Blog | Personal Finance

How You’ve Learned to Prepare for Retirement is All Wrong

This is the Rich Dad way to prepare for retirement

the online game that increases your financial iq - play now

Summary

  • The historical advice to “save” is no longer a sufficient way to prepare for retirement

  • Adjusting your mindset is the key to preparing for retirement - the right way

  • Investing, and creating steady cash flow is how to stay secure during retirement


The baby boomer generation is the second largest generation in American history with over 76 million individuals. And they’re all getting ready to retire.

Theroblem is…they have no money.

A 2020 article from MarketWatch lays bare the dire straits most baby boomers are in when it comes to retirement: “Amazingly, barely one in 10 has enough saved up.”

Using data from a recent Insured Retirement Institute study, which focuses solely on baby boomers by interviewing 804 people from the age of 56 to 72, says that only 11% of boomers have at least $500,000 saved for retirement. The rest? They don’t even have half of that.

That means that in the baby boomer generation alone, over 68 million people will not have enough to retire. Seems to be quite the crisis.

The retirement preparation storm has been brewing for decades

If you’re surprised by this…that is surprising. For years, the media has reported on how ill-prepared the boomer generation is for retirement.

In 2011, for instance, Robert Kiyosaki wrote an article for The Wall Street Journal entitled "Boomers Find 401(k) Plans Come Up Short". Here was the second line in the article:

The 401(k) generation is beginning to retire, and it isn't a pretty sight.

Here are some interesting quotes from that article, again written over a decade ago, explaining why boomers’ retirement preparation is so ugly:

The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement.

Amazing; the idea of maintaining a standard of living in retirement most experts used, and cited in the WSJ article, is 85% of your working income after you retire. Those that are planning to retire are planning to do so at a 15% reduction in standard of living, even in the face of rising health costs and needs, and over a decade ago they didn’t have the money for even that. Today, nothing has changed.

How boomers (and you) have prepared for retirement

In his book, “Conspiracy of the Rich: The 8 New Rules of Money,” Robert writes about how the government changed the rules of retirement in 1974 with the passage of the Employee Retirement Income Security Act of 1974 (ERISA). This eventually became referred to as the 401(k) act because it paved the way for that retirement investment vehicle.

The problem with the 401(k) is that it requires people with no financial education to be in charge of their retirement investing. Because people had no financial education, a whole new industry was created—financial planning. The problem with financial planners is that they're sales people, not investors. They push the products of their employers, usually paper assets.

The 401(k) is a defined contribution plan (DC), meaning that you put money into it for your retirement. This is how the majority of boomers have prepared for retirement…and it’s how the majority of the US prepares, probably including you.

The boomers were even more inept at using the 401K because they grew up watching most people have defined benefit plans (DB), meaning your employer paid for your retirement and your healthcare for the rest of your life. Robert’s later book, “Who Stole My Pension?: How You Can Stop the Looting," goes into great detail on what happened in the shift from DB plans to DC plans, and why even those who rely on pensions today are in great retirement danger.

The book is co-written with the great Edward Siedle. Edward is a former attorney with the United States Securities and Exchange Commission and is America’s leading expert in pension looting. He’s the expert you can trust.

According to Edward, “In the decades to come, we will witness hundreds of millions of elders worldwide, including America’s Baby Boomers, slipping into poverty. Too frail to work, too poor to retire will become the ‘new normal’ for many of the aged.”

Because the boomers didn’t understand the seismic changes in how to prepare for retirement in the shift from DB to DC plans, they still play by the old rules of money, choosing to save money for retirement, thinking putting a little aside in a 401(k) will be enough.

Unfortunately, they do not understand the powers of inflation, taxes, and debt; and how the market works. Many people have lost a lot of money in their 401(k) plans because they had no control over their money, giving it to financial planners, former teachers, plumbers, waiters, etc., who became sales people for the financial industry.

Today, the result of this financial ignorance is a devastating realization that retirement is not an option—at least not at the standard of living many expect.

Again, this is not new. According the WSJ article over a decade ago:

"Even counting Social Security and any pensions or other savings, most 401(k) participants appear to have insufficient savings…Facing shortfalls, many people are postponing retirement, moving to cheaper housing, buying less-expensive food, cutting back on travel, taking bigger risks with their investments and making sacrifices they never imagined."

The conventional way to prepare for retirement

To combat this, there are a slew of articles you can find on the internet on how to prepare for retirement.

One of the top ones on “The Balance”, "Tips to Prepare for Retirement Success" suggests doing things like side-hustles, giving more to your DC plans, reducing your spending, reducing tax impact through DC plans, and consolidating debt.

In short, it all generally adds up to the same old rules of money: save and live below your means.

The Rich Dad way to prepare for retirement

The difference between Robert Kiyosaki and the people struggling at retirement comes primarily down to mindset.

Those who have the abundance mindset, like Robert, see the world in an optimistic, and financially opportunistic way. They find creative ways to leverage their money, make investments that are considerate of tax laws, and create consistent passive income.

Those who have the scarcity mindset - or those who live below their means - however, never feel they have enough money. When retirement comes, they are so worried about having enough that they don’t see the opportunity to make more; they live in constant fear, are unable to innovate, and thus, they stay poor. These people play by the old rules of money, relying on savings and 401(k)s for retirement.

The problem is that people are living longer, healthcare is more expensive, and those savings are not enough—yet, they have no other way to have money come in besides going back to work and making cuts in expenses.

There has to be a better way to prepare for retirement. Thankfully, there is. And this is where rich dad enters the picture.

Four green houses and one red hotel

When Robert was a young boy, rich dad, his best friend’s dad, taught him the simple formula for building wealth through the game of Monopoly. He repeated over and over, “Four green houses and one red hotel.”

He was teaching the magic of cash flow. The more cash flow you could get out of your assets, the higher your wealth would be. It was the way to win the game and to win at life.

Today, Robert invests in assets that have cash flow like real estate, oil wells, business, and more. Each month, cash pours in from these investments, covering his expenses. This is discussed in detail in the above mentioned book, “Who Stole My Pension?: How You Can Stop the Looting” in a chapter called “Infinite Returns: Print Your Own Money.”

In that chapter, Robert writes, “Once you understand the words infinite returns, you will never have to work for money again. I teach financial literacy because, if you have a command of the words of money, you too will never have to work for money. In Rich Dad Poor Dad, rich dad’s lesson #1 is ‘The rich don’t work for money.’”

It’s time to prepare for retirement - the right way

Moving from the old ways of money to thinking like rich dad to print your own money is the only way forward when it comes to preparing for retirement in today’s world.

But that takes a big shift in mindset.

Instead of saying “I can’t afford that.” Ask instead “How can I afford that?” Then, look for an investment that will pay for your desired standard of living. Make your money work for you, not the other way around.

So, the question today is: Are you ready for retirement?

Now is the time to begin building your financial ark to survive the coming retirement storm.

 

Original publish date: February 22, 2011

Recent Posts

Three Investment Values
Personal Finance

The Rich Dad Guide to Investing Values: Defining Your Path to Financial Success

It’s important to know which core values are most important to you, especially when it comes to the subject of money and financial planning.

Read the full post
Risky vs. Safe Investments
Paper Assets

Smart Investing: Understanding the Difference Between Risky and Safe Options

What you may think is a “safe” investment, I may see as risky. For example, many financial planners advise their clients to get into so-called “safe” investments — such as savings plans, mutual funds and 401(k)s.

Read the full post
Mastering Money
Paper Assets, Personal Finance

Mastering Money: The Key to Achieving Financial Freedom

Begin the path to making money work for you today, not the other way around.

Read the full post