Summary
➡ The article discusses the potential pitfalls of relying on a 401K for retirement, especially with the possibility of increasing taxes. It suggests that income is more important than assets, as assets can decrease in value. The article also emphasizes the importance of increasing, not decreasing, assets and generating cash flow from these assets to create generational wealth. It concludes by advising readers to calculate their minimum and ideal monthly expenses to better plan their financial future.
➡ The text discusses a method for planning retirement finances. It suggests calculating your minimum and ideal expenses, including healthcare costs, and comparing them to your current income, both earned and passive. The goal is to increase passive income to meet or exceed expenses. This can be achieved by investing capital for returns over time, with the aim of closing the income gap.
➡ The speaker emphasizes the importance of having a detailed plan to achieve goals, and offers a free video for further guidance. They stress that individuals can’t depend on government aid, as social security is failing and taxes are increasing. They suggest that having a steady cash flow is crucial, and encourage feedback on their video.
Transcript
So let’s get into it. All right, welcome to the channel if you’re new. My name is Mark Moss. I make these videos to change the way you think about money. And, you know, as I say, everything you’ve learned is wrong. And unfortunately, I wanna put things into perspective for you real quick before we get into the lesson, because things are looking pretty bad going into 2020. So let me give you a couple of reasons why you. You need to be paying attention to this first. Number one, baby boomers. The boomers, maybe you looking to retire in the next few years.
Now, you’ve been told to get a good job, save for retirement, and one day you’d live your dream, right? Well, unfortunately, that dream is not coming true. As a matter of fact, today, 50% of baby boomers looking to retire have zero savings. So that’s not gonna work out too well for them. 50% have zero savings. Of the ones who do have savings, the average amount saved is about $100,000. Now, that might sound a lot. Maybe if you live in a foreign country. In the United States, the average amount needed by a baby boomer is about 57,000.
So that’s not going to get you too far. Now, this leads to a massive problem, one of which is that, as I said, because they have no savings, what are they going to do? Now, what we can see, this is a big problem. As a matter of fact, baby boomers in America are becoming homeless. They’re not just becoming homeless, they’re becoming homeless at the fastest pace in history. We can see right here the staggering numbers behind this. That single adults in the nineties homeless. Single adults in the nineties was only 11%, but by 2003, it grew to 37%.
That’s a big deal. From eleven to 37. But now it says that half of the homeless people are boomers. Half 50%. This is a big problem if you’re not being prepared for this, you’re going to be caught off guard. That’s, number one, no savings. Number two, Social Security. A lot of boomers and just people in general maybe think they didn’t need the savings because they’d have Social Security to take care of them. Of course, Social Security is the government, and the government doesn’t have any money. Now, the government put the Social Security act in place. FDR did that in 1935.
Now, it was originally created in a way that was pay as you go, meaning you put money in, they invest that money for you, and one day, when you’re old, hopefully they give you the money back. However, something changed. Before we get to that, let me just tell you, it worked really well at that point. In 1959, the poverty rate in elderly people was 35%. By putting the Social Security program into place, that poverty dropped from 35% down to 11%. It worked really well. But something changed in the 1980s. President Ronald Reagan decided that maybe we’ll just borrow from that piggy bank a little bit.
Maybe we’ll take some of that money put aside for Social Security because they don’t need it right now, and we’ll use it for things like wars, other government pet projects, things like that. And it wasn’t just Reagan, it was every other president after that. The problem is today is the Social Security is no longer a piggy bank. It’s no longer a pay as you go. It’s now what we call a Ponzi scheme. The problem is that with a Ponzi scheme, if you have a lot of people paying in and a few people pulling out, that’s okay.
But when those numbers reverse, it becomes a big problem. And that’s exactly what we’ve seen happening. You can see. Here’s a chart of the birth rates. And so here is 1950, we were having about almost 3.75 kids per couple, but the birth rate has completely collapsed. As a matter of fact, right here at 2.1 is the level that a civilization needs to sustain itself. 2.1 kids per couple. And as you can see, we are well below that level. As a matter of fact, we are at 1.6 today. We’re not sustaining our own civilization, which is why you see Elon Musk saying that depopulation is probably the number one problem we’re facing in the world today.
This is all over the west. This is happening now. That’s a whole nother topic for a whole nother video. If you want that, leave me a comment down below. But the point that we’re talking about here is back here in the fifties, when Social Security was working really well, you had a lot of people paying in. Today you have the largest segment of the population, the baby boomers, and you have almost no, not even enough births to sustain a civilization, much less pay into that Social Security. That’s a big problem. Another problem that we have is massive immigration, as you’re aware of, of course, millions of people coming into the country, and, you know, they’ve decided that these immigrants that come into the country that haven’t worked their whole life to pay into the Ponzi scheme are able to get money out.
As a matter of fact, from this working paper right here, you can google that if you want. Under the current rules, immigrant workers realize a higher rate of return on their Social Security than natural born citizens. And so now we have increased amount of people pulling from it, not just the boomers, now immigrants. And we don’t have enough people pulling in, paying into the program, which is why it’s negative. And it’s scheduled to run out in less than ten years. Now, that’s what the government says. It’s probably gonna run out even faster. So I wouldn’t be counting on that if that was your retirement plan.
Okay, next we have the pensions. Now, back in the day, big businesses used to save your money for you and they’d pay you back later. Of course, those days are long gone. And so we introduced what’s called a 401K, or now your own pension plan, where you’re supposed to invest for yourself. In some cases, your employer matches those, whatever. But basically, that money goes into Wall street, into mutual funds, 401 ks, and they invest that for you. Now, this really took off in about the early eighties, and when all these boomers, when all these people started investing into the stock market through their 401 ks in the eighties and the nineties, the stock market took off.
Supply and demand, more people buying stocks. Of course the prices go up. We saw 401K adoption go from 8% to 31% in that time. Now, we saw the market completely taking off during that period. As you can see right here, from the eighties into the nineties, the markets exploded as all of these new investors came into the market. Here’s the problem, though. Now, all of these new investors who don’t really know what they’re doing and shouldn’t probably have their money in the market, got in. But when the market dropped down, all their wealth was lost. We saw their wealth drop down here in into the two thousands, and then again in the 2008 financial crash.
Now, if you were one of those people that had your. Wow, your wealth, your assets in the stock market, hoping to retire from that, you were met with a bad surprise. You saw the market crash two times in a row, and it took 16 years just to get back to. Even now, if you were trying to retire in that 16 year period, it was pretty bad for you, which is why millions of Americans had to go back to work during this time period. Same time, I lost a lot of my wealth as well. All right, so this is what happened.
Now, the other problem is that these are not really sophisticated investors, which, of course, why they give their money to Wall street. The problem with that is two part one, they don’t understand the risk that they’re taking. Number two, those Wall street fund managers take a massive part of their wealth. It’s a big deal, and it creates wealth in bubbles and not real assets. That’s a big problem. Part of the problem that got me into trouble as well. And then finally, your favorite subject of all taxes, the two things in life that are unavoidable, death and taxes.
And, of course, we have taxes. Now, part of this 401K mutual fund scheme is that you can put your money into these and it can be tax deferred. A lot of your so called tax strategists think they’re saving you money by having you divert money into a 401K so you don’t have to pay tax on today, lowering your taxable income, which seems like an okay plan on the surface level, except for there’s a problem. The problem is that taxes have been at some of the lowest rates in history. As a matter of fact, we can take a look at this right here, and you can see from 1945 where taxes were, and they’ve been trending down ever since.
And so if you had really high taxes and you thought maybe they’d be lower in the future, it might make sense to actually defer them till when they were lower in the future. The problem is when we were already in the lowest part of taxes in history, most likely taxes are going up. Why would you want to defer those taxes? And let’s just take a look. Do you think taxes will be going up or down? Well, we can see here, this is in Canada. Trudeau says that he wants to increase capital gains taxes to 66%. So now you’ve worked your whole life, you put all your money into the 401K.
Now you’re ready to get it out, and they want to take 66% of your wealth. Now, you probably haven’t saved up enough already. Now, that’s Canada, of course. But what about the United States? Well, the Biden administration wants to do the same thing. He wants to hike capital gains tax as well. Not quite as bad as Canada here, only 44.6%. So you were deferring taxes that you could have paid when they were lower. And now when these boomers want to pull money out, they’re going to be giving half of that back to the government. Half of the money that’s already not enough.
So that sounds bad, right? And it is, but it’s not all doom and gloom, because we have a plan. Question is, what should we do about this? That’s the question. Now, there’s the general information. Of course you should make more money, and maybe you should save some money, and maybe you should save money at a faster rate. Sure, we can talk about that, but that’s not really gonna help you out. Now, the key that you need to understand in this is that where I went wrong and where most of the boomers are going wrong in 2008 and today as well, is in three core areas.
I had to learn my lesson the hard way, and I want to help you get it the easy way. So, number one, the first way that I messed up, and I had to learn my lesson, is that income is greater than assets. All right? This is where I messed up in 2008. I had businesses that made a lot of cash flow. I had rental properties that made a lot of cash flow, and I sold my businesses, and I sold my rental properties, and I bought a bunch of assets. The problem is, it’s cool having a bunch of assets, but turns out you need income to live off of.
And when the real estate market turned down, when the markets crashed in 2008, my assets became worth less, but I had no cash flow to live off of, and I had no cash flow to pay for the debt service on the assets that I had. And because I had no cash flow, because I had no businesses anymore, the assets lost their value. I couldn’t afford to keep them, and I got wiped out. What I learned is that income is what we need, not assets. Now, baby boomers are making the same problem. What they tell you is to get a good job and save for retirement.
You’re supposed to save your wealth, and one day, maybe your stock retirement account is worth $1 million or $3 million, whatever that is. There’s all types of calculators that you can find online that will help you calculate the number that you need. However, the problem is that number is based off of an asset, okay? And the problem is they say, well, if you get $1 million, you can withdraw up to 4% of that number per year. So the goal is that you’re going to live off your savings. You’re going to be draining your assets to live.
But the problem is, what happens if those assets become worth less money, like I’ve just demonstrated, like I experienced in 2008, like, there’s a very high probability of that happening. So the problem is the entire scheme that you’ve been sold of saving and living off of savings is broken income better than assets. Number two, we want to increase and not decrease. So the goal is that our assets should be increasing. The amount of wealth that we have is not currency. It’s not money in the bank. It’s assets that we own. We want our assets to be increasing, not decreasing.
So if you build up your assets, your stock, retirement account, and then you continually sell it off, live off of it, drain that piggy bank, your assets are decreasing. Now, maybe, hopefully, it’s enough for you to live off for the rest of your life, and then you die broke. You have nothing to pass on to your kids, your grandkids, whatever. Now, a better way to do it. If I had cash flow, if I had assets that cash flowed, those assets would continue to go up in value. I’m spending the cash flow being produced off of those while the assets are going higher.
That way, when I die, my assets are worth even more, and my grandkids or kids get those. And this is the way that we create generational wealth and not just lifespan wealth. You see, the communists want you to own nothing. Karl Marx said in the communist manifesto, to summarize communism, in one statement is the abolition of private property. I just showed you the quote from Trudeau. He wants to stop this intergenerational transfer of wealth, right? That’s why death taxes are so high. And so the entire scheme they’ve sold you of save for retirement and then spend your savings down is for you, for your lifespan.
Hopefully, maybe you’ll have enough money for your lifespan. Whereas if you build cash flow, you’re building it generationally because those assets will continue to increase in value and will pass on to your kids. Does that sound good? How exactly do we do that? Don’t worry. I’m going to break it all down for you right here. Cash flow is basically income, right? We need cash flow to live. You got to pay your monthly bills, you got to eat, et cetera. And so what we’re really trying to do is we’re trying to invest, not just for assets but assets that produce cash flow.
And I got a very easy way you can do this. So it all starts with intention. What is it that I’m trying to achieve? How much income do I need? That’s the first question. Now I just ask yourself to think about that. How much cash flow do you need? Now some people say I want a million dollars. I want $10 million. I want 10,000 a month. But they haven’t really actually thought through what that is. What I recommend is we need to figure out exactly what that is. If you wanted to go somewhere, if you wanted to go to dinner or go to your friend’s house, you would need to know an address to put into your gps.
You don’t say, take me somewhere cool or take me to my friend’s house. You need to put in an exact street number, an exact location. So we want to know our exact location. Now you can just use a Excel spreadsheet or a Google Doc if you want, and you can just kind of follow along. I’d recommend that you do this exercise if you want. This has, I have a calculator and stuff. You can get it for free right here. You can just scan this with your phone, download it for free, or you can build your own.
Take you 1015 minutes. Okay, so the first thing is, there’s two numbers that we want to get. The first number that we want to get is what is our minimum monthly expenses? So how much does it take for you to not be homeless? What’s your rent or house payment, your basic bills, electricity bill, gas bill, water bill, et cetera, and like a minimum amount of like food. What does it take for you to not be homeless like the 50% of elderly people? Because that’s, that’s the goal. Number one, don’t be homeless. So how much is that? Is it 2000 a month? 5000 a month? 10,000 a month? Add that up.
Here’s my rent, here’s my electricity bill, here’s my gas, my cell phone, et cetera. What is that number? That number is probably going to be lower then. The next number that I want to get is what’s my ideal number? Because for me, just being homeless isn’t enough. Right. I want to be able to continue to live my life. And so what’s that second number? What’s my ideal number? Well, I’d like to be able to take two vacations a year. Okay, great. How much are those? 5000 each. Okay. $10,000. Okay, so then break that down. $800 a month.
I’d like to be able to get a new car every three years. Okay, how much is that? Well, I’m gonna need a $10,000 down payment. Okay. Divide that by three years. Write that down. So then you have your minimum number, and then you have your ideal number. Now, if you’re a boomer, one thing you have to keep into consideration is, as you can see from this headline right here, that you can expect to spend way more on healthcare in retirement, even if you’re very healthy. According to what this article says, a 65 year old couple retiring this year will need $275,000 just for medical expenses.
So make sure to add that in. That’s going to be, I don’t know, roughly $1,000 a month. You’re going to need to add into whatever your expenses are. So step number one is write down what is your minimum expenses and then your ideal expenses. Step number two is that now that we know how much income, how much cash flow we need, our minimum number and our ideal number, the next thing is we have to decide how much money we’re making now and how much of that money is coming passively through our investments versus I have to work for, because the goal is to retire and not have to work anymore.
So now I would write down what is my monthly earned income. So my main job, I make this my. Maybe my wife works or I have a second job. I write that down. Maybe I have a side hustle. Maybe I do things on the weekend or something like that. So whatever things you’re working for, whatever earned income is, you want to write those numbers down right here. And then the next thing you want to write down is how much passive income do you have coming in? All right, so if you have a rental property, if you have a reit in your stock account, if you own bonds that pay you out, coupons, anything like that.
So you have a rental property, you have an ETF that pays you out. You have bonds, treasuries, government bonds, anything that you own that’s paying you passive income, write that down and total that up as well. Okay, so we’re trying to get a good picture. Don’t worry. I’m gonna show you how we can close this gap. All right, so that’s where we get, but we first have to figure out where we want to go. Number one, the number, and number two, where we’re at. Again, you can just do this on any Excel spreadsheet, a piece of paper with a pencil, or if you want, you can get this free download in the calculator.
Here, if you want to grab that as well. All right, now, once we have those numbers, I like to look at it through this calculator again, which is why you can get this for free if you want, but if not, just do your own math. The reason why I want to look at like this is because I want to be able to see visually what the delta is, what the difference is between where my goal is and where I’m at. So once I’ve put these hypothetical numbers in, I can see here’s the total amount of earned income that I have, 12,500.
And here’s the total amount of passive income I have. Let’s say 6000. All right? And it shows me the gap. This is what I need to close. This will quickly give me a summary of those numbers and it will tell me what my surplus is every month. What happens is once we’ve determined our goal and we start to track our goal, then it sort of gamifies the situation. Then it’s like, ooh, I’ve just added an extra $50 a month. Ooh, I’ve added an extra $100 a month. Now, what seems overwhelming, they say, you know, how do you eat an elephant one bite at a time? Well, it might seem overwhelming to get that 5000 a month or 10,000 a month that you need.
And it is, if you look at that big number. But if you just think about it, it’s like, can I add $100? Can I add $100 a month? Can I add an extra 250? And as you start making progress, you start to pick up momentum and steam and it starts to make it more fun. So it gamifies the situation, which is why I like to look at it in some sort of a tracking system like this. They say, well, it gets measured, gets managed. And so you want to measure your progress to the goal. Okay, so now you understand the game.
You understand where you want to go, what your minimum monthly expenses or your income. Let’s just write that here. Now you understand your target. Let’s make a target out of this. And you understand where you’re at here. So you are here. Okay, so now we know these two numbers. Now you might go, mark, you just make me feel more depressed because, holy crap, I need a bunch of income and I have none. Okay, no worries. Let’s make a plan. So now we know these two things. The goal is, now we just have to build the bridge.
Okay, so how do we do that? That’s the next step. So there’s three ways that we can do this. All right, three ways we can build the bridge and speed up that bridge production. Number one, we have to have capital, we have to have money. Cause we have to buy the cash flow. All right, we have to buy the cash flow. Number two, it’s the rate of return that we get on that cash flow. So if I can make 5% or I make 25%, and then the third is I have time. These are the three levers that will determine how long it takes to build the bridge and will allow us to speed up that bridge crossing.
Even if you have no passive income today, most people that I’ve worked with have been able to achieve this in just a couple of years. All right, so these are the three levers, capital, returns, and time. Let me give you an example again. If you want this calculator worksheet, you can download it completely for free right here. Just scan that QR code. It’s also linked in the show notes down below. Or just do it on a piece of paper. But I highly recommend you writing this down. A study done by Harvard MBa showed that less than 3% of people had written down goals when they went into the Harvard MBA program.
And those 3% of people that had written down goals outperformed the 97% by like ten times. Very important to write this stuff down. So even if it’s a pen and paper, do it. Or put into a spreadsheet, you can track it regularly. Okay, so let me show you what I’m talking about here. Let’s just say, hypothetically, you need $100,000 a year of cash flow, alright? That’s what it takes for you to live about eight grand a month. Okay, how do you do that? So we have to buy the cash flow, right? So if you have $2 million and you can invest that at a 5% rate of return, like buying us treasuries right now, risk free rate, about 5%.
It would take you $2 million to get the hundred thousand dollars a year of passive income. Now you might say, mark, now you’re scaring me even more because I need that and I don’t have anywhere near $200,000. Okay, well, you can do the same thing with $500,000 if you’re able to earn 20%. So these are the levers, I have the amount of capital it requires, I have the rate of return, and then I also have the time. So what do I mean by the time? Well, the time is the rule of 72. You take 72 divided by the rate you’re able to receive back the yield and that shows you how long it takes to double your money.
So let’s say you need 2 million, but you only have 1 million, and you can make about a 7% return. Well, you can just wait 710 years and you’ll double your money and you’ll have the 2 million. We’ll get into that a little bit greater detail here in a second. But you can understand, I either need more capital or I need a better rate of return, or I have to wait more time. All right, this, we can spend a lot of time, because now the next question is, what types of investments can I make to earn these types of yields? What are the risks that I have? And then how do I calculate what the timeframe is? Now, what I found is that it’s much easier to wait when I know how long I have to wait.
Lately at the gym, I’ve been doing this exercise where I just hang from a bar for, like, 60 seconds, which sounds pretty easy. And if I can look at the clock and watch it count down, I can do it, no problem. But when I’m not watching the clock, it’s very hard to hang on. I don’t know how long I have to go. And so when you build out this plan in detail and you know exactly how long it’s going to take you to achieve these milestones, it becomes much easier. But that’s more than I can cover in this video.
But I got you. I have another video, completely free that you can watch where I break all this down in greater detail, and I’m going to link it right here. It’s not listed on my main YouTube channel. It’s just for you because you made it to the end of this video. There’s a link in the description down below, or you can watch it up there if you want to watch it, and that’s what we got. Hopefully this makes sense to you. You got to do something. You can’t rely on the government to save you. Social Security is broke.
401 ks are going to be taxed. Assets could crash. You’re going to need cash flow. Hopefully that makes sense. Let me know what you think in the comment down below. Hopefully you like this video. If you do, give me a thumbs up. If you don’t give me a thumbs down, that’s okay. But at least tell me why in the comments down below. And that’s what I got. All right, to your success..
See more of Mark Moss on their Public Channel and the MPN Mark Moss channel.
