Morning Wire - America's Growing Retirement Crisis | 9.3.23

Episode Date: September 3, 2023

Personal debt, high inflation, and rising interest rates are all plaguing today's consumers. Explore the secrets to achieving financial security in today's challenging economic landscape. Steve Davis, CEO of Total Wealth Academy says Americans are taught all the wrong financial lessons. Get the facts first on Morning Wire. This podcast interview is provided for informational purposes only and should not be construed as an endorsement or recommendation by the podcast host, producer, or associated entities. Learn more about your ad choices. Visit podcastchoices.com/adchoices

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Night my way. Forever. I just love my job. Get tickets now. The Devil Wears Prada 2 in theaters May 1st, directed by David Frankel. More than a third of Americans now say they are. in the highest personal debt of their lives. Credit card debt, auto, and student loans, and persistently high inflation are all weighing on consumers, especially millennials in Gen Z. Among older Americans,

the average retirement savings account totaled just $65,000 in 2019. That's much less than needed to enter the golden years. Our guest today says Americans are learning all the wrong things about money, income and investing. I'm Georgia Howe with Daily Wire editor-in-chief. John Bickley. It's September 3rd, and this is a Sunday edition of Morning Wire. Joining us to discuss the struggles with growing wealth in today's economy and some strategies for doing so is Steve Davis, the CEO of Total Wealth Academy. Steve, thanks so much for coming on. Oh, my pleasure. Thanks for having me. So it's clear that Americans are struggling financially. The majority are now saying they're

living paycheck to paycheck. First off, why do you think that's happening? And is this a new phenomenon? If so, what's causing it? It's actually been going on for decades. It's been going on generation after generation. And it's because we're passing on what I'll call the wrong map. We're all given a map to get to success, first from our parents, then from our high school teachers, then our college professors. And the map goes something like this. Work real hard in high school, try to get the college, go to college, get a degree, get out, get a job with a major corporation with high pay, good benefits, scrimp and save in a 401k or IRA, work for 45 years,

speculate in the stock market, retire and live off your savings. The map doesn't work. The average 65-year-old has about $170,000 after working 45 years. So what are financially successful people doing differently? Well, if you study the 5% who are retiring successfully, almost all of them have a side hustle. They have a second stream of income. And it's based off something Warren Buffett said, never depend on a sole source of income, a job, always invest to create a second stream of income. So he wasn't referring to stocks or mutual funds, gold, silver, or crypto, because they don't produce cash flow. He was referring to income producing assets like businesses and primarily real estate. Just to clarify a little bit, you said only 5% of retirees are successful. How are you defining

success? This comes from, I first picked it up from Robert Kiyosaki's book, Rich Dad Poor Dan. And to me, a successful retirement means it's always called the golden years, right? You're supposed to be able to travel. They always show the older people on the beaches of Greece. That's a bunch of bull. The golden years are a golden lie. People are not retiring with income. They're retiring with savings.

And the problem is that no matter how much you save up, You know what you're praying as soon as you retire? Dear God, please kill me before I run out of money. Not a good way to live. Successful people are building second streams of income that come in whether they live 10 years or 20 years or 50 years in retirement. It doesn't matter because the income continues to come in. So for me, a successful retirement is not $170,000 in savings, having to become a greed, at Walmart for the next 10 years. If you look at the statistics, it's something like 70% can't retire,

10 or 15% retire anyway, but their burdens on the government or on their children. It's a horrible situation. Now, how much money would you say you need in the bank to retire successfully if you were to not have a side hustle in this particular economic environment? Sure. Wall Street just came out with an article that says it's $4.3 million. Wow. And the reason I think they went so high is because most people have their money in an IRA or 401K. If they've got any savings at all, it's in a retirement account. Well, they owe taxes on that.

So 4.3, you reduce for taxes and you're right around $3 million. $3 million, if you take the 4% rule, is going to come out to $10,000 a month. That's a pretty nice quality of lifestyle if you've also got a couple grand coming in from Social Security. Now, something that a lot of young people worry about is whether Social Security actually will be there for them when they retire. Do you expect Social Security will be around in the future? You know, I think they will. I'm 58. I remember when I was born, people saying, oh, Social Security's going out of business that's not going to be there.

They've been saying that ever since I've been alive. So my opinion, yeah, I think it's still going to be there. So what should the average adult of working age do now to change their financial position? They want to switch from speculation into actual income-producing assets. And I'm a proponent of real estate because real estate changed my life. And it's responsible for anywhere from 70 to 90 percent of the millionaires in the world today used real estate as their main investment. vehicle. If you go back 100 years, Andrew Carnegie brought that point up. He said 90% of all millionaires became so through real estate. So it's brutally consistent. The other reason real estate is

so effective is because for every dollar you put in a piece of real estate, you make money four ways. Equity capture, equity buildup, appreciation, and cash flow. As Americans, if we're going to retire, if we're going to see the golden years, you've got to have cash flow. Okay, and when you say real estate, are you thinking primarily like homes that you'd rent out, apartments, commercial? What do you think is a smart real estate investment for the average person? Well, it depends on how much money they got to work with. If they've got, say, 50 grand, then they should start with single family houses.

If they've got 70 grand or more, they should look at apartments and commercial passive investment. I'm a passive investor. That's all I do. I run my business as my career, but all of my monies in real estate as a passive investor. I don't manage the properties. I don't see the properties. Somebody else does all of that, and they just send me a check. Now, we often hear about young people saying that they can't afford the American dream of owning a home with what's happening in the real estate market. How can young people get into real estate these days? You know, that comes down to education. The problem is that buying real estate effectively, even a personal residence, requires an education. That education is not in high school or college.

You've got to get it on your own. So there's hundreds of books, there's seminars on real estate investing, there's workshops, boot camps. They need to educate themselves and not, rely on a realtor. Realtor's are wonderful people, high value, but they know nothing about investment real estate. They only know how to sell other people's real estate. So you can't rely on a real tour to teach you this stuff. You need to take a course on real estate investing, even if you're just buying your own home. Now, one of the buzzwords we often hear is diversification, but you've said that you actually have all of your assets in real estate. Do you think there's still value in diversifying your portfolio? Andrew Carnegie put it this way. Put all your eggs in one

basket and spend your entire life making sure nobody kicks over your basket. Now, see, nobody knows he said that, but everybody knows the poor and middle class belief don't put all your eggs in one basket. The millionaires and billionaires are focused. They focus on one thing and they do it with exceptional expertise, and that's how you get wealthy is by focusing. Now, Jerome Powell has warned that 2% inflation is the ultimate goal. What would your strategy be for the current high interest rates? It's obviously putting a lot of people off buying real estate right now. Do you think it's still worth it to jump in?

You have to be very cautious. We're still buying. We bought two or three apartment complexes in the last 30 days, but they are deeply discounted. The sellers are becoming aware that they've got to lower their prices, and I don't see that happening in single-family. I think it's going to take a few more months,

maybe six more months, before single-family sellers realize they can't sell the property for what they could when the interest rates were lower. So I think single-family homebuyers should be patient, watch for the prices to drop, which I believe they will, and commercial apartments, self-storage, senior living, and so on,

those sellers who are more sophisticated are already dropping their prices. But yes, we have to get a better deal now than we did a year and a half ago. All right. Well, Steve, thanks so much for coming on. Thank you for having me. I really appreciate it. That was Steve Davis, CEO of Total Wealth Academy. And this has been a Sunday edition of Morning Wire.