Who Stole My Pension?

Question

My father is a school teacher who will in a couple years be retired with his full pension from the school system. He also has a Roth IRA and 401k. He’s just a middle class guy who has saved his whole life. Robert Kiyosaki released a book earlier this year on pensions and has several YouTube videos explaining how the pension system is going to go bust. He also talks about 401k fees and poor investments and how Wallstreet is going to be the financial ruin of the average American.

As for me, I’m a real estate guy. All my money is in real  estate or other hard assets. I convinced my father to buy a rental a couple years ago, he bought in cash and the investment has already returned half of the home’s value in rental income, and he still holds the asset. He doesn’t want to take out loans due to his age and risk tolerance. He now understands the value of passive income.

Okay, to my forum question. If you we’re to advise my 63 year old Dad what to do with his Roth IRA, 401k and pension in retirement to diversify in case his pension and other paper assets crash, as Kiyosaki suggests it will, what would you say is the best move?

Paul Moore · Answer

Hi @Jonathan R. I am biased, but after investing in many things over 30 years, I would recommend a safe, diversified fund or portfolio of commercial real estate assets.  I would recommend getting the great BP book from Brian Burke called The Hands-Off Investor.  It will explain how to find great syndicators to invest with and haw to carefully scrutinize them and their deals.  If he is not accredited, he may want to check out Ian Ippolito's site The Real Estate Crowdfunding Review to find reviews and options to consider.   If accredited, there are many great options.  Best of luck!

Marc Rose · Answer

@Jonathan R.

Sounds to me like he’s doing fine as is. I’d make sure his 401(k)/IRA investments are in diversified mutual funds/index funds and not individual stocks, but a mix of RE investment income and 401(k)/IRA investments is a recipe for a strong retirement (assuming he has a decent amount saved up)

James Hamling · Answer

@Jonathan R. there is absolutely 0 question of immediately moving everything into secured asset allocations that have solid hedge against inflation and recession, that is not my regurgitating what kiyosaki is saying or Buffet, kramer or really take your pick of the long line of experts in various investment finance and investment fields speaking of same/similar, it is my verbalizing what the data is screaming.

In general diversification is the recipe of success, but every once in a while market factors come together that make a certain market shift clear and present and step 1 is getting funds into a safe haven, step 2 is making some $ on the shift if possible.

For the last many weeks we have seen a shift of capital into asset protection on a level like never seen before. A great example of this is the stock market, so many see it going up and up and go with the knee jerk response of "oh, up is good" without thinking the step further of WHY is it going up, where is the support, what are the underlying fundamentals and what do they support. Uniformly it is the same data, no underlying performance data to support the positions and values, so what is it, why would persons buy into stocks at above fair market valuation trading price, it is a rush to preserve capital.

Now the real scary thing is we are seeing this happening simultaneously across all asset investment class's; stocks, real estate, gold & silver etc etc etc. It is a lot of capital getting pumped into these assets, so we ask why, why is it that those in control of such vast capital amounts are in a mad dash to press it into asset's?

Given the dollar position, I strongly believe what we have heard a few senators murmur of let states and various gov agencies default on their bonds, that their must be a bankruptcy as the math is clear that capital is running out to service their debts. This goes again to what kiyosaki is speaking of, he has the inside track and knows the answer will be bankruptcy and renegotiation of which pensions will be all but first on the chopping block.

I learned a lesson some time ago of riding the coat tail of the 2% and it has never failed me, or the 2% as they seem to always be in the know on whats coming. They are acting to protect capital in assets, i would do the same asap. i HAVE done the same.

Anthony Wick · Answer

@Jonathan R.. It sure sounds like your dad already has a diversified portfolio. Pension, 401k, Roth IRA, Real Estate. And let's not forget Soc Sec, unless his school district does not pay into that. Can he even make any real choices on his pension? Most pensions are set, with a monthly payout, for life. You simply cannot do anything other than take that monthly benefit.

Now, his 401k. Is it a 401k, or is it a 403b? It might not matter. I would highly suggest, upon retirement, he rolls the entire amount over into a self managed account, like in Vanguard. He can probably achieve better returns, less fees, and more choices. He might also want to do the math each year on tax brackets, and do Roth IRA rollovers each year up to the next tax bracket. He will achieve less taxes, and be much better off when he gets to the RMD's at age 72.

Now, what he actually invests in, I will not suggest or say. I do Vanguard VTSAX, along with a bond fund. ETF's can be self managed at very little cost, and not much research or guessing. With a pension, Soc sec, 401k, and Roth IRA, he could absolutely find himself in a position to acquire more real estate as well. It's just a matter of if a person wants to do that work or not at age 63 and beyond.

Erik W. · Answer

@Jonathan R.,

The first thing I'd determine is this: does my dad WANT my advice?  There's an old saying called the "powdered butt" syndrome: once someone has powdered your butt (as a baby) they don't want your opinion on money or sex.  Be sure that part is clear first.  If it is, then proceed!

I see no reason to abandon the stock market totally.  It has many advantages that rental property does not, as should be particularly obvious these days when eviction moratoriums are all over the place and LLs aren't getting paid for months at a time.  You need to have quick access to CASH to tide over until the storm passes, and the C-19 storm could take 12-24 months.  The Govt has made it's position clear: it both can and will limit or terminate your ability to earn money from rental properties if it believes that is the proper course of action.

So if you have to have CASH, where are you going to park it?  In the bank making nothing?  How about in quality, relatively low risk blue chip dividend stocks from companies that are making and selling products that everyone uses every day?  The plus side here is those people do have to pay for what they take and use, unlike renters in some cities today.

Some pensions are in decent shape.  A few are doing great.  Many are at risk or terribly underfunded, mostly in the public/Govt sector where politicians have rerouted funds to other programs with promises of repayment that haven't materialized.  Get an actuarial assessment of the pension fund's health from a neutral 3rd party.  If Dad's pension is at significant risk, see if there's a cash-out provision.  If yes, take it and invest the funds elsewhere, perhaps in more dividend stock or maybe a small piece of commercial real estate that doesn't require evictions in courts.  Self-storage is one of those, at least in my state.  No court required to boot out a non-payer.  If there is no cash-out provision, he should opt to receive the payout benefits as quickly as possible, even if waiting would give a higher monthly pay out later.  Anyone who is age 62+ and qualifies to draw social security, I recommend receiving payouts right away before the 25% "haircuts" projected in 2034 materialize.  SS may not even last that long.  Bottom line: if you take the money early and invest it properly, you should outperform the ROI vs. the higher scheduled benefits for waiting and possibly not getting everything you were promised.

I hope this helps.

Ryan Cleary · Answer

So it sounds like your Dad is going to have a very comfortable, deserved retirement.  Take this with a grain of salt since I am newer to investing.  Maybe he would feel comfortable with keeping his current assets the way they are and any new income putting 25% down on some turn key multi-family homes with healthy rental history.  Statistically speaking, the chances of him losing money off a safer deal like that are very slim, plus it would be such low maintenance especially if hiring management.  He could even use a 15 year if that makes him feel better.  At least in this scenario he is using the most valuable resource in real estate, leverage.

Jonathan R. · Answer

Thank you all for your replies. It sounds like he might be doing just fine the way he has it.

I was thinking if he is offered a lump some option on the pension he might take that and buy more real estate.

Who Stole My Pension?

Most Popular Reply