Epic Real Estate Investing - Why Shouldn't I Invest in My 401K | 743

Episode Date: August 13, 2019

The question “How much I should put in the retirement account?” has so many variables that make the whole debate absurd. Tune in and find out why Mercedes would never recommend investing in 401K and what other solutions she has for you. Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. So you want to be a real estate investor, but you don't want to do the work. If there were only a way where someone else could do it for you, now there is. Tune in here each and every Tuesday on the Epic Real Estate Investing Show for Turnkey Tuesdays with your host, Mercedes-Torres. Hello and welcome, welcome to Turnkey Tuesdays brought to you by Epic Real Estate Investing. My name is Mercedes Torres, the turnkey girl, and I'm lucky enough to be partners in crime with Mr. Matt Terrio, the guy who created the epic real estate empire. This is real estate investing for busy people.

Busy people just like you who understand the importance of real estate just don't have the desire or the time to do it yourself. So if this is your first time here, glad you made it. Make yourself at home. If this is not your first time here, my friends, welcome back. So I get a lot of questions about cash flow and investment properties, financing, retiring. I know it's surprising, right? You know, one other common question I frequently get is how much should I be putting into my retirement

plan, whether it's a 401k or a 403B, an IRA, or a few other retirement plans that are available, and for the majority of the people, the conversation is quite similar. I mean, depending on what's important to you and a number of factors, you can easily find out what's an appropriate contribution amount for your goals. But what if I told you? What if I told you? that for most people, I just don't recommend contributing to an investment vehicle like a 401k or an IRA at all. I dare say for most people. Now, ladies and gentlemen, here is my disclaimer. I am not a financial planner.

I am simply a real estate investor who has been investing in real estate for about 14 years. and I have achieved financial freedom for having my money work for me rather than for me working for my money and parking it into a 401k or an IRA. And not investing in any retirement vehicle because it just doesn't make financial sense for me. Now, that's not to say that a 401k and an IRA may not be a good strategy for you. But for me, I know that I make more money than what I could possibly make with my money parked in an IRA or a 401k than I can produce in real estate. Now, I say that for me part because some people are perfectly content with making, 1% of their money. And if that's you, then great. You know, others are very okay with a nominal

match from your employer. And if that's you, that's perfectly okay. Just be realistic with yourself. Don't lie to yourself and don't expect to get rich or wealthy or even, I dare say, don't expect to retire with the funds solely in your 401k or your IRA. And if that's you, then maybe you should consider other investment vehicles. So there is something known as industry standards. And as in general, the overall finance industry pushes the idea that everyone should be putting at least 10% of their income into their retirement accounts in order to save for retirement. Now, I'm sure you've heard that.

And if you're going to do this, just be realistic with yourself. You'll never be able to retire. My friends, just do the math. For the majority of the people, this isn't bad advice. However, it's not going to make you rich. or wealthy, nor will it allow you to retire just slowly on one of these investment vehicles. But in reality, this is just like any other blanket statement that doesn't really make sense to a lot of people. Financial questions like, how much should I put into a retirement account, have so many

variables that you simply cannot use a broad statement to approach when answering it. That's ridiculous. I mean, think about it. Just really think about it. And if someone barely knows your situation, they're in no position to offer you advice that would make a financial difference for you. This is what I call the peanut gallery. It's that group of people in your world that always have something to say, that always offer financial advice, and most likely they're in worse off positions than you are financially.

and they're offering you advice. And this is why I harp every week on know your numbers, know your financial position, and even more importantly, know your goals, your financial goals, that is. Because if you have a number, whether it's a number that you need to achieve in cash flow at the end of the month,

or whether it's a number that you, a dollar figure, that you want before you can tell your employer that you're retiring or that you're quitting, know your numbers. You're probably thinking, all right, Mercedes, now, why shouldn't I contribute into my retirement plan? Let's hit on the pros and cons of retirement plans, and then I'll hit on my points as to why I say that investing in a 401k is something that I never recommend. I'm going to start with a few pros, okay?

Okay, so number one, what's one of the pros in investing in a 401k and a retirement vehicle? Well, there's potential tax benefits. Most retirement plans offer some sort of tax incentive towards savings. This is one of the main reasons. It's become a popular vehicle. This retirement savings. Usually, in some form, there is a tax deduction or a tax. tax deferment or even a tax exempt.

And for that reason, investing into a retirement plan, that's a great blow. Also, number two, your employer, if you're currently still working with an employer that's offering you a 401k, they offer an employer match. And if you're still employed with a company that still matches to your contributions, well, then that's a plus. It's very common for an employer to offer a match. And it allows you to put money away that's, you know, match. So if you, for example, put $100 a match or excuse me, $100 a paycheck, your company may match by the same $100 or they might even match 50% of that.

Every employer is different and no, that is dictated by your employer. So an employer match, heck, it's free money and there's nothing wrong with free money. Number three, it's a creditor protection plan. I like to call it. Many people don't realize that there is creditor protection offered by retirement plans. So if you ever find yourself in a position that a nasty account lingers for like nonpayment, for example, or if you're ever facing bankruptcy, assets in your retirement accounts may be offering additional. protection against creditors. Okay. And number four, simplicity and assistance. Most retirement plans offer help with like setup and onboarding process. And if you're still currently employed with an employer, oftentimes it's done by a human

resource department that handles all the onboarding for you. And they also should offer help in selecting the vehicles in. inside the plans that hopefully make the most sense for you. And so for those of you that have limited knowledge in financing and investments, this could be a really big help for you. Okay, so there are a few pros to investing in your 401K and retirement vehicles as such like IRAs.

Now, here are the cons. And I would consider them huge cons. Number one, the loss of access to money. Unless you're willing to pay, you know, the penalties and the taxes, you aren't allowed to access your plan until you reach a retirement stage. Now, you will get penalized if you choose to dive into these funds and you will get taxed if you do it beforehand. not to say that you can't do it, it just comes with a penalty. So that's number one. Number two, loss of control.

Once the money is inside of the plan that you choose, you are limited and you cannot control, you're limited to choices and you can't control what can be done with that money. Most retirement plans have limited investment options for. you to choose from. And by putting your money into these plans, you're automatically limiting your options for what you can invest in, like cash flowing real estate. It's not to say that you're not able to invest in them. You're just completely limited to what you can do. You've lost the control. Because if you were to use your money in a 401k to purchase an investment property, Note, the property is owned by your 401k, not by you.

Huge difference. I can talk hours about this topic, but you do lose control of what you're able to do with the funds that you park in one of these investment vehicles. Number three, fees. You may not realize it, but you are paying fees in order to participate inside a 401K plan and no one tells you that. There are investment fees, there are plan administrative fees, there are service fees, and several other forms of fees you're paying that you may not even know about. This can become a huge deterrent in a mission to build wealth because every month, inevitably,

these fees will happen. In fact, investing in a 401k does the exact opposite. It hinders your ability to create wealth. Now, let me give you a few examples and my thoughts. First, the thought process boils down to really understanding your personal desire and your willingness to build wealth. If you are truly committed to creating financial freedom for yourself and building wealth, there are much better ways to build wealth than to stock money into a 401k plan each year and hope that your return outpaces fees by enough to have serious growth. By the way, my friends, hope is a horrible strategy.

Here is where I think people should consider anything other than a 401k. and I will share what I think are really good areas to consider. Number one, a side hustle. Whatever it is that you can take that money that you would be putting into a 401k and you created a little job for yourself, whether it's a service-related or whether it's selling reuse stuff on eBay, it is going to serve you better than money parked in a 401k. Number two is open your own business.

Could be a hobby turned into a business, but open your own business where you have control over it. And number three is one of my favorites, real estate. If you park your money into a property that produces cash flow, that alone can be your retirement. Take, for example, the money you're contributing into your 401k and really understand how much money it's making you each month by having it parked there in a 401k. Now take that same exact amount of money and park it into a vehicle that is going to produce, for example, a 9% cash on cash return. Think about it. You can buy a property with 20% down, a 20% down payment and the bank will come in.

with the rest. The 20% down payment can come from money that you have either sitting in your 401k or that you are going to, instead of contributing to our 401k, use it as a down payment to your property. Then you rent the property. Your tenant pays you rent every month and the rents collected will help you pay down the mortgage. Eventually, you pay your property off and, and, you pay your property off and the amount of money you've made every month, I assure you, is probably going to be more than what you would be making if you park that money in a 401k or a similar retirement vehicle. There are just a few areas where many people, including myself, are making solid money and growing wealth by taking the money that I would be putting, into a 401k and actually investing in into real estate that produces cash flow for me. Now, I want to point out some really important key factors.

Number one, you've heard me say it before that the average millionaire has seven streams of income. Whether the exact number is seven or six or nine, it's certainly a isn't just one source, and it almost always isn't just a 401k or a retirement plan. Think about that. Number two, saving small amount of money today isn't going to make you rich. Or, at least, it won't for a very long time. And in order to build up that wealth early enough to truly enjoy while you're still in the prime of your life and not just pass it on to your errors, you need to invest in areas that are going to provide

you sizable returns. Number three, locking your money up for 40 years just doesn't sound like a smart way to make money along the way. If you're locking it up, chances are you are not maximizing your return. Number four, I don't know about. you, but I want to live my life today and I want to plan for tomorrow. Why only plan for tomorrow, my friends? It all goes back to what I'm always telling people. Investing in a retirement vehicle is an incredibly personal and unique decision. And whether you choose to do it now or whether you choose to do in a future, it's really all about your personal decision. However, there's something to it. Behind every personal decision when it comes to finances, there should be a mathematical equation

attached to it. Because at the end of the day, if you have a goal and you don't have a plan to reach that goal, like I said, hope, parking your money into a vehicle. and hoping it's going to grow, that's not a plan. Now, if you blindly follow the standard recommendations that you hear from the peanut gallery or from personal finance industry that don't really understand your goals, you might not be aligning your actions and your own personal goals and desires to what you want your end goal to be. And it's certainly not going to be moving you forward.

to the lifestyle that you want. The problem with all of this is that most people don't really want to do the work that it takes to obtain financial freedom and they aren't willing to make the sacrifices that are necessary. Here's what's really important. Many people aren't clear as to what that retirement number is. So you blindly investing into a 401k in an IRA without a set plan, a goal, or really a number, so important, my friends, a number, then you're just spinning your wheels and doing nothing. And when it comes to real estate, if you're not a real estate investor and you're not savvy when it comes to real estate, it could be. be really, really scary. The decision to invest your money outside your retirement plan and into an

investment vehicle like passive income, it's certainly a personal decision, but the best part of real estate is one that can be overcome with a lot of help. And you can actually create passive income in your world with someone holding your hand. while you learn. It's not like a 401k where you just place your money into the black hole and you hope it grows. Passive income and real estate, specifically turnkey passive income can make a difference. So you just need to ask yourself if you're willing to do what it takes to build wealth and be honest with your answer and be honest with your timeline, then you'll know if it's right, for you to really figure out a number to put into your 401k every month or to contribute into an IRA

or should you consider investing in real estate where passive income is going to contribute trifold to your financial future? And honestly, this isn't about me right now, my friends. this is about you putting your money to work and allowing you the opportunity to create financial freedom for yourself and your family. My friends, I always offer the opportunity to reach out to me or somebody in the office to just have a conversation about your investment plans, your investment vehicle, or that magic number that you need to create for you in your life. Don't get stuck in the rat rice, my friend. Don't get stuck in the rat race, my friend. It is a tiring, exhausting, and often a never-ending journey.

If you don't know your number and you don't have a goal for that financial freedom that you are tying to reach, feel free to reach out to me, my friends. Send me an email at Mercedes at epicrealestate.com. Reach out to me and I will be more than happy to have a conversation with you about helping you create your number, or who knows, create passive income in your world with turnkey real estate. That's it today, my friends. I hope that I was able to get your wheels spinning and at the very least to help you think about that number that's going to get you to achieve financial freedom. My friends, until next week, have an epic day.

Your portfolio has seen better days. This two shall pass. And the best for you is yet to come. Together, we'll get you there faster. We're Cashflow Savvy. And we'd like to share some information with you that will show you how you can take control of your financial future and accelerate its arrival.

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