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This episode is brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Well, with the name your price tool from Progressive, you can find options that fit your budget and potentially lower your bills. Try it@progressive.com Progressive Casualty Insurance Company and affiliates Price and coverage match limited by state law. Not available in all states.
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In 1974, the government made a decision. They didn't announce it, they didn't explain it. They just changed the rules. And 50 years later, millions of people are heading into retirement with broken pensions, a 401k that's been quietly drained by fees, and a Social Security system that is, by its own math, running out of time. Today I'm going to show you what they did, why your wealth number isn't what you think it is, and more importantly, how to get out. This is the Rich Dad Radio show,
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the good news and bad news about money.
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Here's Robert Kiyosaki. Welcome to the Rich Dad Radio show, the good and bad about money. This is Robert Kiyosaki, and today is just you and me, and we're talking about what the rich are teaching their kids about money. Today. I want to talk about a trap, a trap that's been running for 50 years. Most people walked right into it, never even saw it coming. And here's the thing. Most people are still in it right now. Let me ask you something, and I want you to really think about this. How much longer do you have to work? Not when you're planning to retire. Not what your 401k statement says. I'm talking about the real number, the honest number. Because most people, they've never actually sat down and run it. The real math, the math that accounts for inflation eating your savings every single year. The math that accounts for pensions dying in bankruptcy courts. The math on a Social Security system that is, and I'll say this plainly, mathematically broken. Most people aren't prepared. And it's not because they're lazy. It's not because they're stupid. It's because the system they trusted was never designed for them. It was designed for Wall Street. Here's what gets me. They didn't hide it. They put it right in front of you, called it a retirement plan, called it a safety net, Said, save your money, trust the process, the plan will work. And while you were following the rules, they were changing them. Something was done to you in 1974. Most people even today, have no idea what it was. Let me take you back before the 401k existed, before mutual funds were the answer to everything there was the pension, the defined benefit plan. A company looked you in the eye and said, work for us 30 years and we'll pay you a check every month for the rest of your life. That was the deal. And for a while, it worked. Companies used pensions to get the best people, to keep them loyal. The banks understood this. The corporations understood this. And then the math caught up with them. General Motors went bankrupt. Delta Airlines went bankrupt. United Airlines. Each one of them came out the other side, lighter, leaner and free. Free from the pension obligations they'd promised their workers for decades. Think about that. The pension wasn't broken by accident. It was too expensive. So they found a solution their lawyers loved. In 1974, Congress passed something called ERISA, the Employee Retirement Income Security Act. Doesn't that sound reassuring? What it actually did was kill the defined benefit plan for most American workers. The guarantee? Gone. The company no longer owed you a paycheck for life. They handed that risk straight to you. And you know what they called it? They didn't call it a risk transfer. They called it putting you in control. They said it was freedom. That's what they told you. Now, the replacement they gave you, the 401k. People think that thing was designed to help them retire comfortably. It wasn't designed for that at all. Here's what they left out of the brochure. A 401k isn't a savings account, it's an investment account. And the second you put money in, the financial industry starts taking their cut before you've earned a single dollar of return. A lot of mutual funds have front end sales loads of up to 8.5%. So your $10,000 contribution, it becomes $9,150 before the money's even invested. Then come the management fees, the expense ratios, administrative charges. Most of it never shows up clearly on your statement. Studies show that over a 30 year career fees alone can eat more than a third of your potential retirement savings. A third before you touched it. And here's the tax piece, and this is the part that really gets me. When you pull money out of a 401 at retirement, is taxed as ordinary income, the highest tax rate there is. If you'd invested that same money outside the plan, you'd pay capital gains the lowest rate. They built the plan to cost you more going in and coming out. That's not an accident, that's a design. My rich dad used to say, and nobody in the financial industry wants to hear this, he said the 401K was designed for people who plan to be poor when they retire. And that's why financial planners tell you your income will go down in retirement. That is their plan for you. Save yourself into a lower tax bracket and call it a strategy. And then there's inflation. You know, in 1971, Nixon took the dollar off the gold standard. Most people don't understand what that actually did. Before 1971, saving money was smart. The dollar was as good as gold. After 1971, the dollar became a currency, a piece of paper the government could dilute anytime it needed money. Just print more. Since 1971, the dollar's lost 95% of its purchasing power, measured against gold. In 1971, gold was $35 an ounce. Today, it's well over 4,000. That's not gold going up. That's the dollar going down. Every dollar sitting in your 401k right now is shrinking every year. The statement looks fine. Your actual wealth is going backward. We've been talking about how the 401k was built to extract your wealth, not protect it. When we come back, Social Security. I'm going to show you the math. The government does not want you to run, because when you run it, you'll understand why 40% of older Americans are one broken system away from nothing. Don't go anywhere. Okay. We are back. We're talking about the trap. The 401k was the bait. Now we talk about the net. But I'm going to say something that makes people uncomfortable. Social Security is the biggest Ponzi scheme in American history. Now, I'm not saying that to get a reaction. I'm saying it because it's the only accurate description of how the system actually works. Bernie Madoff went to prison for paying old investors with money from new investors. That's exactly how Social Security works. The difference between Madoff and Social Security. Social Security is legal. Younger workers pay in today. That money goes straight out to retirees today. The trust fund, the reserve that was supposed to sit there and grow, was raided by Congress years ago. Spent. Senator Holling said it decades ago. Stop looting it. They never stopped. And here's what they told you the whole time. They said it was your money set aside waiting for you. It was never set aside. Every dollar that went in went out the other side. That's not a safety net. That's a promise written on paper by people who won't be around when it comes due. And most people are still counting that promise. 40% of Americans over 65, they rely on Social Security for 90% or more of their income. You understand what I'm saying? 4 out of 10 older Americans almost entirely dependent on a system that by its own projections is running out of time. That's not a retirement plan. That's a hostage situation. So the pension is dead. The 401 is a fee machine. Social Security is a legal Ponzi scheme. So what do the rich actually do? What is it my rich dad taught me that school never did. Stay with me. Let me show you the math, because the math is where the argument ends. When Social Security was created back in the 1930s, there are roughly 40 workers paying in for every one retiree drawing out 40 to one system work fine. Today, that ratio is about 2.7 to 1. Two workers carrying one retiree. And the baby boom generation is retiring in record numbers right now. Here's what that means in plain. Retirees need to live to live. They sell their investments, draw down their savings, more sellers than buyers. And when there are more people selling than buying, markets go down. The same people who spent 30 years putting money into their 401 are going to spend retirement pulling it out. That's not a recovery, that's a controlled collapse. So without changes, Social Security can't pay full benefits. The projections say 2033, maybe sooner. And what are the options? Print more money, that makes inflation worse, kills savers. Raise taxes, Workers take home less, cut benefits, Retirees get crushed. Every single option is bad for ordinary Americans. There's no good version of this. And people say to me, robert, come on, they'll figure it out. Congress will fix it. And I say this with respect, you cannot vote your way out of this. You can't wait it out. Your kids can't solve it for you. By the time they try, the math is worse. The only exit is to build something they cannot touch. Something inflation can't eat something. No bankruptcy court gets near. That's the difference. We just ran the math on Social Security and it doesn't work. When we come back, I'm going to give you the number that actually determines your freedom. Not your net worth, not your 401k balance. A completely different number, one your financial planner has probably never shown you. And once you see it, you'll understand why the rich never worry about retirement. Don't go anywhere. All right. We talked about the trap. The pension, the 401k, Social Security, all three cracking. Now let's talk about the way out. My rich dad, he taught me something when I was nine years old, sitting at a kitchen table with a monopoly Board. He pointed at the little green houses and said, those houses pay you rent. That rent is cash flow, and cash flow is freedom. He wasn't teaching me a board game. He was showing me two completely different ways to think about money. Two roads. Most people, they're on the wrong one their whole lives. Here's the road most people take. You buy something. A stock, a mutual fund, a house. You hold it. You hope it goes up someday. You sell it for more than you paid. That's the capital gains path. That's the nest egg model. And here's the problem with it. A pile of money runs out. You spend it down. Inflation eats into it. A market crash at the wrong moment early in your retirement permanently damages it. And this is why financial planners tell you to plan on living on less in retirement. They call it lifestyle adjustment. I call it planning for poverty. My rich dad put me on the other road. Instead of asking, how much do I need to save up? He taught me to ask, how much passive income do I need every month? Passive income comes in whether you work or not. Rental properties, businesses you own but don't run. Royalties, cash flowing. Assets. Income from assets, not from your labor. And here's what most people never find out about. Taxes. Passive income from real estate and business is taxed at the lowest rates in the tax code. Earned income, a paycheck taxed at the highest. The tax code rewards investors. It punishes workers. The rich know this. They've always known this. Freedom isn't a pile of money. Freedom is a monthly number. Let me say that again because it matters. It's not what's in the account. It's what comes in every month versus what goes out. My rich dad called it the crossover point. The day your passive income exceeds your monthly expenses, that's the day you're free. You don't need the job, don't need the pension, don't need Social Security. The alarm clock becomes optional. That's what we're building toward. So here's how you find your number. Write down every dollar going out of your household every month. Mortgage or rent, car payments, insurance, food, health care. All of it. Honestly, that total, that's your finish line. Then write down what comes in every month without you working for it. Rental income, dividends, royalties. For most people, that number is zero. And that's okay. That's not a judgment, that's information. Information is where you start. Subtract one from the other. That gap, that's what you're building. Not a lump sum. A monthly income stream. One rental property might generate four to eight hundred dollars a month in net cash flow. Four properties at 600 each, that's 2,400amonth. Add a small business income, a royalty stream, and you're closing the gap fast. Money working for you, not the other way around. And here's the thing about inflation most people miss. Cash flow from real assets rises with inflation. Rents go up when costs go up. Hard assets hold value when the dollar weakens. A pile of mutual funds doesn't protect you from that. Cash flow does. So what do you actually do? Not motivation, not inspiration. What do you do? You stop parking money and you start moving money. Currency has to move. That's literally what the word means. Money sitting still in a savings account loses value every single day. The government prints more of it. The rich don't park money and hope. They move money into assets that produce income. Then they take that income and move it again into more assets. That's the machine. That's how it compounds. When you actually understand what's happening. And you get financially educated. Not to become a stockbroker, not to sit there day trading on your phone to understand the rules of the game you're already in, whether you know it or not. Because most people are playing a financial game right now. They just don't know the rules. And the people who wrote the rules, um, they're counting on that. The tax code is written in your favor, if you know how to read it. The government uses taxes to incentivize what it wants built. It wants housing, it wants businesses, it wants investors producing things. So it rewards that income at the lowest rates and it punishes the worker, the person trading hours for a paycheck at the highest rates. That's not opinion. That is the law. The rich have known this for generations. School never taught you this. Not because they forgot. Because a financially educated person doesn't cling to job security, doesn't hand their money to Wall street and pray, doesn't save themselves into poverty. A financially educated person is dangerous to the system. And the system knows that. The trap has been running for 50 years. 1971, the dollar became a currency. 1974, they handed you the risk and called it freedom. Every year since, inflation's been quietly eating whatever you managed to save. You didn't fail the system. The system failed you. But here's what's also true. The rich, they never panicked, never needed the pension, never needed Social Security. Because they built something the system can't. Cash flow assets paying them every month, whether the market's up or down, whether the dollar's strong or weak, whether Congress keeps its promises or not. That's not luck. That's financial education. And once you see the difference, you can't unsee it. Thank you for your time. Thank you for caring about your future. Thank you for understanding that you are the only one who cares about taking care of you. Take care, Sam. This podcast is a presentation of Rich Dad Media Network.
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This episode is brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Well, with the name your price tool from Progressive, you can find options that fit your budget and potentially lower your bills. Try it@progressive.com Progressive Casualty Insurance Company and affiliates Price and coverage match limited by state law. Not available in all states.