Epic Real Estate Investing - Why You and Your 401K Don't Stand a Chance | Financial Freedom Friday

Episode Date: April 18, 2014

There's no shortage of articles one can find revealing the flagrant fundamental flaws of the 401K, but there are two bigger reasons to avoid this retirement vehicle like the plague that no one ever addresses. Today, Matt Theriault shares what they don't want you to know. ------------------------- Download Matt's free real estate investing course "How to Do Deals | No Money Required" at FreeRealEstateInvestingCourse.com or text FreeCourse to 55678 "Click" what interests you most:    Education Properties Income Coaching Learn more about your ad choices. Visit megaphone.fm/adchoices

It's time for Financial Freedom Friday with Matt Terrio. Hey, you got a second. I want to talk to you about something that I get really excited about. You know, the 401K. The 401K experiment has been just an absolute disaster for most people. You know, when the market crashed in 2008, investors saw years of dedicated savings just get totally wiped out. And what that did, it forced Americans to cut back on their lifestyles

and delay their retirement to even a later date. And that's not their fault. That's what makes it so sad. I mean, they were just doing what they were told to do using a totally inappropriate plan to save for retirement. You know, the 401K, it doesn't work. And it doesn't work because it has two huge problems. First of all, it's incredibly complicated. You know, when you put your money in a 401K, you build a portfolio out of a huge mix of stocks and bonds. And, you know, once you've picked your investments, you need to monitor them day and night.

As the market is always changing, the market changes day and night. This is a daunting task even for professional investors. Regular Americans never had a chance. Second, on top of being complicated, the 401K is based on the wrong retirement mindset for the new economy. It focuses on growing your limited savings for some far and away point out there in the future that may or may not arrive. And since the amount that you can save per year is limited, it becomes nearly impossible to put away enough to hit your goals in a reasonable amount of time. It doesn't have to be this way, though.

You can make a 401k withdrawal and move your money into investments that aren't complicated and do work. You see, the key to financial freedom is using an investment that grows your income, not your savings. And if you can grow your income every year, it opens up a whole new world of possibilities.

Best of all, you benefit from your investments today as well as in the future. The key to making this happen is through residual income. This is income that comes from your investments, not from your labor. And because of this, residual income is also known as passive income. You know, in the world of real estate, you also may here referred to as cash flow. And I mentioned that because one of the more accessible and manageable methods to creating residual income from most people is through rental real estate.

And here's why. One, once you get a property up and running, you'll start to collect rent payments each month with little effort. Two, this also means you've put your money into something real and easy to understand. You know, instead of trying to analyze complex financial formulas, you just need to be able to determine if this particular house is worth living in, and if someone will pay you each month more than what it costs for you to own it. And three, since people need shelter, you are investing in an asset that won't fall out of demand. So once you get your first rental property off the ground, you're going to feel this boost in your monthly income. And it may be small at first, but a boost nonetheless.

And this is going to make it easier to manage your living expenses. Plus, it's going to allow you to save more for your next passive investment. And once you save enough, you can invest in another property and keep growing your resources. residual income. And if you keep repeating this process, you'll find that it's a significantly shorter journey to financial freedom than the busted 401 vehicle. And also you'll find that there's no limit to the amount of residual income that you can create. No limits. So financial freedom can start with a 401k withdrawal. Okay, okay, settle down, settle down. Before you get all excited, I know there is a cost to making a 401k withdrawal. Possibly a size of

one depending on your situation. And sadly, you know, this is why many investors feel trapped and don't want to move their money out of their 401K. But just for a second, let's put these costs in context. You know, when you take your money out of your 401k, you'll owe some income tax on the entire amount that you withdraw. What most people don't realize, though, is that you're going to pay these taxes no matter what. There's no getting around it. Even if you waited until retirement, there's no getting around the tax. And since these taxes are unavoidable, They're a sunk cost, and they shouldn't even be part of your decision. Now, the other cost of a 401k withdrawal is the 10% early withdrawal penalty.

This penalty is charged on your entire withdrawal, and it's in effect until you turn 59.5. That's why they call it the early withdrawal before 59.5. And there's no way around this penalty either. It's an unfortunate extra fee. However, let's do the math. Compare this fee to your potential extra income. How long will it take for you to recoup? this money back in rental income, maybe a year, a few years, or maybe just six months.

You know, everyone's going to be different. You see, once you recoup this penalty, the cash flow from your rental property from that point on will be pure profit for you to enjoy right now and in retirement. Ultimately, that's what you're saving in a 401k for anyway, right? To save enough until it will create a residual income for you in retirement. Well, why wait until you're retired when you can do it right now. That's what they don't want you to know. The powers that B don't want you to know that. And they are never going to tell you that either. They are never going to tell you that the 401K is a broken investment vehicle. And they're not going to lay out the true pros and cons of the income tax and the penalties associated with the 401k either.

They refer that to, they actually refer to them as taxes and penalties. Big nasty words. They do that to scare you from taking control of your money. They're nothing more than a cost of doing business. And you should view them as such, because this is business. It's your business. Now, for some of you, depending on your age and depending on the amount that you have in your 401K, it might make sense to sit tight.

But for most of you, I doubt that's the case. And you don't have to take my word for it. Just do the math. That's all it is. It's a math equation. It's just pluses and minuses, and then there's an end result. There's a final number. Don't let the labels like taxes and penalties.

Don't let those labels get in the way of your pluses and minuses. Don't let those labels delay your financial freedom. Cut yourself loose from that 401K trap. Get out of this broken investment vehicle as soon as you're able and move your money into investments that actually work. You see, once you unleash the power of residual income, you'll never look back. and you'll sit there and you'll look and you'll scratch your head and wondering why you didn't do it earlier.

In fact, for most of you, you'll look back a year from now and wish you started today. So if we can help, we'd be happy to. Go to cashflow savvy.com, download our free investors package, and then we'll help you with the math. And then you can look at your options in black and white, and then you can decide what makes the most sense for you. Okay? See you next week on another episode of Financial Freedom Friday. This podcast is a part of the C-suite radio network. For more top business podcasts, visit c-sweetradio.com.