What Do You Want More?

If you were retiring today, what would you immediately begin doing? Many of us would answer with things like building a mountain cabin that we could enjoy or purchasing a retirement condo in a resort somewhere beautiful.

So, why don’t we start enjoying these kinds of things right now? Most people will answer that they simply cannot afford it right now. The reason for this is that they are socking away everything they can for the next 20 years into 401(k)s and IRAs so they’ll have the extra money to buy those things when they retire.

What are you waiting for? Waiting may just keep you from doing the very thing you dream of.

Imagine that we have a couple in their 40s who are socking away $500 each month into their 401(k) or IRA to build up a nest egg so they can buy their dream cabin. Let’s assume that this couple does pretty well and their 401(k)s earn an average of 11.25% for 20 years.

Let’s fast-forward two decades in time and we will see that their $500 per month savings has grown to $450,000. They are ready to retire and purchase the cabin of their dreams when two facts hit them right between the eyes.

Number one, their $450,000 supplemental retirement account is fully taxable and they are in the same 33 and a third percent bracket they were in during their earning years. This means that they will only net $300,000.

They’re not in a lower tax bracket like they thought they would be when they retired because Congress keeps raising the tax rates and they got rid of all their tax deductions.

Number two, they realize that the cabin they could have built 20 years earlier for $100,000 will now cost them $400,000 to build. The cost of the real estate has doubled roughly every 10 years.

The couple’s disappointment will be palpable.

Ditching the 401(k) For a 401(cabin)

Imagine how lackluster this couple’s conversations must have been over the 20 years they were accumulating money in their traditional retirement savings accounts.

Did they spend romantic evenings going over the performance of their 401(k)s and IRAs? Did they sit down with their kids and grandkids to show them how their diversified portfolio might one day transfer any leftovers to them at 22 cents on the dollar due to taxes and everything else?

Do you suppose that this couple would rather have spent many weekends actually enjoying a cabin rather than reviewing 401(k)s at home? Wouldn’t they rather have enjoyed an Individual Retirement Abode than a traditional IRA?

Imagine that our couple took that $500 a month and used it to pay an interest only mortgage on a $100,000 cabin over 20 years. Thanks to the mortgage interest deduction they’d still be enjoying tax benefits on their money just like they would have if they’d put it into a traditional qualified retirement savings account.

However, at the end of 20 years with a property that is appreciating at 7.2% the value of their cabin would now stand at $400,000 minus the $100,000 that they owe for the mortgage. That’s still a net gain of $300,000.

More importantly, they also have 20 years worth of family memories to enjoy along with their cabin. Isn’t that worth much more than a file cabinet full of quarterly IRA reports?

Do you get the picture?

When it comes to your future, it’s important to ask what you really want. When we stop and think about it, most of us want a balance of sound financial living as well as meaningful family memories.

You can have both. Take the time to explore your options so you can achieve your ultimate goals in the best way possible while enjoying the abundance that you and your family deserve.

Picture: Ted Leutz, Doug Andrew, Lynette Robbins


Doug Andrew