27: The 3 Reasons Preventing You From Retiring a Millionaire

0:00This is a real good story about Bronx and his dad Ryan, Real United Airlines customers. We were returning home and one of the flight attendants asked Bronx if he wanted to see the flight deck and meet Captain Andrew. I got to sit in the driver's seat. I grew up in an aviation family and seeing Bronx kind of reminded me of myself when I was that age. That's Andrew, a real United pilot. These small interactions can shape a kid's future. It felt like I was the captain. Allowing my son to see the flight deck will stick with us forever. That's how good leads the way. Hey everyone, Robert here. Be sure to stick around until the end of this episode.

0:34We have something very special we want to share with our podcast listeners exclusively. It's something we've been working on for months now and will provide all of you so much value in your wealth building journey. Stay tuned. Hey, everyone, and welcome back to the Rich Habits Podcast, a top five business podcast on Spotify. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croak. Robert is a seasoned entrepreneur in his 50s with more than 200 million in company exits under his belt, and I'm an entrepreneur in my late 20s with a background in finance and economics. Since quitting my full-time job in corporate finance a few years ago, I've built a seven-figure media business and actively advise some of the most well-known fintech companies around the world.

1:20As the show name might suggest, every episode we talk about rich habits as they relate to business, finance, and mindset. However, we try and bring you two unique perspectives. One from an industry veteran, which is Robert, and the other myself, someone who's young and still in the process of building wealth and figuring it all out. Robert, what are we going to be talking about in today's episode? In this episode of the Rich Habits podcast, we're going to break down the three reasons preventing most people from retiring comfortably. Specifically, we'll talk about the lack of planning, carrying high interest debt over long periods of time and the lack of multiple income streams.

1:59I believe a lot of this is predicated on the mindset of analysis paralysis and the fear of failure when it comes to investing. So many people are fearful of what could happen. So they sit idly by without investing any of their money and getting into the markets. And this just does not help anyone when it comes to their wealth building strategies. I couldn't agree more, Robert, especially, you know, we've been seeing a lot of DMs and chatter from our audiences just here in August, as we've seen a little bit of volatility in the stock market down about four and a half, 5 % since the start of the month.

2:34And it just blows my mind because at the end of the day, the stock market does exactly that. It moves up and it moves down, right? No one is getting scared about the volatility to the upside of 5%, but to the downside, the whole world's coming to an end. So I can't wait to hear about these different reasons why people don't retire comfortably. Start us off with number one, Robert. Yes. Number one is you don't have retirement goals or even a plan. It's totally an afterthought. I see this every day where people in their 30s, 40s, 50s, and sometimes even 60s do not have an executable plan. They literally just kind of meander around and they say, hey, I've got a 401k.

3:14Well, guess what? The 401k is not a retirement plan. It's just one of the vehicles that you may or may not have in your retirement portfolios, but it is definitely not a plan. So people contribute to their 401k every paycheck, but they have no idea how much they're actually contributing. They have no idea what that amount will be over their lifetime. And the worst one is they don't know their annual returns or even what the funds are invested in. This is just, it just blows my mind on a daily basis where I'll ask people, what was your return of the last three years in your 401k? What is your 401k mostly invested in?

3:54What is your weighting in that? They have no clue. So listeners out there, all of you, please understand having a 401k is great, but that's not an investment strategy and it's not a retirement strategy. It's just one piece of the pie. So Austin, walk us through this a little bit more of your thoughts of where it relates to a 401k, a Roth, a traditional IRA, and give the listeners some more insight onto what you think is best overall. So I think, you know, this first reason of you don't have a retirement goal or even a retirement plan is overwhelming for a lot of people listening. I see a bunch of people commenting on my videos or during my live stream saying, wait a second, what account is this?

4:38What do I buy? How do I deposit? We have limits and restrictions and they don't even know where to start. So here is the plan in five simple words. Match beats Roth beats traditional. Okay, here's what I mean by that. The match you receive from your employer if you're contributing to your 401k is great. You want the free money. Let's get the money in the 401k. Assuming you have autonomy over it, you know what it's invested into, it's in the S &P 500, get up to the match because you want the free money. Next, Roth individual retirement account. That's the next step in the plan. Now you've done up to the match here.

5:15It's time to go open up a Roth individual retirement account and max that out every single year. What does max out mean? $6 ,500 per year or about$550 per month. No, you don't have to max it out every year. You can contribute less than that. That's totally fine and actually encouraged if that's all you can afford, right? It means you're investing toward retirement, but it's not some sort of restriction or parameter. So that brings us to the last part of this equation, which is that traditional. Think about this as your normal taxable brokerage account. You can also think about this as maybe some cryptocurrency, some diversification into collectibles or fine art or wine or farmland or any other sort of different diversified investment strategy here.

5:58So again, the priority, however, is that match because you're getting that free money. You know where the money is going because you actually took the time to look what's in the account and rebalance. And then you have the Roth IRA. You opened this up on Fidelity. Maybe it was Charles Schwab or even Vanguard. You are investing most of that, if not all of it, into the S &P 500 and you're investing as much as you can. And then if you have any money left over, you're now diversifying that into your normal taxable traditional accounts that you would open up on public.com. And now before we jump to reason number two though, I want everyone to think about taxes because at the end of the day, we know taxes are going to rise in the future.

6:36So that is why we choose the Roth retirement accounts, Roth 401k if you have it, Roth IRA absolutely. When we are investing for retirement, we know the taxes are going to be higher. So let's pay them now and then enjoy that tax-free money and retirement. I know that was long-winded, so I'm excited to jump in to reason number two, Robert. Yes, let's take it away. You carry high interest, a bad debt for years and sometimes decades. This one blows my mind, but we're going to break it down and hopefully everyone listening will understand that you just can't have this as part of your wealth building strategy.

7:11This is the biggest wealth inhibitor I see on a daily basis with people. I was just speaking to someone the other day who had nearly$500 ,000 invested for retirement, but was still carrying tens of thousands of dollars in bad high interest debt and questioning me if they should pay this off. This is very critical for everyone listening. You can't out invest bad high interest debt. And I know it seems difficult for people in the mindset where they're like, I have this nest egg so I'm going to leave the credit card debt go or the hospital bill debt go or student loan debt go and it's just not the right way to build wealth.

7:52You want to pay off any high interest debt as fast as you possibly can so then you can become cash flow positive and not still paying minimum payments on that because remember if your credit card debt or bad debt is 20 or 25 percent interest rate and you're making 10 % in the market, you're still 15 % to the bad. And we want to be on the good side of that positive arbitrage of our money. So this is a critical, critical point in wealth building to get rid of those high interest, what we call bad debts, as soon as possible. So that can be student loans. It could be a car loan, credit card loans.

8:31It could be medical bills. It could be taxes. You want to get rid of those first. So then all of your money going into investments, you have positive arbitrage on your money. This is critical in your wealth building strategy. I think this is probably the most important reason of these three. And here's why. Because so many people fall victim to it. Right. So just to put all this in perspective, America has$1 trillion dollars now in credit card debt at a 25 % interest rate. We have$1.6 trillion in auto loan debt at a blended 12 % interest rate and$17.1 trillion in total household debt. These are all record highs.

9:17This is not good. This is not how you build wealth. And now you might say, dang, I don't know, I see my friends going on vacation. They just got the new car. They must be doing good. And they're probably not, right? Statistically speaking, they are probably adding to this overall high interest bad debt equation that is keeping Americans poor. We want to get out of this high interest bad debt and we want to make sure that we're setting ourselves up for a comfortable retirement down the road. Yes, Austin. Thanks for those staggering numbers. That's just crazy to think about. And what everyone listening really needs to let sink in and to really ponder for a few minutes once they're done listening to this podcast is that there's no one there to pick up the pieces for you.

9:59They're just they're just not going to be there. It's really on you to take care of yourself and take care of your family and create these strategies, these rich habits to help you be in a position so you're not in one of those statistics. because I assure you when things go bad, you're not gonna have anyone to pick up the pieces for you. It's on you and keep that in mind. Accountability and I think it takes a lot of people saying, I'm sick and tired of being sick and tired. It's time for me to take back control of my life and hopefully some of that inspiration might come from listening to this podcast and forming those new rich habits for your everyday life.

10:37Robert, walk me through reason number three. Okay, this is a good one as well. Maybe not as important as number two, but very important for the overall strategy of building wealth, and that is you never executed on having multiple sources of income. 60 % of adults live paycheck to paycheck and without multiple streams of income. So it's incredibly hard to build any margin to pay off this bad debt or invest towards the future. Remember, your side hustle doesn't have to be anything groundbreaking or exciting. It just has to be enough where you can add a few hundred dollars each month to your budget so you can have that to put away for your investment strategies.

11:18That means you might want to consider walking dogs on Wag or Rover, delivering for DoorDash or Uber Eats, or even just driving for Uber on the weekends. There's no excuse to not have multiple sources of income in 2023. There are literally hundreds, if not thousands of side hustles out there that allow you to monetize your free time. And many of them are even remote. So everyone listening, please take that to note that there is no excuse and you should really be taking it seriously to have multiple sources of income to help you build towards your retirement and financial freedom. I think one of my favorite side hustles that has become a little bit more popular, especially this summer, it was made more popular by Gary Vee, but that's like garage selling, right?

12:05Robert, you talked about the estate sales you used to go to for fun. You'd flip a little items here and there. I think we were on a live stream talking about a scarf or a box of scarves that you found at an estate sale that were worth hundreds if not thousands of dollars because they were Gucci scarves, right? I think a lot of people get overwhelmed by the idea of, oh my gosh, I have to start an online business and I have to do this or I have to buy the equipment. Listen, y 'all, it is so simple to find a garage sale happening in your neighborhood, in your town, even biking, walking distance from your house on a Saturday.

12:37Show up early, you find a couple cool little things, you check the price of them, if you can flip them on eBay or maybe Facebook Marketplace, you pay one or$2 for it and you flip it into$15 or$20. Maybe that's what I did in college, cleaning car headlights. Maybe it's what my girlfriend does for fun, which is walking dogs on a rover or WAG or whichever one she uses. She made$312 last month walking a dog that lives right up the road from us for fun during her lunch breaks. She loves it. It makes her so happy and she's making extra money from it, right? And just to put that in perspective, 300 extra dollars invested per month for 35 years is$1 million in your retirement account after being adjusted for inflation.

13:19That's after the 3.5 % assumption for inflation. Just 300 bucks per month and you're a millionaire in retirement after 35 years, y 'all. This is so critical. I love this illustration every time you use it because it just comes back to the fact that so many of the fake gurus, so many of the wannabe people out there that are hiding behind a paywall want to make becoming wealthy seem super serious and difficult because they want to sell you something really expensive. Well, guess what? If you follow rich habits and you really listen along and take notes and take action, getting to that million, two million, three million dollar net worth is much easier than you think.

14:00Couldn't have said it better myself, Robert. With that being said, let's introduce the sponsor of today's episode.

14:30prices increased along with the highest total sales ever for major auction houses. Now the art market has actually passed its pre-pandemic level. But how can we take advantage? Well, tens of thousands of everyday investors already use today's sponsor, Masterworks, where you can invest without needing millions or an art degree. Every painting Masterworks has sold to date has delivered a positive return to their investors, including net annualized returns of 10, 17, and even 35 % all this year. Naturally, past performance is not a guarantee of future returns, and any investing involves risk, including possible loss of principal.

15:13However, Masterworks' 15th exit, a Sicily Brown piece, was just a couple weeks ago for an annualized net return of 77.3%. Our listeners get special access to skip the wait list. Just go to masterworks.art front slash rich habits. That's masterworks.art front slash rich habits and see important disclosures at masterworks.com front slash CD. I've personally invested into three separate pieces on Masterworks's platform. It was super straightforward and very simple. I couldn't recommend them enough. The link in the show notes below will allow you to skip the wait list and go straight to the platform.

15:56Again, that's masterworks.art forward slash rich habits. All right, Robert, everyone's favorite part of the podcast, the question and answer. And we've got three really, really good questions this go around. Don't forget, if you want to ask us a question, head over to our Instagram at rich habits podcast and shoot us a DM. I personally read every single direct message and I get back to literally everybody. I will get back to you. So shoot us a question. We're going to read it. And if we like it, we'll throw it up on the podcast. Our first question comes from Victor M from Mexico City. Victor says, I've been investing $3 ,000 per month now for a while, and I'm excited to keep up the pace.

16:34However, all my money has been going toward the S &P 500. Should I keep this up or maybe divide some of it into QQQ as well? Now, Victor, I like this question because I'm excited that you're not just investing for the future, but you're also thinking about diversifying into what might help you outperform the benchmark, which is that S &P 500. Before I answer your question, though, I just want to make sure that you're actually investing into the ETF VOO and not the ETF SPY. Now, the SPY ETF is the S &P 500, don't get me wrong, but VOO is actually an ETF by Vanguard that has an expense ratio that is three times cheaper than SPY.

17:19So over the long term, you're actually going to keep more money in your pocket and have more in retirement. So when we're talking about the S &P 500, we're talking about VOO. So here's my perspective, Robert. I say feel free to keep 60, maybe 70 % of this invested into the S &P 500 every month and maybe allocate the other 30 or 40 % to either VTI, QQQ, or even VGT if you're feeling a little bit more risky. What's your perspective? Yeah, I think that's a great breakdown. I love QQQ, and I think everyone needs to make sure they have part of the NASDAQ in their portfolio. Obviously, VTI is great as well.

17:57That's a total market fund. So you're really going to be broad, which is going to give you some safety and kind of the bumpy periods. And then VGT, if you want to be a little bit more risky, you can get into VGT and have that tech background. So you're going to have some of that with QQQ, but VGT is going to really round it out for you and perform well. So Austin, I think that's a great way for Victor M to round out his portfolio more and have exposure to more than just the S &P 500. I love it. And Victor M, just a quick call out too. If you're looking for income inside of this portfolio, consider SPYI.

18:33Don't forget the I. That ETF will provide you about a 12 % distribution yield right now on your investment, which could be something pretty reasonable depending on how much money you have in this portfolio. Just a little bit of passive income also helps offset some of that volatility we see in the markets right now in August. I think we're down about 4 % or so. Really good question. Our next question comes from Nina. She asks, what's the best investment account for a child who is not earning income? I like this question because a lot of people you hear online are going to say, employ your child, have a little LLC going on, put them on payroll, this, this, and that.

19:10That might not be viable for a lot of people listening right now. Maybe a lot of people just want to work their normal job, have children, and do the fun stuff. So I think this is a great question and very applicable. Now for me, I'm going to choose the 529 account, right? The 529. And not only does the parent have the opportunity to write off the contributions against their taxable income, depending on the state they live in, but any money that's not used for college can actually be rolled over into the child's Roth IRA upon 18 years of age, up to$35 ,000. I just opened up a 529 account for my newly born nephew.

19:46He's adorable. I put$3 ,000 into it. It'll be worth about$25 ,000 in 18 years if I don't put anything more. But if I contribute about another$100 ,000 to$150 ,000, it'll be worth closer to$60 ,000 in 18 years, which means my nephew could use$25 ,000 of that to pay for college. And again, these gains are tax-free. But then they can also use that other$35 ,000 and roll it over into their Roth IRA to get a great jumpstart to their retirement investing. Robert, what's your favorite account? So yeah, you took the best one probably, but a custodial taxable account is a great way to tackle this as well.

20:22I love this one because of the flexibility you have as the parent to invest as aggressively or as passively towards your child's future as you'd like. I think what's also really fun about this is that if your child loves certain products like Nike's, for example, you can show them that they can also own Nike stock so they can understand that ownership and be in an investor mindset early on versus just a consumer mindset. So it really helps them get that mindset shift early in life. And that's a great place to be when teaching your children financial education and literacy. Also, as they get older and start earning income, you can then open up a new account for them called a custodial Roth IRA and help them jumpstart their tax-free retirement investment.

21:09So that means if they're bagging groceries, babysitting, sweeping a floor, maybe your business or a friend's business, it doesn't matter as long as it's earned income, then they can really use this custodial Roth IRA, have those earnings be tax-free for life even before they're 18 years old. What a great question, Nina. Our final question comes from Heinz. Heinz asks, what's the difference between CDs and T-bills? Which one should I be looking at and why? Good question. I feel like we hear all the time, do I choose the high yield savings account? Do I choose the CD? Do I choose the T-bill? One's paying four, one's paying five, one's paying five and a half.

21:50What do I choose? So CD stands for certificate of deposit, keyword being deposit. You're depositing your money into an account that essentially requires you to keep it in there until a specific date in the future. This specific date might be several months down the road and is essentially locking up your money for a period of time. If you want to take your money out with a CD, you have to pay an early withdrawal fee, which is why we actually prefer the T-bills, aka U.S. Treasury bills. These are essentially IOUs from the U.S. government saying, you're lending us X amount of money for six months, and we're gonna pay you back what you lent us, plus a predetermined interest rate.

22:31And on public.com, you're able to buy and sell your T-bills at any time, which means you're able to jump in and out of them freely without any sort of lockup periods, like you might see with a CD. There's also no state or local taxes on your profits with T-bills, which means more money in your pocket when Uncle Sam comes knocking every April. And there's also a link in the show notes below if you wanna go open up one of these T-bill accounts. We couldn't recommend them enough, especially as a good place to park your emergency fund, your savings account. I personally have$50 ,000 parked in mine, and I'm making 5.5 % interest every year on that money, which is incredible, especially when you look around and say, wait a second, the stock market's trading up and down.

23:10I don't want any of that volatility for my savings. Let me park it in something stable that's going to appreciate slowly but surely over time. Robert, I know you've heard a little bit about the kind of dilemma of the high yield versus the CD versus the T-bill. I'd assume you also agree that the T-bills are the best way to go here. Yes, I love it. And, you know, we both really appreciate and enjoy working with public.com. I think it's a great platform and the best place to purchase T-bills, as well as cryptocurrencies and some of the other investments you would want to make. But I love treasury bills, especially right now, because I just think it's a great way to hedge your bets a little bit and a really safe way, because with no state and local taxes on the gains, you're truly making the full amount of the 5.5 % return.

23:56And I just think it's a great and easy product to carry during uncertain times. So I love it. Yeah, and just so we're on the same page here too, with a high yield savings account like you might see on Wealthfront or Betterment, those accounts you do have to pay state and local taxes on your gains. So just be aware of that if you have one of those accounts that to be setting aside a little bit extra money for when Uncle Sam comes knocking again in April of 2024. So with that being said, everyone, we could not be more excited to have passed Dave Ramsey on the freaking business charts on Spotify because 42 ,000 of you come back every single week to listen to what we have to say.

24:39We could not be more privileged and excited. We feel warm and fuzzy inside that we have such a large growing community. and we've been working really hard behind the scenes on something very, very special. Now, what we're talking about here is something that we wanna give our podcast listeners a little bit of a sneak peek preview to before we launch it to the public. So as a little token of our appreciation, we want you all to not only get a discount, but also get it one week early. And that is the Rich Habits Podcast Wealth Building Blueprint Course. It's a four-module video course. It's about 45 minutes long and it walks through how to earn extra income, how to pay off your debts, how to build your credit score, how to repair your credit score as well.

25:24But more importantly, how to invest for retirement so you can comfortably retire, hopefully, a millionaire by the time you're 65. This course is literally the blueprint. I mean, we talk about the ups, the downs, all the things that we've gone through personally and share with you all our biggest learnings as well as the playbook on how to achieve wealth in retirement. Now, here's the deal. Because you are a loyal podcast listener, if you go to our Rich Habits Podcast Instagram account and you send us a DM of your favorite color, blue, green, purple, red, orange, indigo, violet, I don't care. But send us your favorite color and I'm going to send you back a 20 % discount code for the Rich Habits Podcast Wealth Building Blueprint video course.

26:08That's a mouthful, by the way. We're going to send you a discount code to show you how much we appreciate you. And just you know here that we're not launching the course for another week, which means you get it one week early because we love our podcast community. Robert, what do you think about that? You think that's pretty fair? BJ's Wholesale Club makes holiday hosting so easy. We called in the ultimate host to talk about it. Mrs. Claus here. You think Santa has it tough delivering all over the world? Try cooking for hundreds of elves. Good thing BJ's offers low prices on all the menu must-haves, plus free same-day delivery on your first order of$100 or more.