With respect @Satish Boggavarapu there is no such thing in my experience as a current return of 6% on 401K's the proof is in the real value by taking your ending balance of your 401K taking out all your contributions and those of your employer, and then divide the sum by your beginning balance. 9 times out of 10 because of hidden fees that you were not aware of you are getting much less than that, maybe not even enough to surpass the rising cost of living. There is a great article by John Bogle called "The Problem With 401K's" from Morningstar dated June 13th 2013 that I really wish every one would read before they talk about how wonderful their 401K is. If you have not read that, then can you really say you understand my point of view how vile and evil 401K's are? When Index Fund managers have to rebalance their portfolio do you think they do that for free? When the line up of the S&P has changed (google that too) and the managers of that Index Fund have to up date their portfolio do you think they do that for free? The thing is that YOU HAVE NO CONTROL over your expenses in a 401K!
Can you even imagine owing rental properties and having no control over the average cost? Heck NO! We as biggerpocket members would NEVER do that, we have the calculators for a reason and we use those calculators to project expected cost and if things fall out of those cost we need a damn good reason why.
John Bogle says that on average there are 22 hidden cost in 401Ks, so how many hidden cost are there to owning a rental property?
So that whole broker nonsense about how The S&P averages 6% a year... ask your broker if that calculates the cost to sell the companies delisted from the S&P and the cost to buy the new companies that replaced the delisted or is it with out those cost?(Who wants to bet their last oreo how brokers calculate the cost?)
I Worked IN The Industry... any one who thinks that the sacrifice of 40% of the value to get the money TODAY so I can WAIT 9 YEARS using a Self Directed IRA... well there is this thing called "The Velocity Of Money" that I think you need to google and see what I am talking about.
Here is HOW I look at it... if (and again GOD Forbid) I inherit my wonderful step mothers estate and get 1/3rd of everything including my fathers 401K I have to take mandatory distribution even if I transfer it into a self directed IRA (It's in the IRS rules... look it up) so that means that instead of having a flat tax of using @Brandon Turner "7 Years to 7 Figures" and I buy 2 24 unit apartment buildings that are cash flowing $5,000 each (I put $250,000 on each property for the down so I get biggger cash flow... again using the numbers on the PDF) a month as passive income and that means I pay 20% passive income real estate tax.
Now if I were to follow what the bobbing heads on TV tell me I would leave the money in the Self Directed IRA (since as a non spouse I can not leave it in the 401K) and I don't want the so called "Big Tax Hit" and I am getting $45,000 a year using the 3% rule, and HOW MUCH are my taxes since I am not eating into ANY of my principal? (I am not gay, not married, have no children so NO WRITE OFFS!) I am taking home $36,543.67 by following the rulse of the Bobbing Heads. Are You kidding me? And then there is this little jem, over the last 45 years have taxes and the cost of living gone up or gone down? Right... the tax and the cost of living have both gone up so if I am expected to live off of my income for the next 40 years (I am only 50, I have a life expectancy of 88) how far is $3,000 a month going to get me in 40 years if in 1978 would by the same amout of stuff back then as it cost $11,313.65 to buy today?
This is why I LOVE cash flow real estate investing over "Lump Sum Retirement"
With lump sum I don't know what the cost of living is going to be in 40 years so I don't know how much I really need to contribute to the ponzi scheme called the 401k or IRA.
With Cash Flow focused real estate I know right out the gate if I buy a house that after all the cost for property management, vacancy, long term maintenance, insurance, taxes, and the house payment that my cash flow is $200 and that my tax rate on that $200 is only 20% then I KNOW for a FACT that I have $160 I can spend on a nice steak and pay my AT&T outrageous cell phone bill. If the cost of beef skyrockets and I change from AT&T to Cricket (same network, just secondary status) the next year and the cost for those two and the property manager told me rents have dropped because of a new apartment building in the area... I know for a fact that I have to eat more chicken and less steak and get a cheaper cell phone plan.
Now... the real cost of real foods went up around 23% over the last 5 years, odd are with global warming and the wacky weather it brings the cost of foods are going to keep going up significantly in the next 40 years and beyond (yeah every one wants to pretend global warming is a myth as island nations are disappearing and New York is building floating real estate today to contend with rising oceans by 2020, and all those folks making a fuss over GMO food are not going to be to high and mighty to eat a mushroom that taste like steak when beef goes up to $25 a lb) so that whole dafy "Lump Sum" thing with retirement accounts don't account for that. (I mean seriously how many of you with 401K's see that ice cream drum sticks at the store went from like $1.29 to $2.33 at the gas station from last summer to this summer and thought to yourself... "Gee... I better start shoveling more money in my nest egg"? I will bet my last oreo cookie that most people who were complaining about the rising cost of gas and food, the last thing on their mind was they should max out their contribution to their retirement nest egg.
Now for the cash flow investors, who were saying to themselves "Most cash flow real estate investors quit their J.O.B. when they are making $4,000 a month, but with the rising cost of food, energy, and auto fuel is $4,000 going to be enough?" and some of them kept working while they increased their cash flow real estate holding and some of then said "Screw It!" and then found OPM to raise their cash flow.
Do you REALLY think old people who had pensions are working at Wal Mart because they want to? I worked at an Indian Casino and the place was flooded with retirees who had to work to cover the rising cost of medial care. They didn't want to work, their pension was supose to be enough and over the last 40 years HMO's have ruined health care cost and big pharma that sells those little pills in India and Canada for like .25 a pill but charge $4.00 here in the US... well who saw that coming 40 years ago... I sure didn't
Just to pick a pretend future for myself let's say it's 10 years from now and I inherited my share of my step mothers estate. And I call Platinum Property's and tell that awesome Sara ( think that's how you spell her name) that I want to buy as many single family homes returning 30% or more as I can, and ask her how to make that happen. And over the next 3 to 6 months I end up buying 25 single family homes cash flowing from $198 to $600 each and I am making like $9,000 a month before taxes. And then an energy crises hits the United States 5 years later and the cost to heat or cool our homes triples... so me being from California and mistakenly moving to Oklahoma so I could have 4 seasons instead of just Blazing Hot and Slippery Wet I need to always have either the heater or the air conditioner (the humidity in Oklahoma is so bad fish hitch hike between ponds) before I FINALLY get to move to Florida and get on those awesome "Florida Resident Only" discounted cruises. It's 5 years later... do I have enough equity in my homes to take some money out and after cost and fees have enough to buy more properties to increase my cash flow I don't know... but I am SURE going to try. Now here is a loaded question... how are you going to do that with a 401K?
I don't know about the rest of you... but I think about stuff like this every day and I work on hundreds and hundreds of hypotheticals over the years of "If this, then that" scenarios.
When I first came to Oklahoma after a broken heart in 2003 my father (Long May The Suns of Heaven Shine Upon Him Always) lost over $1,000,000 in his 401K because he listened to his broker instead of me when I told him to move out of equity stocks and balance more into income stocks when he retired (when you are young you can take risk and you have time to recover from mistakes and so called "corrections" in the market, when you retire you should have VERY LITTLE of your portfolio in equity stocks your wealth building years are behind you and you need to focus on income.. but my fathers broker told him that was the old rule and the new rule was to buy into equity and sell the profits... this is how you know you have an idiot for a broker there are NEVER new rules, the rules are the rules are the rules. And we always follow the rules because rule breakers get punished and like the second half of the saying that most people either don't know or just blow off "Fortune Favors The Bold and Punishes the Unwise" not following rules that have been in place since the stock market first was established, and those morons who say "Rules Were Made to Be Broken" can break the rules with their own money and do what The Old Guard of the stock market told their children to do with our money.
Morons think the rules do not apply to them, morons thing "this time it's different" morons give you advice on things they don't really understand.
I am NOT a moron.
