“Think about that.
How can anybody guarantee to make a lifetime payment to you for the rest of your life?
If it’s that easy, why don’t you just do it yourself?
Well, we can.
And we don’t need somebody else to make a profit off of us and our money…
…Whatever it is, they’re taking that money and never giving it back to you again ever.”
Objection
If you were here yesterday, you know what I’m going to be talking about today again a little bit more, and that’s this thing about the government trying to take over your 401(k) and your IRA.
Here’s an interesting little deal here. It’s in Business Week. It’s talking about the fact that in the United States—they did a survey on this last week—it said that seven out of 10 U.S. households would object to the idea of the government requiring retirees to convert part of their savings into annuities guaranteeing lifetime payments according to institute funded report today.
The Washington-based institute represents the mutual fund industry. People value the tool of 401(k)’s it’s got Stephen’s chief executive officer. Goes on and says more and more and more—but here’s the point I want to get to. This is the thing I was thinking about yesterday just kind of talking out loud to myself.
Lifetime Payments
Do you realize that—how somebody can guarantee to make a lifetime payment to you? Think about that. How can anybody guarantee to make a lifetime payment to you for the rest of your life? If it’s that easy, why don’t you just do it yourself? Well, we can. And we don’t need somebody else to make a profit off of us and our money.
Let me give you an example of what I mean. What are life insurance companies doing to sell these annuities and—that’s who sells them is life insurance companies. They are taking your money, your life savings whatever it is — 50,000, 500,000, $5 million.
Whatever it is, they’re taking that money and never giving it back to you again ever. It’s theirs. You just gave away your life savings forever. Now, if you’d like, I’d like you to give your life savings to me.
And here’s what the difference is: They’re going to take that and they’re going to give you a dividend that’s equal to something like two percent return. And then they’re going to go out there and they’re going to do one of two things. They’re either going to sell mortgages or lend money to people on mortgages on a real estate deal and earn six percent.
And so they’re earning six percent on something they’re paying you two percent on, and they will own that real estate forever or that mortgage forever or until it pays off, in which case they’ll put the money back in the market in a similar type deal.
Your Money
Now, if they lend me the money for six percent, I’m going to go out there and I’m going to earn 15 percent on the money and turn around and pay them six which then they’ll pay you two. So I’m going to make ten percent on your money, they’re going to make four percent on your money and you’re going to make two percent on your money.
What I don’t understand is this: Why don’t you just make the 16 percent yourself? In addition to that, as the property appreciates and goes up in value, the insurance company who might either own the real estate itself or own the mortgage—if it owns the real estate it’s going to get the capital appreciation. If I own the real estate I’m going to get the capital appreciation, but in neither case are you going to get the capital appreciation.
So who’s pushing this type of a deal? What is the reasoning for people to do this? Do you really believe it’s because Obama wants to help somebody? Do you really believe that they’re making it safer for you to take all of your money away? It’s just like everything else. It’s a giant scam.
And really there’s two agendas going on here at the same time. One of them is the insurance company and one of them is the government who wants to tax you on that money.
They want you to take it out of the 401(k). They want to stop having 401(k)’s because there are trillions of dollars sitting in these 401(k)’s which means there are billions of dollars of taxes that they could collect.
Fixing Things
Now, yesterday we talked about how frustrating this was as a human being. But today we need to talk about how to fix this thing—and there is a way to fix it. If you pull your money out of your 401(k) or your IRA, do you not realize you’re going to be taxed?
People seem to have this weird belief that the money in their IRA is actually real, but it’s not. You only own about 60 percent of that money. Thirty-three percent of that money is still taxable or about 33 percent tax is going to be charged on that money.
Now, maybe you’re in a lower tax bracket because you don’t have very much money. But the only reason you are in a lower tax bracket is because you’re only pulling out a little teeny bit of money.
For these guys to say that that little bit of money put into an annuity is going to guarantee you a lifetime retirement is ridiculous. First of all it’s not going to be enough money, and it’s not going to grow because there’s no capital appreciation when you’re in an annuity.
Lifetime Income
Now, I realize folks, for those of you out there — financial planners are saying there are a tremendous number of different types of annuities, but that’s not what they’re talking about.
They’re talking about going into an annuity that will pay you a stream of income for the rest of your life. They’re not talking about variable annuities, they’re not talking about stock-based annuities, they’re just talking about a straight-old, plain-Jane, life insurance annuity.
My suggestion, folks, is before they can enact this garbage, why don’t you pull your money out of your IRA and 401(k) today? Just go down and take it out. Yes, you’re going to pay taxes. Yes, you’re going to pay a penalty, but at least you’ll have some money.
Capital Gain
And let’s just go through it. I go can go out here and buy a property with 25 to $50,000 instant capital gain. I could put down 20 percent. So I buy a $100,000 property for 50,000. I have to put 20 percent down, which would be 10,000. I put another 5,000 to 10,000 in rehab in it and I got 20 grand in it.
So now I own the property for 60 grand. It’s worth a hundred. I just made $40,000 on $20,000 investment. That’s a 200 percent return. I also have probably around $400 a month positive cash flow.
In fact there’s a case study in Houston Thursday night and we’ve got one guy that’s got $500 a month positive cash flow a month and another that’s got 750 a month in positive cash flow. But what you don’t get when you get that annuity is the 200 percent gain and that’s what you’re missing out on. That’s how we get rich. That’s how we make those annuity payments get large enough that they can retire us.
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