The 401k experiment has been a an absolute disaster for most people. When the market crashed in 2008, investors saw years of dedicated savings get wiped out. This is forcing Americans to cut back on their lifestyles and delay retirement even later. It’s not their fault. They were just doing what they were told to do using a totally inappropriate plan to save for retirement.
The 401k doesn’t work because it has two huge problems.
First of all, it’s incredibly complicated. When you put money in your 401k, you build a portfolio out of a huge mix of stocks and bonds. Once you’ve picked your investments, you need to monitor them day and night as the market is always changing. This is a daunting task even for professional investors. Regular Americans never had a chance.
On top of being complicated, the 401k is based on the wrong retirement mindset. It focuses on growing your limited savings for some far away point in the future that may or may not arrive. Since the amount you can save per year is extremely limited, it becomes nearly impossible to put away enough to hit your goals in a reasonable amount of time. It doesn’t have to be this way, though. You can make a 401k withdrawal and move your money into investments that DO work.
The key to financial freedom is using an investment that grows your income, NOT your savings.
If you can grow your income every year, it opens a whole new world of possibilities. Best of all, you benefit from your investments today as well as in the future. The key to making this happen is through residual income. This is income that comes from your investments, not from your labor. Because of this, residual income is also known as passive income.
One of the more accessible and manageable methods to creating residual income is through rental real estate.
- Once you get a property up and running, you will start to collect rent payments each month with little effort.
- This also means you’ve put your money in something real and easy to understand. Instead of trying to analyze complex financial formulas, you just need be able to determine if a house is worth living in and if someone pay you each month more than what it costs you to own it.
- Since people need shelter, you are also investing in an asset that won’t fall out of demand.
Once you get your first rental property off the ground, you’ll see a significant boost in your monthly income. This will make it easier to manage your living expenses plus save more for for your next passive income investment. Once you save enough, you can invest in another property and keep growing your residual income. If you keep repeating this process, you’ll find that it is a significantly shorter journey to financial freedom than the busted 401K vehicle and that there is no limit to the amount of residual income you can create.
Financial Freedom can Start with a 401k Withdrawal.
Now, there is a cost to making a 401k withdrawal. This is why many investors feel trapped and don’t want to move their money. But let’s put these costs in context. When you take money out of your 401k, you’ll owe some income tax on the entire amount. What most don’t realize is that you’re going to pay these taxes no matter what, even if you waited until retirement. Since these taxes are unavoidable, they’re a sunk cost and should not be part of your decision.
The other cost of a 401k withdrawal is the 10 percent early withdrawal penalty. This penalty is charged on your entire withdrawal and lasts until you turn 59 ½. There’s no way around this penalty and it is an unfortunate extra fee. However, compare this fee to your potential extra income. How long will it take you to make this money back in rental income? A year? A few years? Or, maybe just six months? Once you’ve paid off this penalty, all your extra income will be pure profit for you to enjoy now AND retirement. Ultimately, that’s what you’re
saving in a 401k for anyway, right? To save enough until it will create a residual income for you in retirement? Why wait when you can do it now?
The powers that be won’t tell you…
- That the 401k is a broken investment vehicle.
- The true pros and cons of the income tax and penalties associated with the 401k. They’re nothing more than a cost of doing business, and you should view them as such.
Don’t let labels like “taxes” and “penalties” delay your financial freedom.
Cut yourself loose from that 401k trap. Get out of this broken investment vehicle as soon as you’re able and move your money into investments that actually work. Once you unleash the power of residual income, you’ll never look back… and you’ll scratch your head wondering why you didn’t do it earlier.