401k vs. Real Estate – Video

How’s your 401/IRA been doin’? Are things goin’ as planned?


Transcript:   Hi this is Jeff Brown the “BawldGuy”. Today we’re going to talk about 401ks and why I think they’re terrible for your retirement, especially versus real estate. One of the things that I say is this: you’re 30-35 years old, you’re making decent money, you’re going to make more money, you’re getting really good at what you do, you’re putting anywhere from $3,000 to $15,000 a year and then you brag about the match your employer gives you because that’s free money. If I’ve heard that once I’ve heard it a million times. I wish I had a couple of bucks every time I heard it. And then you say I’m going to end up with x amount of million dollars and here’s what I’m going to do. Here’s what I tell people, the average 58 year old American doesn’t have six figures in their 401k, less than six figures. But let’s say for the sake of argument you end up, after 30-35 years, you’re 65 years old, you end up with a couple of million bucks. You’re not going to do that! Very, very few people are, but let’s say you did and let’s say you’re going to get 7% on that. Again, it’s a fantasy but let’s just say you did. That’s $140,000 a year. You’re naked at tax time every year, you have no deductions, that $140,000, state and fed taxes taken away, is going to turn into a whole bunch of $100,000, maybe not even that. We’ll use that round figure, though. That means if you saved $150,000 in taxes in the thirty years or so that you built up that $2 million dollars, it took you four years to pay more in income taxes than the 30 years it took you to get there that you saved. Why are you doing that to yourself on purpose? Seriously! Now, that’s just the beginning. That’s the tip of the iceberg. When you turn 70 ½, less than six years from retirement, they’re going to call you up, more likely than not, and they’re going to tell you you’re not taking enough money, Fred. You need to start dipping in and cannibalizing your principal. Now you’re in the race of a lifetime and I don’t mean that as an analogy. The race is the day you die versus the day you run out of money. Isn’t that a pleasant thought? But that’s the race Uncle Sam’s going to put you in starting at 70 ½. Not always, but more times than not. So here’s an idea. Let’s say you’re 45 years old, you’ve built up more money than the average guy’s got, you’ve got a quarter million dollars in there. I’m telling you right now, if that’s from a roll over 401k that you haven’t put into your current employer’s 401k, it’s just sitting out there, you can do a lot of things with that. Here’s what I advise; Take it out. Convert it to some other kind of asset. We’ll talk about what you might do later. But the number one thing you’re going to do is you’re going to take control of it and you’re probably going to pay taxes. You might even pay a penalty, although normally we figure a way out of that. The bottom line is, just as soon you’re going to end up with 50 cents on the dollar because Uncle Sam’s going to be that brutal with you. But here’s why I would tell you to do it. At 45, you can do far more with $125 in 20 years than you can with $250 in 20 years. And, when you’re done after that long period of time a couple of decades, you are in charge of it, not Uncle Sam. They can’t tell you to change the cash flow. They can’t tell you, you can’t sell it or they’re going to nail you here or nail you there. And your menu has about 16 other pages to it. The bottom line is you’re in control. Stop going for the bait. The only difference is when you have a 401k with a huge match is that when Uncle Sam pulls you just another fish on board in retirement, it just means you’ve got two hooks in your lip with two worms. Don’t go for the bait. Get out while you can. Take control. You’ll make a lot more money. You’ll retire a lot better. This is Jeff Brown the BawldGuy. Thanks for being here today. I’ll catch you next time.

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About BawldGuy

I'm second generation real estate, first licensed in fall of 1969. Having been mentored by several iconic brokers, I'm also CCIM trained, having completed all 200 hours back in 1980. Have successfully executed well over 200 tax deferred exchanges, many of which have been multi-state in nature. Strong points are analysis and the creation and real world application of Purposeful Plans employing several strategies synergistically. The idea is to arrive at retirement with the most after tax income possible, backed by the largest net worth.

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2 thoughts on “401k vs. Real Estate – Video

  1. Greg

    “Don’t go for the bait!” That is the simplest advice possible. I know too many friends that do that. The best I can do, short of telling them they’re doing it wrong, is share what I have done, and that’s dump the 401K.

    I’ve already given a presentation in front of software developers showing my application that analyzed the last 60 years of S&P 500 numbers. It was to demonstrate a particular programming concept. I just used 60 years of financial data as my data set, subtly showing that it SUCKS. I drew the attention of a couple of them, and am glad I did.


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