BawldGuy Here: This is a post from quite awhile back. It struck many sensitive chords the first time out. Long time readers will also notice that there are pictures that don’t have a dang thing to do with the post. I plan to bring that practice back soon, if my poor overworked cousin ever gets any time. I wouldn’t have his schedule for all the ‘burgers at In ‘n Out.
Anywho, this post is still timely, and I’m hopeful it’ll get you thinkin’ about what you’ve always thought about 401K’s and IRA’s. Don’t get me wrong, I still help folks invest in real estate through them cuz it’s better than wavin’ the white flag. Still, if you can get out of ‘em now without too much financial bloodshed, do it. Preferably by 4:30 yesterday afternoon.
Here’s the post.
Was gonna fib and tell ya this wouldn’t be too long a read, but couldn’t do it with a straight face. It’s timely, and might explain what you’ve suspected for quite awhile.
Alrighty then, let’s get goin’.
Ask yourself why the concept of the Trojan Horse has lasted so long?
It works nearly every time, that’s why. When two sides are in direct conflict, using a proven winning strategy is, if applicable to the circumstances, very attractive. (Captain Obvious chucklin’ in background.)
One side thinks it has the ultimate advantage — only to learn, almost always way too late — the upper hand they had was a mirage, and they’d been fooled badly. Usually it ends up being an almost complete rout for the horse’s designers.
Take the (relatively) new (late ’70′s) Qualified Retirement Plans, known as 401(k)’s. A brilliant government plan applying the Trojan Horse strategy. (Brilliant government plan — oxymoronic phrase of the year?)
Where’s the war or at least who’re the two opposing sides?
Baby Boomers (And soon enough, their progeny.) vs. Government.
We (I’m a proud card carrying Boomer myself.) have been shaping the country’s economy and culture since the very first Baby Boomer was born in the first second of 1946.
And there’s the rub.
It’s nearly been all good too. We drove the economy in so many ways. First as toddlers, then as young students, then college students. Of course that’s when we started to make ourselves heard — Ahem, the ’60′s. By the way, speaking for thinking Boomers everywhere, sorry for the ’60′s. 
You see, Boomers now beginning to retire and the government can hear us coming.
We grew out of our adolescence to marry and raise families. We listened to our parents and/or grandparents, the Greatest Generation, and took their living example of courage and wisdom to heart, mostly. Life went on.
However, sweeping changes to place right before our eyes. The problem was, we didn’t know what we were seeing. Of course, it’s plain to see now, that was the plan all along.
It was the installation of the government’s own version of the Trojan Horse. Only they called it the 401(k), and later the IRA.
It was brilliant in its conception, and elegantly simple as pie in its execution. Boomers never had a chance. We were like the Trojans, drunk from celebrating our non-existent victory.
Here’s how it works from their viewpoint.
First, you must accept the premise that Social Security has been robbed, plundered, and generally bent over the bar by politicians of every persuasion. Few have offered a better imitation of Bonnie and Clyde, or better yet, Willie Sutton than they have. Next, you must be able to discern how badly it’s been managed, and the shamefully low return on investment the government has produced on our behalf. A drunken high school freshman could do better. Slowly but surely we’ve arrived at the current dilemma — there are only three workers per Social Security recipient. In the next decade or two, it’s predicted that could easily have dropped to — just two workers. Does the word ‘inevitable’ come to mind?
In other words, 2/3 of the country is working so the other 1/3 can collect. How d’ya think that’s gonna play in Peoria?
A small detour here to explain how it began as at least a little bit of an illusion in the first place.
FDR was nobody’s fool. He made a huge deal out this new program. He also did one thing to ensure, at least for the first few decades, that it would be worthless to the average American. He set the age of retirement at 65. Sounds fair-minded, equitable, right? Sure it does — until you know one itsy-bitsy little fact: Life expectancy back then hadn’t yet reached 65. Oops.
Oh. Oh indeed. It was a sham, meant, in my opinion, to appear to be solving a problem, while doing nothing but handing a placebo to the country’s aging population. Yeah, I know, nothin’ new.
Some might call that cynical.
End of detour.
So back at Baby Boomer Ranch, it’s become evident to congress and various occupants of the White House, that we’re gettin’ older — and all at once, kinda like a conspiracy. Something had to be done. What was the big problem scaring the spirit right out of them?
Social Security was about to be exposed as a farce — a building constructed upon a foundation of sand. Their secret (well they think it’s a secret) funding source was about to explode in their faces. Tick tock. Time wasn’t their friend, and they knew it.
Enter 401(k)’s.
It killed two birds with one very stealthy stone.
It took the responsibility of retirement planning from employers, and smilingly handed it to employees. The brilliance of it all, was how they so smoothly and seamlessly made it appear to be for our own good.
The Greeks would’ve been proud.
They (gov’t) said — we’re gonna allow you to save a limited amount of money each year, and we’ll give you a tax break for doing it.
That was the bait, just like the Greeks pretending to surrender to the Trojans. Troy took the bait of a Greek surrender, then invited the Greeks to bring their symbolic gesture — the wooden horse full of soldiers, inside their city walls.
Using 20/20 hindsight, it was so irritatingly simple for the government to execute their plan in plain sight, while grinning at us.
So now everyone’s deliriously happy ’bout being allowed to keep more of their own hard earned money each year, (via tax savings) if they just put it into this new Qualified Plan — to save for their retirement. This was too good to be true! For once, we said, the government is getting something right.
Not so fast Boomer-Breath.
Let’s construct a married couple, who, beginning at the age of 25, both working, combine to contribute $10,000 yearly for 40 years. If they average about 8.5% annual return, (Seriously, some on Wall Street still use that kinda number — just play along.) they’d end up with roughly $3 Million. Pretty cool, right?
Maybe — maybe not.
Each year they happily fork over their 10 grand, and smile, happy in the knowledge this contribution has saved them around $3,000 or so. Why, that means over the 40 years they will have saved around $120,000!! A gift nobody would sneer at.
Now let’s fast forward to their retirement. They’re 65 with about $3 Million in their bulging 401(k). If we continue to use the 8.5% annual yield (cacklin’ in the back row), here’s what happens.
Their annual retirement income is roughly $255,000.
They paid off their mortgage (40 years, remember?). Their kids are long gone. They are almost bereft of any tax write-offs. It’s called being Tax-Naked — a phrase I just made up. Works though, doesn’t it?
If we combine their state and federal tax rates, conservatively speaking, they’d probably easily owe 30% a year. In this case, that means, in round numbers, about $75,000. (More in some states, less in others)
Don’t let that slide by — ponder it a moment or three.
In just two short years of retirement, they will have paid more taxes than they saved in the 40 years. With few exceptions it takes no more than seven years for this to happen.
As that realization hits you, go back to our Trojan Horse analogy. The population of Troy is celebrating wildly, drinking freely, only to be shocked as the soldiers crash through their homes’ doors to enslave them.
If you read this blog somewhat regularly, you’ll know what is meant by Purposeful Planning. If you don’t — click on the link and listen to the podcast.
Back to our now retired couple. We’ll grant them 20 blissful years in retirement before they pass away at 85.
Due to the Baby Boomers reaching retirement age, Uncle Sam’s Purposeful Planning is about to trade $120,000 in tax savings over 40 years for $1.5 MILLION over the 20 years our folks were retired. How freakin’ slick is that?! And the Boomers bragged about the tax savings every year. (Come on now, don’t deny it.)
Ask yourself — would you trade $120,000 for $1.5 Million — all day, every day? Um, duh, yeah.
So every time an unsuspecting taxpayer puffs up a little on April 15th because they saved a few grand in taxes, remember how much he’s gonna pay the government upon retirement. Then ask yourself one more question.
Given 40 years, or 30, or 20, or whenever you can start — whatever your 401(k) ends up with will be peanuts compared to what you could’ve done through prudent, intelligent Purposefully Planned real estate investments — especially when strategically combined with professionally structured EIUL.
After all, if you’re gonna get taxed into oblivion anyway, why not make the net a whole bunch more? Do I even hafta mention what’s happened to 401k’s twice in the last decade? No? Thought not.
You might also wanna stop getting so excited about trading a dollar in tax savings each year for the privilege of paying 10-30 bucks a year –every year of your retirement — until your gone.
My generation, our generation, needs to wake up and see the Trojan Horse for what it is, before it’s too late.
The plain and simple truth is — your retirement can be so much more abundant.
You’re not a Boomer? Great for you. Oh wait, maybe not so great. How’s that retirement plan workin’ out for ya lately? Just askin’ is all.
Stop buyin’ into what the government is sellin’. They’re the same doofus brigade who’ve been screwin’ up everything they touch since Moses’ son died.
Let’s see if we can’t begin to recoup your losses. Send me a quick note, or a long slow note, and I’ll respond more quickly than you ever imagined. Can’t help it, as I was raised that way. Do it. Don’t think about it, don’t mull it over — contact me and take control of your own retirement. Or, if you’d rather just talk now, call me at 619 889-7100. Have a good one.
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Ok ok! I will send them in waves.