Why You Should Plan To Retire YOUNG And RICH
When I retired, the hardest thing about being retired was having nothing to do. After years of school, classrooms, tests, meetings, airplanes, and deadlines, I was truly conditioned to get up and rush off to do something.
Just before retiring, I remember how I hated the pressure and the worry of work. I remember thinking, “Only six more months and I will be free. I can retire and do nothing. I can’t wait until the business is sold and I can stop this madness.”
In September of 1994, the sale and transfer of assets out of my business were complete. I put some money in the bank, invested in a few more apartment houses and warehouses, and formally retired.
I was forty-seven and my wife, Kim, was thirty-seven. We were financially free with the rest of our lives yet to live and enjoy.
But within weeks after selling the business, I was restless. I continued to wake up early, only to realize that I had no plans for the day. I had no one to call, and no one called me. I was alone in my house with nowhere to go. I was soon restless and irritable. I felt useless and unwanted. I felt like my life was being wasted and I was unproductive. I desperately wanted to work on something, but there was nothing for me to do. For me, having nothing to do was the hardest thing to do.
Kim had her business of investing and managing her real estate portfolio. She enjoyed it and went about it at her own pace. She would find me in the kitchen, bumping around trying to do nothing.
Finally, I could take no more. One day I said to Kim,
“I’m moving to Bisbee. I need to go somewhere where I can be busy doing nothing.”
In a few days, I moved to the small ranch that Kim and I owned. Our ranch was a secluded piece of land, covered with tall oak trees and an intermittent stream. The property had lots of deer and an occasional mountain lion, and was nestled high in the mountains on the Mexico/New Mexico/Arizona border. I had finally found my place to take my year off, a place where I could be busy doing nothing. After a few days of just sitting in the mountains in my cabin without television or radio reception, I began to calm down and settle into my year off.
Today, when I speak to groups about taking a year off, I say, “The best thing about retiring early and taking that year off in midlife was that it gave me a chance to start life over again.”
For me, retiring at age 47 gave me 18 years of extra life when compared to someone who retires at age sixty-five. And how much is 18 years of life worth to you, 18 years of your youth? For my wife, it was 28 years of extra time to enjoy her youth.
How many of you would rather retire early so you can enjoy your youth, your vitality, and the freedom to do whatever you want with all the money you need?
Too Many Are Working For The Wrong Kind of Money
The advice, “Go to school, get a job, work hard, save money, and put money in your 401(k)” just might be the worst advice on the planet, from a tax point of view.
And as many of you know, taxes are your single biggest expense. So if your plan is to retire young and retire rich, you have to know what kind of money you’re working for.
The majority of baby boomers have prepared for retirement by relying on a 401(k). This is how the majority of the U.S. prepares, probably including you.
There are some major flaws in the 401(k) retirement program. One flaw is that, although you save your money in it and it hopefully grows free of the 20 -percent capital-gains tax when you withdraw it at retirement time, you are taxed at the 50-percent tax rate of ordinary income.
Even though you believe you are investing in a portfolio, when you cash it in, you are still taxed at the ordinary income rate of 50 percent.
The second problem with a 401(k) is that it only works for people who are planning on being poor. If your income remains high after you retire, you continue to pay higher taxes on your retirement money because your income went up, not down.
The problem with Social Security is that it also only works for people who want to be poor. If you find that Social Security is not enough for you to live on after you retire and you go to work for ordinary income, the government will begin reducing your Social Security payments.
In other words, the only way to receive a full payment is to choose to be poor.
For people who believe in keeping all of their money in the bank, thinking that saving is smart, their money is working for ordinary income. I too have money in the bank, but I do not think that saving is as smart as many people do.
I have money in savings as part of my financial plan to be safe and secure, not as part of my plan to be rich.
An employee today pays for many of life’s finer things with after-tax dollars. For example, most employees have to pay for their car with after-tax dollars. So not only are most people working for the wrong kind of money in America, most people are paying more for the good things in life with the money that has been reduced by about half.
It Starts With A Plan
People who work for a paycheck have the least control over their taxes and pay the most in taxes, even after they retire.
If your income today comes from the E quadrant, you may want to consider doing something to earn income from other quadrants.
The S quadrant has a few more advantages over the E quadrant, the main one being the ability to deduct some expenses from your gross income prior to being taxed.
The problem with both the E and the S quadrants is that the leverage factor of personal labor is minimal and the taxes are higher. The quadrants with the most control over taxes, the highest leverage potential for labor-free income, and the most legal tax advantages are the B and I quadrants.
If you want to retire young and retire rich you will need to follow my rich dad’s advice.
By simply starting a small home-based business, buying a franchise, or joining a network marketing company, you are moving into more tax-advantaged income.
My rich dad said,
“It is hard to become rich working for money. If you want to become really rich, learn how to build, buy, or create assets.”
If you can reduce the cost of some of your expenses, just by utilizing tax-advantaged dollars, you are getting ahead financially. But always remember that your intent must be to make more money and not just avoid paying taxes.
A fair warning: tax strategy is not a do-it-yourself activity for those people serious about becoming rich and staying rich. You will need to find competent advisors who will work with you to devise a strategic tax plan.
But if you take the time to do so, you can also retire young and rich.
Editor, Rich Dad Poor Dad Daily