Have you ever been flush with cash? Have you ever received random amounts of money that you truly do not need (or want) to spend?
Well, this is my life every day as an income investor. I invest for dividends that help me fund my lifestyle today (in my 40s) and tomorrow (in my 70s).
But my life wasn’t always this amazing. I started my career as an average 401K investor, trying to save 10% of my income. After 20 years of doing that, I had only $30,000 in my account.
The Publishing Chronicles 1: Write a Book in a Week
I used to believe in 401Ks. Investing in my 401K (in the military, we call it Thrift Savings Plan) seemed like a good idea.
I would work for 20 years in the Marine Corps, grow my 401K, move to civil service, continue to grow my 401K, and retire at 65 with two pensions and a massive 401K account.
What a load of bullcrap. That’s 45 years of work to potentially have $20,000/month in retirement and an additional $4,000/month in 401K.
At ages 42 and 39, our dividend portfolio will probably net $20,000/month (or more) by age 65. That’s the power of compounding education and action.
Oh yeah, I forgot to give you one more important fact: my wife and I will both be fully retired by the end of this year. That’s 23 years earlier than our original plan.
Staying Debt-Free in Your 20s
Retirement is a math problem. The easiest way to discover the 401K lie is to do a simple math problem. I know; most people hate math, but this is easy.
Suppose you are 40 years old and make $100,000 per year. You decide that you can live on $100,000 per year in retirement and choose to find out how much you need in a 401K.
The math for this problem is $100,000 X 25 = $2.5 million. Pretty simple, right? Okay, how did I arrive at these numbers?
The $100,000 is your target annual withdrawal amount. With 401Ks, we use the 4% rule to give us a general estimate of how much we can withdraw safely per year.
You can either (dividend $100,000 by 0.04) or (multiply $100,000 by 25); it’s the same math.
Inflation Ate My Paycheck 105: From Broke to Saver to Investor
But the math begs a bigger question. How long would it take to save $2.5 million while saving 10% of your salary (250 years at $10,000 per year)?
The 401K is a lie; you cannot continue living your retirement lifestyle after saving 10% of your paycheck for 45 years.
You cannot save your way to financial freedom; it requires thinking outside the box. Let’s look at ways to free ourselves much earlier than age 65.
Choose Your Passive Income Adventure 3
Use a combination of passive income streams. You always want to consider monthly passive income when dealing with retirement.
Therefore, $100,000 per year equals $8,300 per month. This number is much more reasonable than you imagine.
- Renting rooms. First, you can rent rooms for $1,800 per month.
- Renting a car. You can rent your car on Turo for $1,000 per month.
- Writing career. Over three years, you can earn $3,000 per month writing.
- Dividend portfolio. Since you have a job, you can invest your extra income. Over a few years; you build your portfolio to $3,000 per month.
- Total: That gives you $8,800 per month in income outside of your job within five years.
Congratulations, you can officially stop working at your job. Or you can continue to work to grow your income investing portfolio.
Is it truly that easy? Yes, you can build these income streams within five years with massive effort and extreme focus.
What’s next after freeing yourself? Now it’s time to pursue your passion. You can also continue to increase your income from rental properties, writing, and adding more cars on Turo.
The Metaverse 113: The Metaverse vs. Your Job
Why the 401K will fail. The 401K doesn’t just fail you from a structural level, but also an educational one.
You learn nothing by investing in a 401K. It is more dangerous than a savings account because someone is playing with YOUR money on the stock market.
You don’t even get the full facts on the investment products supposedly growing your money. For example, they may say, “Aggressive S&P 500 Growth Fund.” What the heck does that mean?
One of my biggest gripes is how a 401K handles dividends. Dividends are the key to a healthy, sustainable retirement because your income grows yearly.
No dividends for you. A 401K does not pay you dividends. I assume the fund reinvests the dividend automatically, but you cannot track this at all.
The Magic of Cash Flow
You should see the price of your 401K shares increase from capital appreciation and reinvested dividends, but again, you cannot see behind the curtain.
When investing in index funds outside of a 401K, you see your dividends. Yes, you pay taxes, but you see them.
Even during market downturns, my dividends keep increasing. Look at my dividend history over the years.
In addition to missing dividends, you must contend with hidden fees, taxes, and penalties. It’s just a lot that is not going in your favor with 401Ks.
How to Make $500/month in Dividends
Beat 401K with knowledge. The only way to outperform a 401K is with knowledge. No investment strategy or operation can beat the return on investment of renting rooms.
The sharing economy is the best way to accumulate money that you can put into your income-investing portfolio.
Having your assets do all the heavy lifting is the key to a successful retirement. Your houses should appreciate in value and increase in rent, your dividends will increase, and your income from royalties will compound.
Compounding interest and creativity are the best ways to retire early, not depending on a Wall Street fat cat to give you a 4% return.
The American Dream Costs $5 Million
Conclusion. You are better than your 401K; you just need to believe it yourself. I am retiring with $10,000 in a 401K, and $250,000 in a dividend portfolio.
My 401K will do nothing for me over the next 17 years, while my income portfolio already pays me $1,600/month.
Over the next 17 years, which investment will serve me better? Additionally, over the next 40 years, which will be a better asset inside my family?
If you hate learning, growing, and performing, stick with your 401K. However, if you want a better life for yourself and your family, try thinking outside the box—it works! Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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