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Published by tbrayboy21, 2021-03-01 14:45:11

Exposed Word Copy Final

Exposed Word Copy Final

Disclaimer:

This book is to inspire you to look at retirement
planningfrom a different point of view, to get you to
challenge the conventional wisdom of the financial
industry. However, please consult your financial
professional to obtain specific advice for your
situation.

Dedication
I dedicate this book to my father; he was the first to tell
meto plan for the worst and expect the best. Which is
a model our firm follows to this day. More importantly,
he gave me the courage and confidence to pursue my
dreams and goals. Thanks, dad. I loveyou.

INTRODUCTION

Hello, my name is Tony Brayboy, and I am the
Founder of Matrix Wealth Management, LLC.

For over 25 years, I have been helping people plan
for their retirement. For a third of my career, I
honestly believed the stock market was the best
way for my clients to invest for retirement. I shared
all the "Wall Street" conventional wisdom with my
clients, such as investing for the long-term,
diversifying stock-based investments, maxing out
the 401(k) plan, etc.

Over the last fifteen years, I have stepped back and
honestly evaluated the stock market and all the
promises of financial success if an investor "hangs
in there and invests for the long-term."

Some people are unwittingly told "what to think"
about how the stock market works. This book aims
to expose the myths about the stock market and
show how it works.

I purposefully kept this book short to not
overwhelm the reader. Although the book is short
and focused, we offer a lot of material that goes
into more depth. For example, our ten-module
course goes into more detail on a variety of topics.

We know we should have an estate plan in place;
however, estate planning is beyond the book's
scope. Yet, we have resources in place to educate
and implement, at a minimum, wills, living trust,
health advance directives, and financial care
powers of attorney. Your estate planning attorney
takes the lead regarding your records and
integrates the plan with your team, i.e., CPA and a
Financial Professional. Long-term care and
assisted living, retirement home, and an incredibly
detailed retirement budget are just a few topics not
addressed in this book. Outside of this book, we
offer an incredible inventory of educational
materials that address these many areas.

We offer white papers, blogs, quizzes,
newsletters, webinars, and seminars. Applied

education will be one of your most useful tools
as we transition into the New Normal.

Saving for retirement is hard, and planning for retirement
income has become more complicated. It used to be that
American workers retired with an easy formula made upof a
guaranteed benefit from Social Security, a guaranteed
lifetime pension, and an amount of saving invested in the
stock market where it was sure to earn gangbuster returns.
Times havechanged. Today's retirees are dealing with a lot
more uncertainty. Social Security reports that by 2035, trust
funds willbe exhausted, and taxes will only pay for 75 percent
of scheduledbenefits.

Things on Wall Street have also become more
volatile as we enter a global economy and news
travels at the press of a button. Perhaps you
remember how on September 29, 2008, the Dow
Jones Industrial average dropped so sharply, $1.2
trillion in marketinvestments disappeared in a single
day.

Market investments have become the focal point for
today's retirees who rely on defined-contribution
plans such as the 401(k), 403(b), or 457. These
plans help workers save by offering easy and
affordable access to market investments. However,
the challenging part comes once you stop working.
Why? Because theburden of figuring out how to turn
these investments into a reliable income stream is
your responsibility.

Yes, retirement has become more complicated, but
you do not haveto figure it out alone. New products,
strategies, services, and options are available with
the modern retiree in mind.

I see many challenges ahead that could cause an
economic "PearlHarbor," and yes, I sound alarmed.
There is no reason for people to potentially lose
over one-third of their wealthas many did in 2008.
Jack Bogle, the founder and former CEO of the
largest mutual fund family, the Vanguard Group,
was interviewed on CNBC in April 2013, and he
said to prepare for at least two declines of up to 50%
over the next decade.

I do not think people can potentially survive one or
more catastrophic losses when many have just
recovered from losses over the past decade. That
is why I decided to write this book,

Exposed – The Great Retirement Hoax. "The
Secrets to GrowingWealthy Without Wall Street."

For over 100 years, people have been making the
same mistake of chasing returns and looking for
magical financial products to make them wealthy.
The problem is that everyone is looking for bright
new shiny golf clubs. Let me ask you a question. If
you could have Tiger Wood's swing or his clubs
which would youchoose?

I have never had someone select the clubs over the

swing. Look at the swing as the process repeatedly
practiced until it is secondnature. It is a lot like the
swing when investing; you continue working on your
swing. Change if needed, then you reassess your
process over and over until it becomes second
nature.

The media tells that you can follow the simple
formula of investingfor the long-term, diversifying,
dollar-cost averaging, and on and on, and you too
can be financially successful. I call it the "Financial
Matrix" -- very much like the movie The Matrix,
where people blindly did what computers told them
what to think.

In the Matrix, Morpheus (Laurence Fishburne), the
resistance leader, explains to Neo (Keanu Reeves),
the movie's hero, that the Matrix is a computer-
generated program created by machines to keep
humanity in a dream world. Morpheus and his small
army of rebels have escaped the dream world of the
machines, and they live in the "real world."

Neo, still wired to the machine, feels that
something is not quite right and has been
searching for answers. Morpheus offers Neo
an opportunity to choose between theworld he
thinks he knows and the unknown real world.

As the story goes, Morpheus offers Neo the choice
between two pills. One is the red pill, which would
unplug Neo from the machine,and he would see the
world as it is, seeing how deep the rabbit hole goes.
Alternately, Neo can take the blue pill, wake up in
his bed, and simply pretend as if nothing ever
happened.

The great pitcher Satchel Paige said, "It's not what
you don't knowthat will hurt you; it's what you know
that just ain't so." No more blue pills. It is time to
learn how the stock market works. Like Morpheus,
I invite you to unplug from the financial Matrix and
takethe red pill by reading this book.

Warren Buffett describes The Intelligent Investor
(1949) as "the best book about investing ever
written." The author of the book was Benjamin
Graham. According to CNBC - Warren Buffett
named his first kid Howard Graham Buffett. Just
think Warren Buffet was an understudy to a man
who Buffett says wrote the best book on investing
ever written. It is essential to repeat Buffett's
excellent education as an understudy of a wise
expert like Benjamin Graham.

Why you may ask – the name of the book is the
Intelligent Investor. What did Graham mean by
"investor"? An investment operation is one that,
upon thorough analysis, promises the safety of the
principal and an adequate return. Operations not
meeting these requirements are speculative."

Wow! It looks like we have a bunch of speculators
out there.

Wall Street conveniently leaves out the four risks
you take with money every day. Too bad many of us
do not have a teacher or mentor to help educate us
to make better decisions. Just as important to be
aware, if you want to speculate, put aside a portion
of your capital and head to the casino. Oops, I
meant the aggressive, speculative stock market,
and try your luck. You may win and be proud of
yourself, but the house almost always wins if you do
it long enough.

Ok back to the matter at hand – awareness. These
four risks you should be aware of:
1. Market risk (the risk of loss of principal)

2. Health – event risk (the risk that retiree may
need funds for ahealth-related event)

3. Tax Rate risk (the risk of higher taxes in the future)

4. Longevity risk (the risk of outliving your money)

Leading to the following logic: To enjoy a reasonable
chance for continued better than average results,
the investor must follow policies that are (1)
inherently sound and promising and (2) not popular
on Wall Street.

Remember you are in a one-sided relationship with
Uncle Sam – it is essential to educate yourself.
Applied knowledge is worth the time and journey
when you are always learning.

This book utilizes math and science, but – Wall
Street creates the illusion of an easy path to wealth,
reinforced by the media through shows on CNBC
and all the so-called "financial gurus." (SELL
COMMERCIALS!!!)

If I am going to research experts in their field, I want
to see and understand the numbers (Math and
Science) as I learn – it makesit easy to ignore the
talking heads on CNBC or famous spokespersons
advising people they do not even know. Each of us
should be considered unique in our goals, dreams,
etc.

Would you go to a Doctor who wrote you a
prescription without a diagnosis? I hope not. I have
studied some of the greatest minds in retirement
income and finance.

While we have an excellent chance to succeed if you
stick to sound and promising strategies, do your
research and come to your conclusion? Remember,
anything worth learning is worth the effort regardless
of its popularity on Wall Street. Math and Science
produce a solid foundation to verify investment
choices.

Now you can be armed with factual data and not just
opinions that are not verified.

Remember the tech boom? The NASDAQ was all the
rage with fiveyears of unbelievable returns:

1995 -- 39.92%
1996 -- 22.71%
1997 -- 21.64%
1998 -- 38.63%
1999 -- 85.59% Greed was at its all-time high -- all
aboard!

The peak on the NASDAQ was 5132.52 on March
10, 2000. The following three years involved a type
of emotional violence that fewhad ever witnessed. I
do not know one person who hung in there. Do you?
On January 8, 2016, the NASDAQ closed at
4643.63, stilllower than the peak in 2000.

2000 -- (-39.29%)
2001 -- (-21.05%)
2002 -- (-31.53%) Fear was at its all-time high --
everybody overboard!

Three painful years, could you hang in there?

Fear and greed drive investor emotions, which often
leads todisastrous results.

Here is the red pill. There is an investment world beyond
Wall Street. I think now is the best time to discover the
ideas and strategies that the wealthy have used for
years. I invite you to unplug from the Financial Matrix.

Chapter One: Protect What You Already Have (Market Risk)

The great investor, Warren Buffet, has two
essential rules:Rule #1: "Don't lose money."
Rule #2: "Don't forget rule #1"

The late Paul Bear Bryant said, "Offense sells tickets,
Defense winschampionships" Roll Tide!

For example, in my workshops, I like to use a simple
$100 investment that loses 50% of its value. The
investment is worth $50. The following year you rebound
with a 50% gain. Whew, that was close -- you made your
money back, right? Wrong!

$100 loses 50% = $50

$50 gains 50% = $75

You need a 100% gain to break-even on a 50% loss!

Losing 50% of your portfolio can be devastating no matter
what your age.Younger investors believe that their youth
allows time to recover from massive stock market losses.
I disagree with that logic, andhere is why.

During the three years during 2000, 2001, and 2002, the
market lost 42.9% of its value, and it was four years later
before it reached a break-even point. In 2008, the stock
market lost 36.63%, and it took four years to get the
break-even point.

Conventional wisdom touts the stock market goes up
over the long-term, and this justifies a 16-year period
(2000-2015) in which the stock market produced less
than a 4.5% actual rate of return. Where else would
peopletolerate 16 years of less than a 4.5% annual rate
of return and pay WallStreet (fees) for the privilege to do
it?

Just think, a 35-year-old who "hung in there" for 16 years,
just like Wall Street says to do, is now 51 years old. And
all he or she shows for listening to the Wall Street
cheerleaders is a loss of principal or an account value
representing the money they contributed with little or no
profit.

What if another ten years pass in which little or no gains
occur? Now our 51-year- old is 61. Please do not be
misled; youth is not the great elixir to mix with low stock
market performance. I know many of you think that the
chances are slim of another ten years with little or no
return (better known as a flat market). Before you make
that assumption,be sure to read Chapter 2.

Fidelity Investments conducted a study on their Magellan
fund from 1977-1990, during Peter Lynch's tenure. While
he was at the helm, the Magellan fund had an average
annual return of 29%. This fund was not a secret; virtually
all investors knew of him and—the fund's stellar
performance. You would think investors in the fund
enjoyed incredible success. However, what Fidelity
Investments discovered was many investors in the fund
lost money. That is unbelievable that a fund returned
around 29% annually, and many fund investors did not
participate in the gains. My theory is the same as it is
today; many investors buy on emotions. They were
buying high and selling low.

Dalbar, Inc. is the financial community's leading
independent expert for evaluating, auditing investor
behavior over different periods. Over the last 20 years
ending in 2017, according to Dalbar, the S&P 500
average annual return was 7.2%, and the average equity
Fund Investor averaged 5.29, and inflation was 2.15%.

Chapter Two: How Long is Long-term?

During my workshops, I ask my audience what the stock
market return is over the long-term, and I typically hear
10%. I respond, "that is just aboutright." My next question
is, what is considered long-term? Here is where it
becomes interesting. The typical responses are between
10 and 30 years.I then pull out one of the most famous
charts produced by Ibbotson and Associates that
illustrates a 10% plus performance over an 85 plus-year
period. Now that is the long-term! We have people
overlaying their 10-30-year time horizon over an 85-year
stock market history to earn approximately 10%.

First, I could care less about what the stock market did 50
years ago. It iswhen you receive the return that counts.
Keep in mind that many of the traditional investment
models became popular during the bull market of the '80s
and '90s. Since then, the country has experienced a tech
market crash, a housing crisis, and a credit crunch.
Qualifying for a home mortgage loan went from no
documentation necessary to need every piece of
documentation known to man, twice over!

Oh yes, and do not forget 2008, when the stock market
crashed and decimated portfolios by over 30%-50%.

In the current economic environment, the only constant in
life is change! Nonetheless, many people are still using
traditional investment strategies,such as:

• invest in the long-term because stocks always go up
over time.

• diversify to help reduce losses in your portfolio,
• buy stocks to keep pace with inflation, etc.

I could go on, but I am sure you get the point. If you do
not, please understand that strategies that worked
during one economic period might be a recipe for
disaster in a different financial period.

You may want to ask yourself, how long is long enough
for you to recover from a stock market crash, such as
the one in 2008?

I hope you do not run out of time waiting for Wall Street's
85 years plus long-term 10% average stock market
return.

Many people are not aware that there are extended
periods when the stock market has earned virtually zero
return rates. The following graph illustrates the cyclic
nature of the stock market for over 123 years.

*Source: Guggenheim Investments

2019 "guggenheiminvestments.com"

As you can see, there were multiple lengthy periods in
which the marketwas flat. In the last ten years, from the
beginning of

2011-2020, the markettrended up.
1897 to 1906: the market trended upward for nine
years1906 to1924: the market was flat for 18 years
1924 to 1929: the market trended upward for five
years
1929 to 1954: the market was flat for 25 years
1954 to 1965: the market trended up for one
year
1965 to 1982: the market was flat for 17 years
1982 to 1999: the market trended upward for
17years

2000 to 2010: the market was flat for ten years
2011 to 2020, the market trended up for ten years

Most of the current market advice comes from -- and
remains based on -- the most outstanding bull market (1982-
1999) the country has ever seen. Peopleare still waiting and
hoping for the "good old days" to return.

Does your current plan require the stock market to
behave like 1982- 1999 to succeed? More importantly, if
the stock market stays flat or goesdown for a decade or
more, will your plan still grow?

I caution you against financial amnesia in this current market;
do not behave as though the market crash of 2008 never
occurred.

One of the primary opinions I think this could end badly is
the direct connection of the rising stock market to
Quantitative Easing. Let me take a moment to explain
Quantitative Easing (QE).

The Federal Reserve's primary tool to influence the
economy is to adjust interest rates. When the country
dropped into a recession back in 2008, the Federal
Reserve lowered interest rates to almost zero. The
economy did not respond as expected, and because the
Federal Reserve could notdrop interest rates below zero,
they implemented a plan known asQuantitative Easing.
Through this program, the Federal Reserve attempts to
stimulate the economy by printing money out of thin air
and using the money to buy bonds from the large financial
institutions, thus flooding theinstitutions with cash.

The side effect of buying billions of dollars in bonds is that
it drives downyour CDs and bonds' interest rate to almost
nothing! What are you to do? Leave your money in low
interest-bearing CDs earning virtually a zero rate of return
or redeploy the funds into the stock market? You must
choose the lesser of two evils; the problem is that you do
not know which. Keep earning virtually zero interest or
attempt to achieve better rates of return in the stock
market.

We think it is ok to hold stocks as a small portion of your
portfolio for extended periods in all fairness. And if the
strategy does not go as planned, it will not affect your
essential household lifestyle. If possible, plan on your
holding period of 20 plus years.

News flash!

There are many choices outside of the banks and Wall
Street, but how canyou evaluate something you may not
know even exists? Keep reading! The proverbial pot of
gold is at the end of the rainbow!

Chapter Three: Waiting on Wall Street's Average Rate of
Return

One topic that is always the center of attention is the
average return rate on a particular investment. The
historical rate of return is how most people select their
investments. I cannot count the number of times people
have said that their selection method for assets is past
performance. Yes, you need a reference point, such as
historicalperformance, but even Wall Street warns that
past performance does not guarantee future
performance. (It is their little built-in legal protection
disclaimer so that when you lose half your wealth, they
can say that they informed you in advance.)
Nevertheless, Wall Street's marketing piece implies
that past performance is critical to making future
investment choices.

For example, when you hear about a hypothetical
investment reporting an average return rate of 10%
over the last 20 years, it makes for great dreams of
accumulating wealth quickly and easily.

There are dozens of financial software programs for
individuals and financial advisors. For the most part,
they all work the same; you input an expected return
rate, and the software produces an output as if the rate
of return repeatedly happened every year. I think you
will agree whether you use 7%, 8%, or 10% as a
projected average annual return, I can guarantee you
that you will not earn the same return every year.
Remember, you can spend money, but you cannot
spend the averagerates of return. Let us start with a
simple example:

The starting value of an account is $10,000. The
following year, the account gains 100%. The
investment is now worth $20,000. In year two, the
account loses 50% of its value. The investment is
worth $10,000. In the third year, the account rebounds
with a 100% gain, and the account value is back to
$20,000. The fourth year, it loses 50%, bringing it back
to its original starting investment of $10,000.

Year Hypothetical Beginning Ending
Rate of Balance Balance
1 Return
2 $10,000 $20,000
3 +100% $20,000 $10,000
4 $10,000 $20,000
(-50%) $20,000 $10,000
+100%

(-50%)

Let us evaluate the average rate of return versus the
actual return. Theaverage rate of return is 25% (100%
- 50% +100% - 50% = 100% divided by 4 = 25%
average), yet you only have your original investment of
$10,000. The actual return (the only return to care
about) is zero! Where is your 25% profit? Therefore,
you cannot spend the average rates of return. Need
more proof?

Let us take a 20-year review from 2008 to 1989. The
average rate of return of the stock market was 10.36%
there is the magical 10% returneveryone talks about.
Let us see if we can spend the average rate ofreturn.

Year Total Return Balance

2008 -37% 630,000
2007 5.49% 664,587
2006 15.79% 769,525
2005 4.91% 807,309
2004 10.88% 895,144
2003 28.68% 1,151,872
2002 -22.10% 897,308
2001 -11.89% 790,618
2000 -9.11% 718,593
1999 21.04% 869,785
1998 28.58% 1,118,369
1997 33.36% 1,491,457
1996 22.96% 1,833,896
1995 37.58% 2,523,073
1994 1.32% 2,556,378
1993 10.08% 2,814,061
1992 7.62% 3,028,492
1991 30.47% 3,951,274
1990 -3.11% 3,828,389
1989 31.69% 5,041,606

If we reverse the order of returns, our handy dandy
future value produces a negative return. Nope!

Year Total Balance
Return
1989 1,316,900
1990 31.69% 1,275,944
1991 -3.11% 1,664,725
1992 30.47% 1,791,577
1993 7.62% 1,972,168
1994 10.08% 1,988,200
1995 1.32% 2,749,124
1996 37.58% 3,380,323
1997 22.96% 4,507,998
1998 33.36% 5,796,384
1999 28.58% 7,015,944
2000 21.04% 6,376,791
2001 -9.11% 5,618,591
2002 -11.89% 4,376,882
2003 -22.10% 5,632,172
2004 28.68% 6,244,952
2005 10.88% 6,551,579
2006 4.91% 7,586,074
2007 15.79% 8,002,549
2008 5.49% 5,041,606
-37%

Now comes the complicated part of the investment
journey. An example would do the best job as we
discuss the second half of the investment journey.

According to a British Medical Journal study, 192 of the
212 deaths on the Himalayan mountain between 1921
and 2006 were above base camp. Among climbers who
died after scaling higher than 8,000 meters (26, 246
feet) above sea level, 56 percent succumbed on their
descent from Everest's 8,850-meter (29,000-foot)
summit, and another 17 percent died after turning back.
Just 15 percent died on the way up or before leaving
their final camp.

Most of the deaths were among climbers – not Sherpas
who are nativeto the high altitude and have previously
found to have broader arteries and capillaries to deliver
oxygen to their blood. While the Sherpas who died did
so more often at low altitudes — from falls or
avalanches — the thin mountain air near the top proved
fatal for the climbers. They failed mostly because the
lack of oxygen caused blood vessels in their brains to
leak fluid into the surrounding tissue, causing a deadly
swelling called cerebral edema.

Most Accumulation advisors can help you get to the top
of Mount Everest using all the traditional tools, i.e.,
dollar-cost averaging, diversifying, asset allocation,
along with all the other Wall Street Jargon.Getting down
the investment mountain can benefit from a holistic
planner focusing on the total picture.

You do not wait until you get to thetop of the mountain

to figure out how to get down.
Holistic Planners are like Sherpas experienced in the

climb and the descend. Most of the climbers die on the
descent. By the way, if you do not withdraw funds, it
does not matter what the orders of the returns are;the
average annual return is still 10.36%

Let us take a look at two brothers.
They were 55 when they started – we are going to
sprinkle some fairy dust over their account. And presto,
both brothers have 1 million dollars. Brother A
remembers Market/Volatility Risk – became ill and
needed the money when the market was down, and it
wiped him entirely out. Onthe other hand, Brother B also
remembers the loss because he jumped ship at the
bottom of the market and got back in at the top.
It sounds likebuying high and sell low to me.

Therefore, the average investor does not beat the S&P
500; they panic and jump ship and try to jump back in
when the coast is clear. They do not beat the market;
the market beats them. The fairy godmother sprinkled 1
million dollars in Brother A's empty account (Market
Loss and Health) and Brother B's almost empty account
(Volatility). Brother B is retiring at 65 no matter what.

As promised, age 65 rolled around, and Brother B retired
at 65. The only problem is no one explained how the
sequence of returns works. When you retire into a down
market early in the first few years of retirement, the
results can be devasting. Both brothers had decided to
withdraw 5 percent or $50,000 annually plus 3 percent
for inflation.

Both brothers had 1million dollars in their account with a
lot oflife. (Longevity)

Brother B retired in 2008 at 65, and just one bad year at
the beginning of retirement virtually hit him for almost
half of his 1 million.

Year Total Balance
Return
2008 -37% 580,000
2007 5.49% 560,342
2006 15.79% 595,775
2005 4.91% 570,391
2004 10.88% 576,174
2003 28.68% 683,457
2002 -22.10% 478,711
2001 -11.89% 355,012
2000 -9.11% 259,332
1999 21.04% 248,656
1998 28.58% 252,527
1997 33.36% 267,558
1996 22.96% 257,701
1995 37.58% 281,118
1994 1.32% 209,199
1993 10.08% 152,388
1992 7.62% 83,765
1991 30.47% 26,646
1990 -3.11% 0
1989 31.69% 0

Brother A had the same bad years as his brother. It just
happened towards the end of retirement instead of the
beginning. The trip down the mountain or the distribution
has different rules than the accumulation stage or
climbing the mountain.

Year Total Balance
Return
1 31.69% 1,266,900
2 -3.11% 1,175,999
3 30.47% 1,481,281
4 7.62% 1,539,519
5 10.08% 1,638,427
6 1.32% 1,602,090
7 37.58% 2,144,453
8 22.96% 2,575,326
9 33.36% 3,371,116
10 28.58% 4,268,343
11 21.04% 5,100,416
12 -9.11% 4,566,557
13 -11.89% 3,952,305
14 -22.10% 3,005,419
15 28.68% 3,791,744
16 10.88% 4,126,387
17 4.91% 4,248,757
18 15.79% 4,836,994
19 5.49% 5,017,423
20 -37% 3,073,300

In My opinion, we need to take longevity off the table as
soon as possible. Please meet with a holistic
Retirement Income Specialist to develop a strategy that
is unique to you. There are rules of thumb, suchas the
4 percent maximum withdrawal rule.

However, that is just a rule of thumb. The Social
Security Actuarial Life Table states that a male who
makes it to age 65 years of age has a lifeexpectancy of
17.89 years, brother B, who was alive at 67 years of age
and had a life expectancy 16.47 years. A female age 65
has a life expectancy of 20.45 years and at age 67 has
an 18.86 life expectancy. Therefore, so many people
live a just in case retirement. WHY? Because of the fear
of running out of money before running out of life.

Longevity is Risk number 1, and working with the right
type of planner can help ensure you enjoy all the fruits
of your labor.

Chapter 4: Why Is Everyone Chasing Returns?

When I speak with people and ask them why they are
investing, they often respond with the same answer, "I
am investing to be comfortable in retirement." Then, I
ask, "What does 'comfortable' mean? Assign a number,
so I know what you are saying." They say, "Well, Tony,
I need about $100,000 a year in retirement to be
comfortable." I ask how they can to that number?

They tell me that they read that you only need about
70% of your retirement income to live wonderfully in
retirement. Are you kidding me? Do you want to take a
30% pay cut in retirement right before you go on a
permanent vacation? Are you going to sit at home, or
do you intend to travel, go out to dinner, spoil your
grandchildren, and afford the expensive medication that
often becomes inevitable as we age?

Here is the point. If replacing part or all your
paycheck is the goal, why not create multiple
income streams instead ofa pile of money that you
must convert to income?

Wall Street does not want you to focus on creating
multiple income streams because they cannot charge
fees on them. They advise you toinvest for the long-term
in their system so they can charge fees and take
systematic withdrawals from your money that remains
mainly in the stock market (so they can continue to
charge fees).

Let me interject; fees are not bad when you are receiving
something of value in exchange. I am not against fees; they
are necessary, but a cost without value is not a good
investment of your hard-earned money.

To add fuel to the fire -- or shall I say, more fees in their
coffers -- the financialindustry has developed fancy software
programs to help you feel more comfortable about turning
over your cash. You receive a so-called comprehensive
financial plan that requires you to answer questions, such as:

• At what age do you want to retire? Most everyone
has an answer tothis question.

• What is the average rate of return you expect to
achieve on yourinvestments before retirement?
Now you must guess.

• What is the average rate of return you expect to
achieve on yourinvestments during retirement?
You must guess again.

• What is the average rate of inflation during your
lifetime? Again, youmust guess.

• What will the tax rate be during your lifetime? Yet
another guess.

• How long do you expect to live? The ultimate guess.

And voila! Your investment plan is ready in about 30 minutes.

Now do not get me wrong, when meeting with a new
client, I collect the same data to access their current
financial situation. But I analyze the information in a
completely different way. Because assumptions create
too much uncertainty in a plan, we utilize a model that
works much like a flight simulator; it starts easy, and one
problem is added on top of another to see how the plan
holds up.

The traditional financial planner uses many assumptions
to build aplan that veers off course the minute the ink
dries. All that is certain about the future is that it will be
different from today. A project-based on many
assumptions will most likely fail if anything deviates the
slightest bit off course.

We test the plan with real-world, life-changing events,
such as increased taxes, disability, death, inflation, etc.
A program that does not endure under all circumstances
is no plan at all.

The stock market moves in cycles, and you are rolling
the dice to guessthe cycle the market will be in when you
retire. Imagine the stock market being flat for 15 years,
and you are trying to grow your money or, worse, trying
to create income from your stock market-based accounts.
How canyou plan? You cannot!

Chasing growth might work for a moment, but the
eventual decline of whatever investment asset you are
pursuing takes back all profit,and often, it also consumes
large portions of your principal.

Think about it. How many people do you personally know
who made a fortune during the tech bubble?

During that period, I saw many people with paper gains;
in the stock market, most of the paper gains were wiped
out during the tech wreck in the early 2000s.

What about real estate? Whom do you personally know
that made a fortune flipping houses during the housing
market bubble? Again, I saw many paper gains (equity),
and many people made money early in the cycle only to
give it all back during the credit crisis. To this day, many
people remain upside down in their homes or were
forced to short sell their properties. Very few walked
away with a pile of cash.

Just think, from 2003-2007, the stock market's average
rate of return was13.08% -- significant paper gains, but
the profit and some of the principal werelost during the
crash of 2008 when the market lost almost 37%.

I am sure you noticed that I used average rates of return.
The media and Wall Street reports boosting reactions.
Wall Street wants you to invest and "hang in there" for the
long-term so they -- you guessedit -- can collect fees.

There is another thing that you might not be aware of that
I want you to understand. Do you know why the
magazines, TV shows, newspapers, and even the news
programs announce excitedly, "The Dow soared…" or
"The Dow plunged…"? One word: advertising. The more
readers andviewers you have, the more you can charge
for advertising. Boring information does not sell but
sensationalizing the stock market's daily moves will sell
advertising because it will increase viewers.

And, here we go again, 2009-2019: the stock market
average rate of return was 14.00%. Is it possible you
might give back all your paper gainsalso?

Chapter 5: Qualified Plans

I need to provide a brief history of the 401(k) because
most people do not understand that it was never meant
to be a primary retirement vehicle.

Back in 1978, section 401(k) of the Internal Revenue
Code was a tax-deferred arrangement for contributions
with annual limitations. It was an excellent opportunity
for company executives to contribute extra money to a
tax-deferred plan.

By 1980, this small section in the Internal Revenue Code
spilled over tothe average worker to allow him or her to
also contribute on a tax-deferred basis.

Before long, employers started to realize it was much
cheaper to offer 401(k) plans that included matching
funds rather than to fund pension plans. Many
employers shifted the responsibility of supporting a
lifetime pension to moving all the commitment to the
employee in the form of a 401(k). As a result, many
employers eliminated pension plans.

Wall Street saw this as an excellent opportunity to offer
their mutual funds foremployers to include in their plans
(for a modest fee, of course). Thus, the 401(k)'s greatest
beneficiary appears to be Wall Street and the mutual
funds. I talk to people all the time who tell me that when
hired by the Federal Government. The Human
Resources specialist shoved a bunch of forms infront of
them to sign. Enrollment in the 401(k) was almost

automatic.

An employee obtains a list of mutual funds to choose
from: small-cap stocks, large-cap stocks, bonds, and
international stocks.

Most Human Resource personnel provide a risk profile
form where employees answer many questions to
determine if they are aggressive, moderate, or
conservative investors. In my opinion, risk profile forms
are worthless because people tend to be aggressive
when the market is going up (out of greed) and
conservative when the marketcrashes (out of fear).

Almost every Human Resource department promotes
the same ideologyabout the 401(k):

• Max out the plan to reduce your current taxes.
• You will be in a lower tax bracket when you retire.
• You defer the taxes.
• Everybody is doing it, and all the books,

magazines, andfinancial gurus say it is a
good idea.

Let us take a closer look at how the 401(k) works:

Joe Example is 35 years old and decides to
contribute $10,000 per year to his 401(k) for the
next 30 years. He is in a 30% tax bracket, so he
defers $3,000 in taxes over the 30 years for a total
of $90,000. Joe was able to earn 8% over the 30

years, growing his nest egg to $1,223,458.

In retirement, Joe earns 6.5% on his $1,223,458 nest
egg.Producing an income of $79,525.
Because Joe's tax bracket in retirement remains at 30%, he
pays $23,857.50 in taxes on his retirement income. His net
income is $55,667.50. Did the plan work? Let us take a closer
look.

Total contributions: $300,000 ($10,000
x 30 years)Tax bracket: 30%
Taxes deferred: $3,000 x 30 years = $90,000

Rate of return: $10,000 @ 8% for 30 years = $1,223,458

Retirement rates of return: $1,223,458 @ 6.5% =
$79,525 ofincome Tax rate in retirement: 30%
Taxes due on income:
$23,857.50Net income:
$55,667.50

During 20 years in retirement, Joe pays $477,150 in taxes
versus the $90,000 saved during 30 years of contributions. 3.8
years into retirement, every dollar saved during the 30 years of
contributions was paid.

If you were a farmer, would you rather pay the tax on
the seed or the crop? Of course, you want to pay tax on
a tiny basis because you wantyour vast harvest tax-free.
Well, Uncle Sam is more than willing to giveyou a tax
break on the seed (your contribution) because they
want to tax your harvest (your lump sum nest egg and
your distributions).

Now let us move away from fantasy to reality. The Joe
Example illustration is almost perfect. Uncle Sam will
still collect nearly $500,000 in taxes on his distributions
and collect taxes on what remains at death without
some superior planning.

Remember the economic challenges discussed in
Chapter 4? There are trillions of dollars in these
government-sponsored tax-deferred plans. They are an
easy target for tax revenue. What do you think the
chancesare of taxes being lower in the future? I do not
like deferring an unknowntax calculation (higher, lower,
or the same tax bracket) on my money. Itis too risky.

I am not saying you don’t participate in your 401(k) plan. Commented [TB1]:
I am saying that eachperson should evaluate the level
at which they should participate and implement a risk
management strategy to avoid devastating market
losses.

Remember, the only one taking all the risk in your 401(k) plan is
you.

Chapter 5: Where Do You Think Taxes Will Be in the
Future?

I have no idea where taxes will be in the future, but I
know the challenges our country faces. Once you look
at the options the U.S. government can exercise, I think
you will agree that the potential for higher taxes is
genuine.

A storm is on the horizon.

The U.S. National Debt is over $26.7 trillion, and while
the National Debtgarners all the focus, another growing
monster exists that no one talks about. The beast is
known as "unfunded liabilities," or what I like to call
"unfunded promises." Social security and Medicare,
along with other unfunded liabilities, are over 154 trillion
dollars. Ten thousand people will turn 65 every day for
the next ten years and be added to Medicare rolls. How
are we going to pay for this?

We will look at how the U.S. government generates
revenue. Oh, that is right -- the government creates
nothing. It raises trillions of dollarsthrough various tax
revenues.

The U.S. government can raise taxes in three significant
areas -- corporate income tax, payroll tax, and individual
income tax -- where the bulk of the revenue comes from.
If the U.S. government falls short, they do what many
people do -- they just borrow the money!

Here is where I hope you see the inevitable. Each year,
Congress can choose to increase or decrease spending
on any discretionary budget item, such as the military,
government, and education.

Mandatory spending is mostly comprised of
entitlements, such as social security and Medicare.
These programs are determined by eligibility, and
therefore, Congress cannot tinker with the budget each
year. However, they can change the eligibility rules to
alter how many people receive benefits and receive
services.

Think about it for a moment. We have substantial
unfunded promises, and Congress might change
eligibility rules to keep the fiscal ship afloat. How well do
you think that would go over?

Congress continues to cut spending for the military and
government, but it still will not be enough to solve the
debt issue.

Therefore, it looks like raising taxes, reducing spending,
and changing entitlement eligibility rules could be
heading our way very soon.

The problem is that no politician wants to commit
political suicide by implementing the massive and
necessary changes. In the meantime, the fiscal issues
continue to worsen. One day, the musical chairs will stop,
and those left standing will have to wear the black hat
and get busy making painful but necessary changes.

Marginal taxes have been over 90% in the past. We are
in one of the lowest marginal tax rates since the great
depression.


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