Whether you have a 401(k), 403(b) or 457(b) savings plan at work, it is my opinion that you might want to consider abandoning it all together! Now I know a lot of people will be shaking their heads in disagreement with me on this, but read on and look at my perspective and reasoning on this.
If you talk to 95% of my coworkers, they will all tell you that I am completely nuts for not maxing out my 457(b) deferred compensation plan or even contributing at all for that matter! Everyone says that it is prudent to make the maximum contributions, to start as early as you can and to not take distributions until as late as possible in retirement.
When I talk to some of the people who have recently retired, they like to brag that they have $1 million saved up in their 457(b) plan after 30 years of contributing. The funny part that they are forgetting is that that $1 million has not been taxed yet! Having $1 million in a 457(b) at retirement does not mean you have $1 million. It will certainly be quite a bit less than that after it is withdrawn and taxed.
While most of my coworkers are making big pre-tax contributions into their 457(b) plans each pay period, I am taking home a lot more after tax dollars than they are. While they are contributing $1,000 per month pre-tax, I am saving $4,000 after tax each month (between my wife and I). With this money I am doing my own investments like buying multifamily investment properties. These rental properties produce solid monthly cash flows that will serve as our main income source in the future.
In fact, this week I am closing on a triplex. I am buying it for $120,000 and the monthly rental income between all three units will be about $1,575. My estimated mortgage payment including taxes and insurance is right around $600 per month. After paying my mortgage payment and all other operating expenses I should easily see a $600+ per month positive cash flow! I am putting down 25% ($30,000) and borrowing $90,000, so this will be a pretty good return on my investment.
At the rate we are going, we are planning on buying 1-2 of these properties each year. 25 years from now, where will that put me compared to my coworkers and their 457(b) plans?
So while my coworkers are working on becoming deferred comp pre-tax millionaires (not really a millionaire), I am working on becoming a real life multimillionaire with a massive amount of lifelong passive income!
My wife had previously been contributing to her job’s 403(b) plan and had about $40,000 saved up in there. We withdrew all of it (paying the tax and penalties) and used what was left over to put a down payment on a rental property last year. Now that she is no longer contributing to her 403(b), she is brining home more after tax money and we are able to save more after tax money for real hands on investments that we actually have control over.
I believe that people who really want to take charge of their financial future should not just go along with the status quo. For those who are willing to invest some time to their own financial education, the opportunities to build their own fortunes are truly limitless. The problem is that 95% of people don’t want to have the responsibility of managing their own money and investments. They want someone else to do it for them. If you could get rich by just turning your money over to someone else, wouldn’t most middle class workers be rich by now? Get educated and take charge of your money! Get in control of your own investments and see how easy it is to beat everyone else’s investments.
I am not saying this is for everyone. For people who do not know how money works, do not know anything about investments, real estate or business, keep your money in your deferred comp so you at least have SOMETHING. However these people will not be getting rich by doing this. If you want to get rich, start getting educated on investments, real estate and business. Once you are at the point where you know what you are doing, take complete control of all of your assets and watch them explode!