Blog | Personal Finance

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

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

play cashflow now

Instead, consider the Rich Dad way to prepare for retirement

The baby boomer generation is the second largest generation in American history with over 72 million individuals. And they’re all getting ready to retire.

Problem is…they have no money.

A recent 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 64 million people will not have enough to retire. Seems like a crisis to me.

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, I read and wrote on an article in 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 almost 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 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 my book “Conspiracy of the Rich: The 8 New Rules of Money,” I wrote 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, including probably 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. My latest 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 pension 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 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 almost 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

My wife, Kim, and I don't believe in living below our means. We think that crushes our spirit. Instead, we buy assets that pay for our liabilities. The difference between Kim and I, and the people struggling at retirement is that those 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 my rich dad taught it to me.

When I was a young boy, my rich dad, my best friend’s dad, taught his son and me 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 us 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, Kim and I invest in assets that cash flow like real estate, oil wells, business, and more. Each month, cash pours into our accounts from these investments, covering our expenses. I talk about this in detail in my latest book, “Who Stole My Pension?: How You Can Stop the Looting” in a chapter called “Infinite Returns: Print Your Own Money.”

In that chapter, I write, “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.’”

And I share some examples of how Kim and I prepare for retirement by printing our own money.

Kim and I founded the Rich Dad Company in 1996. We raised $250,000 from investors. The investors received a 200% return of their money in three years. Today The Rich Dad Company, a private company, produces millions of dollars a year—all infinite returns since Kim and I do not have any of our own money in The Rich Dad Company.

Rich Dad is an international brand. The business licenses the use of the Rich Dad brand to book publishers and approved education companies all over the world. The revenue this generates represents a 100% infinite return.

Change your mindset to prepare for retirement

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.

Kim and I never say, "We can't afford that." We always ask, "How can we afford that?" We then find an investment that will pay for our standard of living. The difference is our money works for us, 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

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