Grant Cardone: 2 Better Ways To Save for Retirement Than IRAs and 401(k)s
Conventional financial advice recommends saving for retirement in a 401(k), IRA or both. But Grant Cardone, author of “The 10X Rule” and creator of the 10X Profit Planner, doesn’t advise utilizing these accounts if you want to retire rich.
“IRAs and 401(k) plans are not the way to retire,” he told GOBankingRates.
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Here’s why Cardone isn’t a fan of retirement savings accounts, and where he recommends putting your money instead.
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‘No One Needs a Lump Sum’
Disciplined savers may be exiting the workforce with $1 million or more in a 401(k) or IRA, but Cardone said this isn’t what retirees really need to thrive during their golden years.
“This is what we were told: ‘When you retire, you’ll have a bunch of money.’ When you retire, you do not need a bunch of money,” Cardone said. “No one needs a lump sum. What you need is cash flow that’s dependable. You need monthly, consistent cash flow.”
Cardone notes that, depending on the retirement account, you will have to pay taxes, which automatically reduces the value of your savings.
“If you have money in an IRA or 401(k), what you have is a piece of paper,” he said. “The only way to access that piece of paper — that mutual fund, that stock, that certificate of ownership — is to sell it. The moment you sell it, you then have to pay taxes.”
Another downside of relying on retirement accounts is that once you take out funds, they are no longer earning you additional interest and income.
“If it’s a million dollars, let’s say you’re retiring at 55 and you could easily live until you’re 78 years old, so you have 23 years left to live on a million dollars,” Cardone said. “Once you pull the money out of the market it’s no longer growing, so you’re diminishing the value of it. And all this assumes that there’s no inflation and the cost of living doesn’t go up.”
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Invest in Real Estate Instead of Retirement Accounts
Cardone believes that putting money into income-producing real estate instead of a 401(k) or IRA is a better way to set yourself up for a comfortable retirement.
“Why I like income-producing real estate so much is because I don’t really want a lump sum when I retire. What I want is cash flow,” he said. “If I had a net worth of a million dollars, I want it to pay me $5,000 a month. That’s what I’m looking for. I’m looking for $60,000 a year in income that I can live off of, and not [have to] tap into my million dollars in capital.”
Not all properties are created equal, so Cardone notes that there are certain qualities you need to look for when investing in a property specifically for retirement income purposes.
“No. 1, I would invest in an income-producing property that would pay me 6% a year, where I know I can’t lose my money, so I’ve got to be in a good strong market where I can’t lose my capital,” he said. “No. 2, I need the property to be big enough that I don’t manage it. I don’t want to be a manager. I don’t want to collect rent.”
Cardone said that there are two main advantages of relying on real estate income rather than income from a 401(k) or IRA to fund your retirement: “The cash flow is basically tax-free because it’s invested in real estate, which provides great write-offs,” he said.
In addition, if you find the right property, you can set future generations up for success.
“I would love to never tap the million dollars, but to just use the cash flow over the next 23 years to live off of it,” Cardone said. “Then when I’m dead, that million dollars then gets passed on to my kids as a piece of real estate.”
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This article originally appeared on GOBankingRates.com: Grant Cardone: 2 Better Ways To Save for Retirement Than IRAs and 401(k)s
