. They're everywhere. People love this thing. I found them on CNBC TV, on CBS, New York. I saw them on Time magazine. I found them on Fox Business News, and I found them on CNN business.

I mean, imagine that. What other subject will you ever find Fox and CNN to agree? There was no shortage of advice to be had, and they all agreed on how to make it happen. the consensus of how you play the 401k game to win and indeed become a 401k millionaire in five simple steps per the experts, I'm going to give them to you. Number one, sign up for the company match if your company has one, because only 49% of employers with 401K plans will match even a portion of what their employees contribute. Two, contribute the maximum.

At least 15% of your income is what the experts recommend. 15%. Three, invest aggressively for growth. Exact words by many. The translation there is invest at a high level of risk. You know, Jeannie Thompson, senior VP at Fidelity, says, Because it's really like running a marathon more than a sprint, and you have to know where you want to go. If you invest too conservatively, you won't get there. You won't get there. You won't get there. Number four, don't react to market swings or cash out when changing jobs. Five, start early. specifically in your 20s, they say. Jack Otter of Barony says,

probably the single most powerful element in a long-term savings plan is time. And Jill Schlesinger, she's a certified financial planner, she's an Emmy nominated and Gracie Award-winning business analyst for CBS News. After giving her version

of this very same advice, she said, you put 15% away every single year, forever, until you retire, you may not have a million, but you're going to have a lot of money in there. And you promised. Well, I promised you'll have a lot of money.

I didn't say a million. So if you are fortunate enough to have a company or work for a company that will match your contribution, and you can afford to contribute 15% of your income for life, and you invest aggressively with a high level of risk, and you start no later than the age of 25 years old, those are the essentials to which all of the 401K heroes agree. Still. You may not have a million, but you're going to. to have a lot of money in there. If you do what they say, you still may not have a million dollars in your 401k. That's key because per recent Charles Schwab survey, the average American doesn't

even believe the gold standard of stashing away a million dollars is enough anymore. And that 1.7 million is more likely the number to retire. What will that number be when you're ready to retire? You know, if you follow the expert advice to a T, the math says you've still got a nine, 99.8% chance of missing the $1 million mark. And that should cause you to think. It should cause you to wonder, why are so many experts, fans of the 401k if the statistics they share won't pan out

for 99.8% of the people that they're giving this advice to? I don't have the answer. But it makes you wonder, doesn't it? It's like the guy that lost 40 pounds on the Twinkie diet. I mean, he proved it can work, but unlike the certified financial experts, he did also say, don't try this at home. The 401K is the twinky diet of financial plans. Don't try it at home.

So what do you try at home? Well, if 5, 6, 7% returns inside of a 401K, if that's not going to get you to where you want to go, then it's time to turn to an alternative. And you've probably got a really good idea that I'm going to suggest something crazy like real estate. And if that's what you were thinking, you'd be right. And sure, we can debate the risks, we can debate the strategies, we can talk about your bad tenant experience all day long, but the real deal about real estate is the ROI. And it has no rival.

Nothing comes close for the average person. So when considering all of the profit centers of real estate collectively, it doesn't take any extraordinary effort to exceed 30% return on investment. I mean, in this hand, I've got a 401k producing 6%. And then over here, my real estate is producing 30%. The point right now is that's a five times difference between the two. When you extrapolate that math and actively participate just a little bit more than you are right now in your 401k, you're going to see that you can reach your financial freedom goal up to 10 times faster.

Whoa, 10 times faster. Are you insane? You pulled that number out of thin air, didn't you? Is that what you're thinking? Well, not really. Let's look at it this way. Hold on. Can you show me a 20-something 401k millionaire? Here, I'll save you some time on this one. You can't. That 20-something 401k millionaire doesn't exist. The math won't allow it. And even if it did,

the government won't allow it with their annual contribution limits. But can you show me the 20-something real estate millionaire? Here, I'll make this one easy on you too. Meet Parker and meet Brad. and meet Corey, all epic clients of mine who happen to be 20-something real estate millionaires. And I'm not pointing them out to brag about me, but rather to demonstrate that I didn't have to look further than my own clients to find you three examples. Or how about Catalina, Josh, and Tony? They're not in their 20s, but they are indeed real estate millionaires. And none of these people were millionaires when we met.

and I've been working with them all less than five years. And that's where the 10 times math comes from, as they, in four years, have achieved what 99.8% of 401K participants are failing to do in 40 years. Then you got Jack and Josh and Mora and Daniel and Russell and Greg and many others all on their way and very close to real estate millionaire status. And when you look at the math like this, it's really now no long. a debate as to whether a 401k is good or bad as it has more to do with your current plan right now is it getting you to where you want to go in the time

that you want to get there so do you want to be a 401k millionaire or does it really matter how you become a millionaire as long as you become one if it's just the millionaire thing that you want to become all stats overwhelmingly point to real estate to making it happen for the person. And so with that said, I don't know, do your own math. You know your situation better than I do. And if you like your result after you've done your math, then stay the course. But if you don't, when would right now be a good time to do something about it? One thing that the 401k experts do have right, and that is to start early. Put time on your

side. And if you feel you're getting a late start, hey, don't worry about that. When you get started is important, but nothing can make up for lost time like real estate. All righty? God bless to your success. I'm Matt Terrio. Bye for now.