A Tale of Two Retirement Strategies Wall Street vs. Main Street
Updated: Jul 23, 2019
Written by Gena Lofton
Strategy 1 – Wall Street
Wall Street investors hope to buy low and sell high to generate a capital gain. They believe investing in a well-diversified portfolio of stocks, bonds, and mutual funds will enable them to retire and live off their nest eggs. Unfortunately, this Strategy is one of the main reasons most people have inadequate funds to ever stop working. Their biggest fear is outliving their money.
According to the Economic Policy Institute, most people approaching retirement have little or no retirement savings. When you look at Wall Street vs. Main Street, the better strategy is clear.
In addition to gambling on Wall Street, other reasons they have insufficient money is due to the following factors:
They spend their life working for money vs. building/buying assets;
They confuse assets with liabilities. “Assets feed you and liabilities eat you”.
They use debt to buy liabilities vs. using it to buy assets. Money has been free for a decade due to the Federal Reserve Interest Rate Policy and the money supply has grown by 100%. Thus, everyone should be flush with income producing assets, but this is NOT the case, instead, most have acquired liabilities;
They save money and receive less than the rate of inflation, post-tax actually yields them a negative return.
They earn their income on the left side of the quadrant (see below);
In summary, inflation and taxes consume the majority of one’s income and/or savings from working. This results in their inability to have sufficient funds to last a lifetime. This is equivalent to trying to lose weight eating chocolate cake all day while sitting on the sofa watching television. Unless one eats less and moves more, they will never be able to lose weight.
If one wants to have financial abundance, they should pursue Strategy 2 delineated below.
Strategy 2 – Main Street
Generating your income on the right side of the quadrant with income producing assets to spend on Main Street is a much more viable strategy. The income from the assets will enable you to pay for your living expenses. Twenty years ago, Robert Kiyosaki wrote his book, the “Cash Flow Quadrant” which explained the four (4) different ways that income is produced and the corresponding tax rates.
The people on the Left Side of the quadrant are Employees and/or Self-employed. This is where 95% of the population exists yet, they control only 5% of the wealth, primarily, because they own NO assets and pay the highest tax rate. The left side could pay an excess of 40% in Taxes, depending upon their income level and their State residency.
Alternatively, people on the Right side of the quadrant are Business Owners and/or Investors and pay as little as 0% to 20% in taxes. This is why they control 95% of the wealth.
The Main Street Strategy is to transition to the right side of the quadrant, so you have sufficient income to pay your expenses and have a lifetime of financial abundance. Main Street is simply to pay ones monthly expenditures such as their mortgage, food, utilities, healthcare, travel, vacation, etc. with real cash. Why not focus on building and/or buying assets which generate the cash flow to pay for your expenses. Warren Buffett says, “If you don’t find a way to make money in your sleep, then you will work until you die”.
Unfortunately, paying for one’s expenses with anything other than working for money is NOT taught in our educational system. The school system cannot teach what it doesn’t know. Thus, it only teaches one to get a JOB and never teaches you that income from a JOB is the highest taxed income. This is exactly why the Rich Don’t work for money.
It is also why most people will never be able to stop working for money because most people do NOT OWN any assets. Assets are on the right side of the quadrant. Those assets generate Income. It’s the income from those assets which enables one to have sufficient income in retirement.
The earlier one learns the different types of income and begins generating that which is the most tax efficient on the right side of the quadrant, the higher the likelihood that they will have a lifetime of financial abundance, sufficient money and not worry about outliving their money in retirement. Here is a summary of the Major Characteristics of the Left Side vs. the Right Side of the Quadrant.
So what side of the quadrant do you want to be on?