Hi Brian - are you using a self-directed IRA for your real estate investments? Also, what sort of retirement account are you using for your business. SEP-IRA vs 401K. Thanks, Chris
This is a great question, and it might surprise you to hear that I don’t use any IRA’s or 401K’s whatsoever.
The reason is simply that I’m working toward building financial freedom which is quite a bit different than working toward retirement. Let me explain…
What most people do (working toward retirement) is to save a bunch of money so that one day when you are 60 or whatever you can finally stop trading 8 hours of every day for a paycheck. Then in your old age you live off your savings, pinching pennies and hoping that you die before your money runs out.
Working toward financial freedom is a little different. The way I define financial freedom is that your passive income exceeds your expenses. So if all your expenses, including everything from rent to movie tickets, is about $3,000 per month (just as an example) and your passive income is $4,000 per month, when do you have to go back to work?
The answer is of course, never. So why have a retirement account? That same passive income will be there whether you are retired or not. It will be there whether you are 20 years old or 80 years old. It will be there whether you are bed ridden or in good health.
In fact it will continue to grow as you reinvest (plus real estate income automatically adjusts for inflation, etc).
Anyway, businesses that you own or invest in, real estate, book royalties, etc. These are all good passive income models.
Kiyosaki has some great stuff on this topic by the way.
I had a Roth IRA for years before I started getting more into this stuff but I decided to stop using it because of the above reasons. Basically I wanted to be financially free in something like 5 years, and waiting to take advantage of it until I was 65 made no sense to me.
The penalty for liquidating it was miniscule too, since all contributions to it are untouched and they made up 95% of the value. Only got taxes and penalized on the 5% that was gains.
Before I finish up I just wanted to make a few other points.
Many people do these types of retirement accounts for the tax advantages. Real estate has huge tax advantages and I get the benefit now instead of waiting till I’m 65, so I prefer real estate.
Rich people don’t use these types of retirement accounts. Do you think Bill Gates or Donald Trump have 401K’s and IRA’s? They own businesses and real estate which pay them whether they work or not.
I realize that what I’ve said here goes totally against conventional wisdom that 90% of people follow. And any financial planner reading this probably thinks its ridiculous. But most financial planners aren’t rich (otherwise, why would they still be working) and I get advice from rich people.
Anyway, this post can sound somewhat arrogant and it will probably challenge many people’s closely held beliefs about financial planning that they have followed for years.
So I will just end by saying that I don’t claim to know everything here. I am very much a student of this as well. This was simply the conclusion I came to after doing the research and talking to rich people, so thats what I decided to do.
Take it for what its worth, and keep breaking free! Brian Armstrong