The Reason Why Retirement Is a Failing System

For almost 15 years now, I have been helping families and individuals across the world become more financially trained and secure. But one of the things I hear over and over is “I wish I would have learned this earlier”. And it’s true: the power of time cannot be overlooked when it comes to finances and it’s either on your side or against you.

But the question I want to ask today is: why are so many people failing to build financial security? The Social Security Administration states that only 5% of Americans will be financially secure by age 65.

It’s no secret that retirement is looking more and more unrealistic for Americans every single day. So, what is the issue? What is preventing Americans from retiring? Let’s begin to unpack this issue and look at the top factors that are getting in the way:

1. Not enough income:

The average family I see is making roughly $60-$100,000 per year in gross household income. Let’s split the difference and call it $80,000. After taxes let’s say that is $60,000 per year. Now take a mortgage payment of $2500 per month (based on a payment that is 25% of their household gross income. Again, this is being very generous). Now they only have $2,500 left to live on. Between the car payment, student loans, credit cards, and all other debts there isn’t much left….and don’t forget groceries, gas, utilities, clothes, and adding a little fun on the weekends…. maybe a few lunches out. Oops we’re entirely out of money and running into debt. And we haven’t saved or invested anything yet.

2. Owing money to someone else’s bank:

Most families I talk to have at least 1 car payment, a mortgage payment of at least 30% of their gross monthly income, at least 2 credit cards, and roughly $30,000 in student loans. These are all debts that consume a fixed percentage of their monthly income. Being enslaved to these payments not only ties up their cash, but it forces them to pay interest rather than earn interest. Don’t be fooled. There is no such thing as “smart” consumer debt. Debt that is not used to increase your income is not a good idea under any circumstance. Most families also don’t know they can set up their own banking system so that they recapture and benefit from all of the interest they’re paying instead of sending it all to someone else’s banking system. Changing just this one thing is an absolute game changer.

3. Not enough savings:

In America we have some of the highest average wages in the entire world! But our savings rate shows no correlation with that. As discussed already, most people have spent their paychecks before the money even arrives. Sadly, for those that do save, it is only a few hundred dollars each month in their bank, which has such a low rate of return that if it were any lower it would be negative. Our savings rate continues to drop, furthering the debt situation and making the future look even more bleak. And for those that do save, they make the mistake of putting the money into an employee retirement plan that they cannot touch until they are 60, which is not “saving”. It might help when you’re 60, but if you want it now, you’ll pay up to 50% in taxes and penalties to access those funds.

4. The wrong kind of “assets”:

I know what you’re thinking here: aren’t all assets good assets? This is where most people go wrong. My definition of an asset is something that not only has value but also pays us an income greater than its costs.” The average person I talk to has roughly 60% or more of their total assets wrapped up in their primary residence (which usually has little to no equity due to the mortgage attached to it) and the other 30–40% locked away in a retirement account.

Let’s first address the primary residence. A house, although it may be comfortable and nice and everything else that caused you to buy it, is not an asset. A house costs us money; it does not pay us money. According to the Robert Shiller’s Housing Price Index, from 1900–2012, when adjusted for inflation the average home in America only appreciated by 0.10% per year. That does not include debt, interest paid, taxes, insurance, or repairs. Once those factors are considered, an individual actually loses money on a home year after year. (This does not mean never buy a home. It means buy a home looking at it sheerly as a housing cost and make the decision based on the housing cost itself. Do not buy a home and then justify the purchase with false, pie in the sky financial justifications.) Whether you own or rent, keep your total cost of housing less than 25% of your income and ensure that you are able to save as much cash as possible every month with the intent of investing it before you ever consider buying a house. If you rent, know why you are doing it and that it mathematically makes sense. If you own or want to own, know why you are doing it (and know it’s not about assets) and that it mathematically makes sense.

Now let’s talk about that 401K. The 401K, along with a host of other “deferred compensation” retirement plans, have only been around roughly 45 years. Deferred compensation means you are opting to be paid later instead of now, and because of that, you’ll be taxed when you receive the money (later) instead of now. I recently worked with a client who, over the last 17 years, made only 3.14% per year in his 401k, just in an S&P 500 index fund, after fees. This does not account for inflation either. Inflation in recent times has been 6–10% per year and that means this client actually lost money in his 401k even though his statement says he made money. I also believe that assets are things that can help us create a wealthier life now and in the future. A 401k doesn’t do that. It literally reduces our quality of life now in hopes of having the same or better quality of life later. (This does not mean never invest in a 401k. It means, if you invest in anything at all, make sure you understand it, can track the returns, it can be easily accessed and converted to cash, and will pay you recurring passive income and that you can use it to create a wealthier life NOW.)

The wealthiest in our country’s history have historically owned mostly small business equity, investment real estate, and some publicly traded stocks as their assets. Success leaves clues. So does failure. I personally would rather copy the wealthy than defer my lifestyle with a retirement system that isn’t even 50 years old.

5. No professional guidance:

Competence leads to confidence. Only 1/3 of Americans have professional financial guidance, and this 1/3 is quite a bit better off than those who have no guidance. Money and wealth are games and games have rules. And you cannot win a game that you don’t know the rules to, can you? If you don’t have a coach? If you don’t have a plan? You can’t! Nobody has ever become generationally wealthy by accident. Zero dollars per month at a zero rate of return for zero years equates to…. you got it…. broke! Zig Ziglar has a great quote that says, “You hit what you aim at and if you aim at nothing you will hit it every time.”

Many Americans stay on the sidelines when it comes to money for a few big reasons:

They don’t understand how it works.

They don’t have enough money due to the previously mentioned areas.

Most importantly they don’t feel they can trust anyone in the financial services industry to do the right thing for them.

My goal with my company is to solve this issue for people so they can create wealthier lives now with their loved ones and in the world around them.

If you’re also good person who wants to help make the world a better place and you’d like more information on the Fraud Free World initiative or you’d like to support it with me, send an email to my team with “Fraud Free World” in the subject line to [email protected].

If you’re a follower and have not read my book The Blueprint to Financial Freedom yet, that is the place to start. This book covers the specifics for each level in the various chapters and you can grab the book for free as my gift.

Click here to get a copy!

The Blueprint to Financial Freedom by Jerry Fetta

To Purpose, Wealth & Freedom,

Jerry Fetta

Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on 100+ podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Kevin O’Leary, Grant Cardone, Dave Ramsey, and Pamela Yellen.

Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.

Learn more at www.WealthDynamX.com

(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)