Mistake number four out of ten when saving for retirement.
In this episode, I'm going to address the question. What mistakes do people make when saving for
retirement? This is mistake number four out of ten. Get ready, you're
probably going to be surprised about this mistake as well as others. I want you to watch all of
them in this series because I want you to avoid these mistakes or correct them before it's too late.
So my name's Doug Andrew and I've been a retirement planning specialist now for more than
four and a half decades and so I've seen thousands of people prepare for retirement and off times
when they would come to me I had to correct some of the mistakes that they had already been making
and they didn't know any better. They were sort of following the herd. Well, mistake number four
that retirees make is setting aside money. Socking money away into traditional accounts like IRAs
and 401ks. We call these qualified plans thinking that's the best way to save for retirement
because everybody's doing it, right? No it's not. The best way and people have a
rude awakening when they hit retirement and all of a sudden they find themselves in as higher tax
bracket as they were ever in during their earning years. Hence one of the other mistakes is thinking
you're going to be in a lower tax bracket and that's one of the big reasons why people tell me,
"Well, my employer offered a 401k and they matched 50 cents on the dollar and everybody's doing it
and they told me I'd likely be in a lower bracket", well that has not been true or axiomatic for over
25 years. But still people think, "Well, it's not the best way how come everybody's doing it?", they
just sort of follow the herd. So, mistake number four is thinking that sucking away money in tax
deferred accounts like I raise a 401ks is the best way to go because everybody's doing it. Well,
I learned a long time ago to not follow the herd and don't pay attention to the mainstream media
because they're part of the herd. Best advice I've ever received. So, let's talk about why
they're not the best way to save. In fact, I have a little ditty that goes good better best
never let it rest. Never let it rest till good gets better, better gets best. I used to say that
IRAs and 401ks used to be a good way to go. But a far cry from the best way to go. Frankly, I think
now they are a poor way to go. Are you ready to learn why? Oft times I would tell my audiences that
would come to learn about the best ways to save for retirement that deferred taxes just mean
increased taxes. Because as I've shared in this series most people when I ask them,
do you think that taxes in the future, tax rates are going to be lower? Nobody raises their hands
and when I ask, how many think taxes will stay the same? Very few raise their hands. But when I ask,
how many of you think that taxes will likely be higher? A sea of hands goes up. I go, "Well, then
why are you continuing to defer paying tax to the future until you have this big nice nest egg and
IRAs and 401ks and now you're going to pay higher tax rates?". That doesn't make sense and they go,
"Wow, I've never thought of it that way. I've just been told I would be in a lower bracket", Well, no
that is not true. I've had school teachers who found themselves paying back every dime
they saved in taxes over 30 years of contributing money to IRAs and 401ks. The first two and a half
three years of retirement they pay back a hundred percent of the taxes they saved over 30 years on
the contributions and they continue to pay it back again and again and again to where by the time
both a husband and wife pass away many of them have paid back 12 to 15 times the taxes
during their golden years what they saved over 30, 35, 40, years on the contribution phase. When
I asked them, "So why did you do it?", "Well, everybody was doing it." I started working for my employer and
the HR person said, "Now you want to participate in the company's 401k don't you?". and you go,
"Oh yeah", "In fact, if you contribute up to 6% we will match 50 cents on the dollar
on the first six percent", and then people would go "Oh, I'm getting a 50 rate of return",
I go, "No, you're not". You're starting out with 50% more. You put in a dollar. Your employer is matching
50 cents on that now you got a buck 50. You pull out the dollar 50 when you're vested and you can
do that. You pull out the dollar fifty and where does the fifty cents go? To the government in tax.
So your employer is helping you out to help you pay future tax liability on a portion of your
money. That's what that fifty percent match is about. But you would not believe how many people
that I would meet that instead of putting in just the six percent to get the match
they were putting in up to 15 percent and I would go, "Why are you doing that?", "Well, is there something
better?", I go, "Yeah". You're in the market it's volatile and that's the number one mistake people
make when they retire. But not only that you're putting money into this tax-deferred account
and deferred taxes mean increase taxes. Another synonym for defer would be procrastinate.
When have you ever procrastinated and it turned out good? Very rarely. Has it ever turned out to
be wise to procrastinate? Usually it turns out to be bad and that's what happens when people
continue to defer or put off paying taxes to some future perceived unknown advantage
and then they have to start pulling out money out of a qualified account. See, an IRA or 401k
is a qualified plan, qualified with who? The government. See, they're your partner. If Uncle Sam
were to go into a partnership with you and say something like this, "Okay, we're gonna be partners.
Let's shake on this. Now, I get a third of everything you will ever make in this business
and if you want to start taking money out of this business before the age of 59 and a half
I'm going to charge you another 10% on top of my third. But by the time you're age 72 you better
start taking distributions or sell this business or else I'm going to penalize you 50 percent
on top of my third." See, that's called a required minimum distribution. Do you know,
if you do not start withdrawing money out of an IRA or 401k starting at age 72 based
on the government's life expectancy formula the penalty is 50 percent 5-0. On top of the
tax because uncle sam wants his portion of your money they've been planning on that tax revenue.
That's why I say, "Man, whose retirement were you planning anyway? Yours are uncle sam's?",
So, your partner says, "I reserve the right to be able to penalize you but if i deem anytime
in the future that I'm more hard up than you I can raise my share from a third up to 50% even 60%
or more." Would you go into business with a partner like that? People go, "Absolutely not",
and then I say, "I just described an IRA 401k to you." The government gets to decide how much they want
of your ira 401k at the time you're going to take money out. Because they have an addiction
to spending if you haven't noticed. So, I do not recommend people put money into a traditional
IRAs or 401ks thinking it's the best way to save just because you're following the herd.
There are better ways and best ways. You may think, "Is he talking about a Roth?", A Roth ira 401k
is a step in the right direction if you think taxes are going to be higher. But I've never
owned an IRA 401k and I never will and I've never owned a Roth IRA 401k and I never will.
You can learn why and what's far better than even a Roth. Roths only have two benefits you
fund them with after-tax dollars. They accumulate tax free and you can access the money tax-free.
I have those two benefits in my favorite vehicle which I call the laser fund.
I wrote a book with that title but I have four additional benefits Roths will never have.
I can contribute 30,000, 50,000, 100,000, 300,000
into a laser fund if I design it to do that. You cannot contribute that much to a Roth.
You're limited to a certain dollar amount or a certain percent of your income because it's a
qualified plan there's strings attached. Do I have to put in a hundred thousand or three
hundred thousand into a laser fund? No, I can put in 10,000 I don't even have to put in anything
and in future years I can make up for what I could have put in in previous years. If you don't use the
room in a given tax year to contribute to a Roth you lose it forever. But if I put in 300,000 and
30 days later I need to access 250,000. I can. There's no penalties with a Roth
the IRS will penalize you if you touch it in the first five years or before your age 59 and a half,
those are strings attached. In the laser fund, I can access money at any time for any reason without
any IRS penalties. I can use indexing so that I'm protected from the market volatility which is the
number one mistake in this series. But I also can take it out because it's tax-free. I have
all the benefits of a Roth but it continues to be tax-free without all of the strings attached
but when I ultimately die it blossoms, it increases in value and transfers income tax-free.
There's not an IRA or 401k or a Roth that will do that. People say, what do you mean by blossom?
I'm 69, if I died in an accident next week every million I would have in a portfolio of laser funds
would blossom to about two and a half million tax-free and transfer to my wife my kids
a church of charity. There's not a Roth around that will do that and people say, "Well, how much
does that cost?", nothing's free but it doesn't cost me anything. It's being paid for with a minuscule
portion of money that most people shell out in unnecessary income tax. When they follow the herd
and put money into traditional IRAs of 401ks. So, when you study this book you'll see that
IRAs and 401ks are not the best way to save. Why they're something far better and even the best.
Go to laserfund.com. Click on the link below contribute a nominal amount towards the shipping
and handling and I'll fire out a copy to you. It's 300 pages with charts graphs explanations and
62 actual stories. But then there's also options there to listen and learn and watch and learn and
you can correct the mistake before it's too late and get your money out of those iries of 401ks
sooner than later with what we call strategic rollouts, Empower yourself.