MONEY Master the Game: 7 Simple Steps to Financial Freedom (7 page)

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. Except for a few “unicorns,” a tiny and exclusive group of “financial wizards” that the general population does not have access to, but I’ll introduce you to in the chapters ahead.

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CHAPTER 1.2

THE 7 SIMPLE STEPS TO FINANCIAL FREEDOM: CREATE AN INCOME FOR LIFE

A journey of a thousand miles begins with a single step.

—LAO-TZU

Tell me something: Have you ever had that experience, you know . . . the completely humiliating experience of playing a video game against a child? Who always wins? The child, of course! But how does she do it? Is she smarter, quicker, stronger?

Here’s how it works. You’re visiting your niece or nephew, and she or he will say, “Come play it with me, Uncle Tony!”

You immediately protest, “No, no, I don’t know this game. You go ahead and play.”

And they say, “C’mon, it’s easy! Just let me just show you.” Then they shoot a few bad guys when they pop up on the screen. You still resist, so they start pleading. “C’mon! C’mon! Please, please, please!” You love this kid, so you give in. Then she says the simple words that tell you you’re being set up: “You go first.”

So you decide you’re gonna make it happen! You’re going to show this kid a thing or two. And then what?
Bam! Bam! Bam!
In 3.4 seconds, you’re dead. Shot in the side of the head. Smoked.

Then the kid takes the gun, and suddenly it’s
bam-bam-bam-bam-bam!
The bad guys are dropping from the sky and whizzing around every corner in hyperspeed. The kid is anticipating every move and picking them off—and about 45 minutes later, you get your second turn.

Now you’re ticked off, and even more committed. This time you last a full five seconds. And she goes another 45 minutes. You know the drill.

So why do these kids always win? Is it because they have better reflexes? Is it because they’re faster? No!
It’s because they’ve played the game before.

They already have one of the greatest secrets to wealth and success in life:
they can anticipate the road ahead.

Remember this: anticipation is the ultimate power.
Losers react; leaders anticipate. And in the following pages, you’ll learn to anticipate from the best of the best: the Ray Dalios and the Paul Tudor Joneses and the army of 50 other extraordinary financial leaders who know the road ahead. They’re here to help you anticipate the problems and challenges on the path to financial freedom so you don’t get hurt along the way. Like Ray Dalio says, it’s a jungle out there, full of things that can kill you financially, and you need trusted guides to help you get through it. With their help, we’re going to lay out a plan that will help you anticipate the challenges, avoid unnecessary stress, and arrive at your ideal financial destination.

I want to give a quick overview of where we’re going and how this book is set up, so you can make the best use of it. But before we do that, let’s be clear about our true purpose.
This book is committed to one primary outcome: to set you up so you have an income for life without ever having to work again. Real financial freedom!
And the good news is, it can be achieved by anyone. Even if you’re starting out in debt, deep in the hole—no exaggeration—with a little bit of time, consistent focus, and the right strategies applied, you can get to financial security or even independence in a few years.

Before we walk through the steps, let’s first take a look at why being financially secure used to seem so simple. What’s changed? And what do we need to do? Let’s start with a little history lesson.

You can be young without money, but you can’t be old without it.

—TENNESSEE WILLIAMS

Everything about your financial life seems so much harder these days, doesn’t it? I’m sure you’ve wondered why it is so difficult to save money and retire comfortably. We’ve come to treat retirement as a given in our society; a sacrosanct stage of life. But let’s not forget that retirement is a relatively new concept. The idea has really served only a generation or two—for
most of us, our parents and grandparents. Before their time, folks generally worked until they couldn’t.

Until they died.

Do you remember your history? When was Social Security invented? It was created under Franklin Delano Roosevelt during the Great Depression, when there was no social safety net for old and sick people. And “old” was a different concept back then. The average life expectancy in the United States was 62 years. That’s all! And Social Security retirement benefits were supposed to kick in at age 65, so not everybody was expected to collect, or at least not for very long. In fact, Roosevelt himself didn’t live long enough to cash in on his benefits (not that he would have needed them). He died at the age of 63.

The Social Security Act eased the suffering of millions of Americans during a time of crisis, but it was never intended to become a replacement for retirement savings—just a supplement to cover the most basic needs. And the system wasn’t designed for the world we live in today.

Here’s the new reality:

There’s a 50% chance that, among married couples, at least one spouse will live to the age of 92 and a 25% chance that one will live to 97.

Wow! We are closing in on a life expectancy of age 100 pretty damn quick.

And with longer lives, we expect longer—much longer—years for our retirement. Fifty years ago, the average retirement was 12 years. Someone retiring today at age 65 is expected to live to 85 or longer. That’s 20-plus years of retirement. And that’s the average. Many will live longer and have 30 years of retirement!

It is not realistic to finance a 30-year retirement with 30 years of work. You can’t expect to put 10% of your income aside and then finance a retirement that’s just as long.

—JOHN SHOVEN, Stanford University professor of economics

How long do
you
expect to live? All the breakthroughs we’re seeing in medical technology might add years to your life—decades, even. From stem cell technology, to 3-D printing of organs, to cellular regeneration, technologies
are exploding onto the scene. You’ll hear about them in chapter 7.1, “The Future Is Brighter Than You Think.” It’s a blessing, but are you ready? Many of us are not.

A recent survey conducted by Mass Mutual asked baby boomers to name their number one fear.

What do you think it was? Death? Terrorism? Pestilence?

No, the number one fear of baby boomers was outliving their savings.

(Death, by the way, checked in a distant second.)

The baby boomers have a right to be scared, and so do millennials. According to an Ernst and Young study, 75% of Americans can expect to see their assets disappear before they die. And the Social Security safety net—if it survives into the next generation—won’t provide a reasonable standard of living on its own. The current average benefit is $1,294 per month. How far do you think that will stretch if you live in New York, Los Angeles, Chicago, or Miami? Or how long will the equivalent system work in your country if you live in London, Sydney, Rome, Tokyo, Hong Kong, or New Delhi?
No matter where you live, if you don’t have another source of income, you could end up the best-dressed greeter at Wal-Mart.

It’s obvious that we’ll need to stretch our retirement income longer than ever before—smack in the middle of a flat economy at a time when many are struggling to recover lost ground.

How have we responded to this growing emergency? A lot of us find the problem so painful and overwhelming that we just block it out and hope it goes away. According to EBRI, the Employee Benefit Research Institute, 48% of all working Americans haven’t even calculated how much money they’ll need to retire. Yep, 48%! That’s an astounding number: almost half of us have yet to take one of the first steps toward planning for our financial futures—and our time of reckoning is coming.

So what’s the solution? It starts with taking Step 1: make the most important financial decision of your life.
By the time you finish this book, you’ll not only have an automated plan for saving and investing, but also you’ll know how to create income without having to work.

Wait a second! That’s too good to be true, you’re thinking. And anything that sounds too good to be true probably is, right?

Yet I’m sure you know there are some exceptions to the rule. What would you say if I told you that today there are financial instruments that will let you make money when the markets go up and not lose a penny when they go down? Twenty years ago, it would have been impossible for ordinary investors to imagine such a thing. But investors using these tools in 2008 didn’t lose a dime or even a night’s sleep. I have this kind of security and freedom for my family. It’s an amazing feeling to know you’ll never run out of income. And I want to make sure you have it for yourself and your family as well. In this book, I will show you how to create a guaranteed lifetime income stream.

A paycheck for life without ever having to work again.

Wouldn’t it be great to open up your mail at the end of the month, and instead of finding a statement with an account balance you’re hoping hasn’t gone down, you find a check in its place? Imagine this happening every month. That’s income for life, and there’s a way to get it.

In section 2, we’ll show you how to build your investments into a sizeable nest egg—what I call a
critical mass—
that will enable you to make money even while you sleep! With a few simple strategies, you’ll be able to create a guaranteed income stream, allowing you to build, manage, and enjoy your own personal “pension” on your own terms.

It’s probably hard for you to imagine that there’s a structure available today that can deliver for you:

• 100% principal protection, meaning that you can’t lose your investment.

• The returns in your account are directly linked to the upside of the stock market (for example, the S&P 500). So if the stock market goes up, you get to participate in the gains. But if the market goes down, you don’t lose!

• You also have the ability to convert your account balance to a guaranteed income that you’ll never outlive.

You can stop imagining—it’s here! It’s one of the opportunities that’s now available for investors like you. (And you will find out about it in chapter 5.3.)

To be clear, I’m not suggesting here that, even with income for life, you’ll want to stop working when you reach the traditional retirement age. Chances are you won’t. Studies show that the more money you earn, the more likely you are to keep working. It used to be that the goal was to get rich and retire by the age of 40. Now the goal is to get rich and work until you’re 90. Nearly half of all individuals who earn $750,000 per year or more say they will never retire, or if they do, the earliest they would consider it is age 70.

How about the Rolling Stones and Mick Jagger at age 71—still rockin’ the world?

Or think of business moguls like Steve Wynn at 72.

Warren Buffett at 84.

Rupert Murdoch at 83.

Sumner Redstone at 91.

At those ages they were all still running their businesses and crushing it. (Probably still are.) Maybe you will be, too.

But what happens if we can’t work, or don’t want to work anymore? Social Security alone is not going to be much of a cushion for our retirement. With 10,000 baby boomers turning 65 every day and the ratio of old to young getting more and more lopsided, it may not even be around, at least as we know it. In 1950 there were 16.5 workers paying into the Social Security system to support one person getting benefits. Now it’s 2.9 workers per recipient.

Does this ratio sound sustainable to you?

In an article titled “It’s a 401(k) World,” Thomas Friedman, the
New York Times
columnist and bestselling author, wrote, “If you are self-motivated, wow, this world is tailored for you. The boundaries are all gone. But if you’re not self-motivated, this world will be a challenge because the walls, ceilings and floors that protected people are also disappearing. . . . There will be fewer limits, but also fewer guarantees. Your specific contribution will define your specific benefits much more. Just showing up will not cut it.”

As for those sweet employee pensions our parents and grandparents counted on in retirement, they too are going the way of blacksmiths and telephone operators.
Only about half of America’s private sector workforce is covered by any kind of retirement plan at all, and most of those are now do-it-yourself, take-all-the-risk models.

If you’re a municipal, state, or federal employee, you might still enjoy a government-backed pension, but with every passing day, there are more folks, like those from Detroit to San Bernardino, wondering if that money will be there when it’s their time to collect.

So what’s your retirement plan? Do you have a pension? A 401(k)? An
IRA? Today about 60 million Americans participate in 401(k) plans, totaling over $3.5 trillion. But they can be a bad, even disastrous deal for you if you’re in one of the high-fee plans that dominate the market. That’s why, if you are in a 401(k) plan, you’ve got to read chapter 2.5, “Myth 5: ‘Your Retirement Is Just a 401(k) Away.’ ” What you’ll learn and the simple changes you can make could transform your life—giving you peace of mind and the certainty you need today—and mean the difference between retiring early and not being able to retire at all.

DEATH AND TAXES: THE ONLY CONSTANTS

Not to be outdone by volatile markets (moving faster than the speed of light, literally), exorbitant (and hidden) fees, and an outdated pension system, let’s not forget about our good old friend the tax man. Oh, the tax man. He’ll take up to 50% (or more!), thank you very much—on everything you earn. If you thought hidden fees were the only drag on accumulating wealth, you’ve missed the biggest culprit of all.