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Conventional long-term financial planning advice is this: Max out your Roth IRA and 401k, get it matched by your employer and you’re on track for a happy, wealthy retirement.

And while many people have used that strategy for their retirement funds, it’s not the only strategy you can use to grow your wealth. 

In this episode, you’ll find out about the upsides and downsides of conventional retirement planning—and about alternatives that can help you build wealth without riding the stock market roller coaster. 

Want to discover the best retirement planning strategy for you instead of copying what everyone else does? Listen now!

Show highlights include: 

  • How big banks and hedge fund managers “quarantine” your money until you’re almost 60. (2:08)
  • The insidious way “RMDs” dictate how you spend your retirement funds in your golden years. (3:48)
  • How to save for retirement, grow your wealth and minimize taxes without locking up your money. (10:15)
  • Why employer 401k matching isn’t “free money” (even if you’ve been contributing for years) (11:48)
  • 3 ways to invest your money without locking it up until retirement. (13:47)
  • How to thrive in the next few decades while the world is changing around you. (15:32)

Remember to download Grandma’s Top Tips for an Independent Financial Future by dropping into https://grandmaswealthwisdom.com/free/. It's time for YOU to break through to a smart, stable, financial future.

If you’d like to see how Grandma’s timeless wealth strategies can work in your life, schedule your free 15-minute coffee chat with us by visiting www.grandmaswealthwisdom.com/call … just like Grandma would want us to do.

Read Full Transcript

A hearty welcome to “Grandma’s Wealth Wisdom” with your neighborly hosts, Brandon and Amanda Neely. This is the only podcast that helps you take charge of your cash flow and leverage your assets, simply and sustainably, the way Grandma used to.

Brandon: Hi. I'm Amanda, and welcome to our Grandma's Wealth Wisdom, where we help you break through to a smart, stable financial future, with the tried and true wisdom Grandma used.

Brandon: And I'm Brandon and this is Episode 75, which we've titled, “The government and your money: who's issuing stay at home orders on your Benjamins?”

Amanda: Now, everyone's experience with staying at home and social distancing, shelter in place, all that kind of stuff has been different. Some relish the chance for some peace and quiet. Others wish they could escape the noisiness at home with the kiddos around all the time. [01:01.0]

Brandon: I’m sure you can…. I'm on one end and Amanda is on the other.

Amanda: Kind of, yeah.

Brandon: But here's the thing. What if you had to be quarantined or sheltered in place for 83 and a half years? I mean, we're going stir crazy with it. It hasn't even been a year yet and people are all up in arms, right? Imagine doing this for 83 and a half years. I don't know about you, but that wouldn't be very fun.

Amanda: Yeah, most of many people's net worth is locked up for a similar period of time, and even worse than quarantine, their hard earned dollars are in prison. Today, we want to share how this works and how to stop it from happening to all or even most of your money.

Brandon: Personally none. Exactly $0 of ours is quarantined. None of our money is in jail. We want to show you how you might do the same with your own money. [02:08.9]

Amanda: To start, let's look at how someone might get their money quarantined. We'll call this person Joe.

Brandon: Joe is 20 years old. Joe has been working through college and has been taught the value of saving for the future, so Joe starts doing the wise thing and maxing out her, her or his, retirement accounts right away, because that's wisdom, right?

Amanda: That's what everyone tells her to do or him. Yeah, Joe did it.

Brandon: Joe funds the Roth believing taxes are likely going up, so that was the main thing that they wanted to do. Then Joe funds a traditional 401(k) to get the match and for the current savings on taxes each year right now.

Amanda: From the age of 20 through the age of 59 and a half, those funds are in prison or quarantined. There are only a few qualifying events to get those funds out and lots of hoops to jump through to make sure to avoid penalties, even if you have a qualifying event. Otherwise, accessing those funds means a 10% penalty. [0 3:17.3]

Brandon: Oh, penalty. The restrictions on loans from those funds are pretty big a burden to bear as well. Then Joe hits the magical age of 59 and a half, and from then to age 72, at least under the current tax law, Joe can use the funds when and how she wants, just keeping in mind the tax consequences on the traditional accounts.

Amanda: Then when Joe turned 72, Joe is subject to required minimum distributions, RMDs, and if Joe doesn't take them, they're very severe penalties. Again, Joe's funds are being controlled. They're being said, You have to go from this prison and you've got to go do something else. You can go to a savings account. It can be spent. We don't matter. We don't care, but that you've got to go do something, and they're required to do that each and every year. [04:15.3]

Brandon: If Joe lives to age 95, that means another 23 years of restrictions. In case you're thinking you want to live to age 95, here's some statistics. One out of 10 people turning 65 today will live to age 95 and I heard that that number will grow eight times globally by 2050. Yes, that's a pretty big chance that you could live that long. We don't know how long we're going to live, but there's a pretty good probability that you could live to age 95.

Amanda: If you do the math that we have 40 and a half years from age 20 to age 59, and then 23 years from age 72 to age 95, those years are 87% of Joe's life and those 12 and a half magical years from 59 and a half to 72 or only 13% of Joe's life. [05:17.2]

Brandon: Adult life, yeah? You're talking about their adult life.

Amanda: Adult life, yeah. And I have to be clear, the traditional 401(k) has those required minimum distributions. The Roth currently doesn't. Joe can leave him or her Roth funds there as long as Joe wants, and then they go to the heirs and all that kind of thing. But if we're thinking about the traditional, it is 87% and still the years from 20 to 59 and a half, 40 years, 40 and a half years, is still a really long time to lock up those Roth funds, too.

Brandon: Now that you have the basic idea of how your money could be quarantined by the government in a 401(k) or IRA, let's question if that's a good idea, because maybe it is. [06:02.6]

Amanda: Yeah. There's this really wise guy, maybe wise man, named Nelson Nash and he has said many times, and I'm going to paraphrase what he said—we learned this from him—he said, when the government creates an onerous problem, i.e. heavy taxation, and then creates a solution to that owner as problem, i.e. qualified retirement accounts like IRAs and 401(k)s, aren't you at least a little bit suspicious you're being manipulated?

Brandon: I get this sneaking suspicion that qualified retirement accounts like 401(k)s and IRAs are all about controlling our lives, locking up our money and telling us when and how to use it because we can't be responsible with our money on our own, which, to me, I think is insulting. I feel like I have pretty good responsibility. Maybe not everyone, but… [07:02.8]

Amanda: Yeah. Let's think about society at large for a second, and what if all the money that's used all across America to create, manage and oversee 401(k)s and IRAs and 403(b)s and TSPs and all the different variations of qualified retirement accounts, all the things, what if that money was instead used to provide real financial literacy starting in elementary school? You think our country would be different?

Brandon: I think that there's too many powers that control it the other way. That's just my opinion. But we could totally do that, right? We could spend the money on financial literacy, but instead we spend it on creating, managing, and overseeing these qualified accounts. Who do you think they were designed to benefit? You? Your family? The Internal Revenue Service? The investment firms who manage the funds? That's a question that you need to ask yourself, who is benefiting from your money. [08:07.7]

Amanda: Yeah, so even if you aren't insulted by not being trusted with your own money, I invite you to consider this question. Would you get into a business partnership where the partner would tell you her share of the business equity later, maybe even 40 years later? But isn't that what you're doing with the Internal Revenue Service when you start a traditional retirement account and pay the taxes later? Won't they tell you later how much is theirs by whatever the tax rates are at that time?

Brandon: And if I'm completely honest, I don't trust them with my money enough to enter into that kind of arrangement. I mean, that's why we aren't in that arrangement. I've been in business a long time and I wouldn't do that with anybody. I’ve learned a lesson in that way, the hard way, and I would never do that with any kind of thing, having a good contract or something. [9:04.3]

Amanda: Yeah. I mean, even with your wife, you do our share of the business. Each one of us, before we ever did anything, it was right there in our articles of incorporation before we could do any business transactions, we had it set up.

Brandon: Yeah. I mean, I'm just saying, some of that was with sharing our space and having that met. It was a big deal. It wasn't directly related to this, but it was a similar idea.

Amanda: Yeah. Whatever.

Grandma always said, “Eat your vegetables. Look both ways before crossing the road. And never risk your financial future on elements of the market you can’t control.” That Grandma, always good for some tried-and-true advice. And although some of her wisdom seems to have skipped a generation, you don't have to be left behind.

Download “Grandma's Top Tips for an Independent Financial Future” absolutely free, when you visit Grandma’sWealthWisdom.com. Don't wait. Get Grandma's best tips today.

Amanda: Let's get back to our listener. We want to tell you a little bit about what we do instead, so that you can maybe explore that there is an alternative. A lot of people don't know that there's an alternative to just funneling your money into Roth IRAs and 401(k)s, traditional format, all that whole gamut.

We put our money for the long-term future somewhere where it's not super accessible, but it's also not locked up either. You might say it's out of social distance rather than quarantine.

Brandon: It's also not in a government-controlled place, right? It’s actually with a private contract between me and the company, which has its own protections under current law.

Amanda: Contract law. Nope, this is really important. Contract law.

Brandon: Oh, yeah.

Amanda: It's not just the laws of the land that get changed every once in a while, like tax law. It's contract law, the basis of modern civilization. That's really important to us. [11:09.0]

Brandon: Yeah. I think that's something that people gloss over, but, again, that whole idea of contract law is really important. The most important thing is that it's highly unlikely for any new laws to be passed to alter my contract. In fact, the times in history where the government has changed it, all enforced contracts were allowed to stay under the old laws rather than adapt to the new ones.

Amanda: We want to tackle head on two big questions that I can hear in your mind right now potentially. You might be wondering these questions, so we're going to take them. First of all, what about the match? That's free money. I can't skip contributing so that I don't get the match. I need to get that match. It's there. I would be stupid to give that up. Brandon, what do you have to say about that question? [12:01.7]

Brandon: The question I ask is, is it really free money? Generally speaking, the match is worth taking advantage of, but considered two things a lot of people don't think about. First, would you and your coworkers be happier with a pay increase rather than a match? When surveyed employers said they would pay more, if they didn't have to do a match for employee retention.

Amanda: Yeah, quote-unquote, “we're employee retention.” A lot of the, kind of the assumption right now is, if you want good employees and you want to retain them, you have to offer a 401(k) with a match.

Brandon: Secondly, are you going to stay at that job long enough for the match to vest? There can be a five-year vesting schedule for a lot of employer matches. If you're in an industry that has lots of job changes, you might not even get to keep most of that match. Again, asking, is that your money? It's not until it’s vested. [13:05.0]

Amanda: Now, the other question that I can hear a lot of people asking in your head right now is, What about the money I already have in my 401(k)s and IRAs? Should I take it out and have that penalty, that 10% penalty, to get those funds out of quarantine? Tell me.

Brandon: Generally speaking, the 10% penalty can feel like a big hit to your account. We would invite you to try an exercise on this. Let's say you have $50,000 in an IRA right now. If you take it under 59 and a half, the 10% penalty would be $5,000. What are ways to make up that $5,000 before you're 59 and a half?

Amanda: I've got three ideas that I came up with. Maybe you invest in real estate. That gets a pretty good ROI. Maybe even more than $5,000 before you would be 59 and a half.

Second idea. Maybe you pay off some high-interest credit card debt. I mean, if you owe 29% to a credit card company, that could end up being a lot more than $5,000 that you save, not paying interest to that credit card. [14:09.4]

Third idea. Maybe you get your money growing for you while you use it to avoid all bank financing for the rest of your life.

Brandon: If you flip the script from “avoid the penalty,” quote-unquote, to quote, “make my money make the most money,” what do you think could happen? Here's the thing. They call it a penalty for a reason. They want to keep your money locked up for their sake. The word “penalty” makes it feel shameful to take it out. They intentionally put penalty in there versus, I don't know, some other word.

Amanda: Yeah, and before we start sounding all conspiracy theorists, we hate the government, the Internal Revenue Service is the devil or anything like that, that's not how we are. We think we don't want to come across that way. [15:05.5]

What we want to do is provide kind of a contrarian perspective, because you hear so much “You've got to do your 401(k).” Just like we talked about Joe at the beginning, it's assumed you want to use these qualified funds as early as possible, as much as possible. You’ve got to max it out.

Now, we don't want to tell you what to do here, but we do want to provide a different perspective, give you some different facts to think about, and remind you that the next couple decades, if you're around our age, right, and you've got a cup a decade, or maybe two, maybe even three, before you turn 59 and a half, there's going to be a lot of transition over these decades. Already the world has changed so much and where that change is only accelerating.

If are going to change dramatically during our lifetimes, even if you're already close to 59 and a half, but you have your money in those funds, you could have several decades left of life, too. Right? And you're going to experience these changes right along with us, right? All of us together are. [16:07.6]

Do you want a significant portion of your wealth locked up where you're penalized and taxed if you want to take it and do whatever you need to with it to get through these changes that are going to be happening?
Brandon: Where will you put your money to survive and maybe even thrive during all the changes that you experienced from age 20 to age 95? That's a question only you can ask.

Amanda: Yeah, and that's a great ending question here. I'm just going to recap a little bit by telling you a quick story. I want to take you back to 2013. Brandon had some money in an old 401(k) from his previous job. I had some in an old 403(b) from a nonprofit I used to work for. But at this point we were business owners and we thought we could make up for that 10% penalty by investing in our business. [17:02.6]

We thought long and hard about it. We came up with a plan and we also realized our income was really low, so our tax rate was going to be probably the lowest in our lives as well. We decided to take that penalty and reclaim our money for our own passions and endeavors. We thought independently. We did what we thought was best for us, and there are other people that choose to do the same thing and there are plenty of people that continue to go the qualified, traditional Roth route.

The whole point of this episode is to just help you think independently about it, decide for yourself what you'll do. Don't just go along with the herd and what everybody else tells you, you quote unquote, “should do it.”

Brandon: Yeah, I think that's a key thing of thinking for yourself. Not just even listening to some random person like us on YouTube or a podcast, but think about it for yourself and figure out your plan and how maybe some of these vehicles can help that or hinder that. [18:08.3]

Amanda: Yeah, and if you like doing this kind of question and inquiry, this is what we do with our clients all the time. We don't ever tell them what to do, but we ask them questions to discover for themselves what they want to do. So, hit us up at Grandma'sWealthWisdom.com., click “Request a Meeting”. You can schedule a 15-minute intro and we'll start that process of helping you think independently and decide for yourself what you'll do, very different than what you might expect for most financial professionals.

Brandon: Be sure to subscribe so you can get our next episode about another way to keep the government out of your pocket. Yes, it's a patriotic duty to pay our taxes, but if there's a tax hike coming, what if we could pay our fair share and not a penny more? Wouldn't you want to know about that?

Amanda: Until next time, keep building your wealth, simply and sustainably, so you can break through to a smart, stable, financial future.

The topics presented in this podcast are for general information only and not for the purpose of providing legal, accounting or investment advice. On such matters, please consult a professional who knows your specific situation.

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