The Del Walmsley Show – Discussing Automatic Enrollment into 401(k's) – Do You Pay Attention to Your Money?

“It’s just the situation that most people — 99 percent of the people—don’t pay attention to their money.

They don’t care.

And it’s so prevalent that they can write about you in national magazines telling people, “All right.

Let’s take advantage of this laziness and this ignorance of the financial situation that they’re in and let’s just pop ‘em.””

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Automatic Enrollment

I had someone come in and drop this on my desk today, one of the other radio hosts here. I got this financial planning magazine, and we love these because it just gives us all kind of material—not that they’re teaching us anything we should know; they’re teaching us everything that we should know that you shouldn’t do.

There’s an article here on the concept of the automatic enrollment of employees into the 401(k) program. And I did a piece about this when they first came out with this law and passed it that now it is legal for your employer to automatically enroll you into the 401(k).

Well, it goes on in this article and what the basic premise of this article is is that people in general are so stupid and so lazy that even when they automatically get enrolled into these things they won’t opt out. It goes on further to say that even though people are not getting paid a matching fee from their boss, once they opt them in automatically most of the people will never opt out.

Matching

So in other words the matching—which was the only real reason anybody ever really went in the 401(k) in the first place, the matching aspect—is not even being supplied. People are being automatically enrolled into a 401(k) that doesn’t even benefit them in any way, shape, or form.

But what’s interesting is the financial planning magazine this comes out of says but that’s okay because it’s not really going to increase the saving rate in the country. It’s not really going to increase the amount of return that people make on these deals because they’re not making any return right now.

And without the matching, they’ll make nothing because—let’s see, the stock market is 10,300 or whatever it is today and ten years ago it was 11,600. So if you’ve had your money stuck in a 401(k) now for the last ten years, you’ve actually lost money. Now, if your boss didn’t match, then what good was doing any of that? Absolutely none. Useless. It was a complete waste of time and money.

Sad State

And think about it, you didn’t get the money. You could have had the money, could have invested, could have made a lot of money, maybe even been rich by now. But the arrogance of this financial magazine stating that go ahead and do these mandatory enrollments because nobody will even pay attention? Now, I think that is a sad state of affairs, but yet I believe it’s true. The average person out there does not pay attention to their financial situation at all.

Look, I do this thing in my seminar—and I probably shouldn’t let this out, but I’ll go ahead and let it out—I have everybody add up their net worth, and I have everybody add up their passive income they made a year previous. Then I say now divide your passive income by your net worth.

And do you know what the average is in the room when we do it? Less than one percent return. The average American makes less than one percent a year on their net worth. Now think about that.

Ridiculous Results

How are you going to get rich one percent a year on your net worth? That’s a ridiculous result. Some people make almost nothing to nothing, some people make you know half a percent, three quarters of a percent, but the average person makes less than one percent.

The highest I’ve ever seen was somebody who made six to eight and those people were making money by being a real estate investor and they have rental income coming in. But you just don’t see it in the average person till they learn how to do what we do doesn’t make any money.

Now, you can lie to yourself as Vince Rowe says in his ad, “You can lie to yourself, but you’re not lying to me.” You’re not making any money. And it doesn’t matter what it is whether it’s day trading or whether you’ve got your own version of real estate investing and flipping and this or whatever.

Prevalent

It’s just the situation that most people — 99 percent of the people—don’t pay attention to their money. They don’t care. And it’s so prevalent that they can write about you in national magazines telling people, “All right. Let’s take advantage of this laziness and this ignorance of the financial situation that they’re in and let’s just pop ‘em.”

Why do these financial planners want to do that? Because they’re getting paid money to manage these funds. So they want billions of dollars—of course we want everybody’s money in this so they can make money.

Now, the democrats have decided that they may make the match and/or the entire amount put into an IRA or 401(k) no longer a tax deduction. They think that there’s $800 million worth of lost taxes out there a year that they could make if they just wouldn’t allow for 401(k)s, IRAs, and they’re thinking about stopping the program making it not a taxable advantage situation.

Social Security

They even discussed taking IRAs and 401(k)s and rolling them up into the IRS and making them sort of like advanced social security program where they pay you some type of an annuity back for the rest of your life once you reach a certain age. Now, you know how that program’s going to go. I mean you’ll never see your money.

If you’ve got 200, 300, 400, $500,000 and you were to take that money out and pay the taxes, in that situation you could go out there and become rich with that money in a very short period of time. But no, you leave it in there and you’re not going to earn anything with it. And 30 years later it’s still not worth any more—and it might have gone down—and you still have got to pay taxes on it. And now the government might even take it.

I got an email here from a guy who asks, “Can you buy real estate with your IRA?” And the answer is, “Yes, you can.” But why would you want to do it? Real estate is a tax-free or tax-deferred investment where you can defer the taxes for the rest of your life if you know how to do it correctly. If you do it correctly.

1031

Between a 1031 you can move the capital gains taxes forward till you die because of depreciation. You don’t pay any income taxes on the rental income. So why would you take a business like that that’s totally tax-deferred or tax-free business and put it inside of an IRA where everything you earn becomes ordinary income and you have to pay ordinary income taxes on it? That doesn’t even make sense.

So let’s say you have 60,000 bucks in there and you take it out. After taxes you end up with 40,000 bucks. With the $40,000 you could go buy four houses, make 25 grand each. And at the end of a year you’ve got $100,000 profit of capital gains instant captured equity, you’ve got 40,000 you invested into the houses, and you’ve made another $10,000 in rental cash flow, so you’ve got 150 grand.

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