You’ve probably heard the term “401(k) millionaire.” For many decades now, the million-dollar mark has been the proverbial measure of success. Even financial advisors suggest maxing out your 401(k) until it reaches a million dollars. Yet for most people, the idea of becoming a 401(k) millionaire is as realistic as owning a unicorn.
Only 1% of people have at least $1 million in their 401(k)
According to MarketWatch, “In Fidelity’s defined-contribution plan, there are roughly 157,000 people who have saved at least $1 million in their 401(k). There are another 148,000 people who have saved $1 million or more in an IRA. That’s only 1% or so of Fidelity’s total retirement plan participants.”
The maximum contribution limit for 401(k)s in 2019 is $19,000, or $26,000 if you are over 50 years old (not including an employer match).
Basically, it comes down to this: If from the age of 20 you live as frugally as possible (denying yourself of wants & desires) and live in one of the cheapest cities in America, are more disciplined than 99% of the people in your age group (again, denying yourself) and don’t have any extra financial expenses like health issues or your car breaking down…after 40-plus years of laboring away — you’ll have finally saved enough to be a millionaire.
In case you didn’t know already, the idea of saving enough money on the average salary is a myth and a dangerous one, both because it is unrealistic and because your returns diminish over time.
Note: The Social Security Administration announced that 51% of working Americans makes less than $30,000 a year.
Here are some of the other alarming numbers that stood out.
- 38 percent of American workers made less than $20,000 last year.
- 51 percent of American workers made less than $30,000 last year.
- 62 percent of American workers made less than $40,000 last year.
- 71 percent of American workers made less than $50,000 last year.
In all of the above scenarios, there is one common theme — in order to save a million dollars, you have to live well below your means. For 51% of Americans that made less than $30,000 during the year, saving $1 million dollars is virtually impossible.
The Greatest Risk: Job Dependency
“Never before have American companies tried so hard to employ so few people.”
So goes an article published recently in The Wall Street Journal called “The End of Employees.”
The article details how many of the major companies in America are doing their best to outsource their jobs to contractors rather than employees. The percentage of the American workforce that is not directly tied to a company has risen by almost 100% by some estimates, and it shows no sign of stopping:
Few companies, workplace consultants or economists expect the outsourcing trend to reverse. Moving noncore jobs out of a company allows it to devote more time and energy to the things it does best. When an outside firm is in charge of labor, it assumes the day-to-day grind of scheduling, hiring and firing. Workers are quickly replaced if needed, and the company worries only about the final product.
Is there such thing as a safe, secure Job?
When I was a kid, my mother wanted nothing more for me than to go to a good school, get my degree and get a good, safe, secure job. For my mother, a good job was the ultimate sign of security. This is not unlike how most people think — and how most people have lived their life.
Entrepreneurship was just too risky. I was always led to believe that the income you receive from owning your own business is too unpredictable. Securing a job with a good company that paid a guaranteed salary was the safest way to go.
I didn’t step outside of this belief until I reached adulthood – more specifically my late 30s.
Now, I understand that being an employee is super risky.
To be an employee is an illusion of security. You have a steady paycheck, but you are not in control. You are at the mercy of the business owner and the economy. If either decides you are not needed, you lose your job — and if you’re really unlucky, lots of other things, like your house, your car and more. And today, it is riskier than ever to be an employee.
Threats From All Sides
Not only do most jobs pay a salary below $30,000 a year, many jobs are also highly uncertain due to the rise of outsourcing. This means that if you are lucky enough to be employed, the chance that the company you work for will offer a 401(k) along with a matching contribution is minute.
This is why people keep buying lottery tickets. They simply have no expectation that their 401(k) will ever reach a million dollars by saving alone.
Instead of investing in a 401(k), invest in cash flow
Financial advisors have generally advocated that you have no less than one million dollars invested. They also advise that if you manage to save one million, you should only withdraw 4% a year – that’s $40,000. If you are one of the lucky few that receives full benefits from Social Security, that could add another $1,461 each month, or $17,535 annually. For most people, an annual income of $67,535 is not bad, especially if you are not working.
However, as I have already shown you, for the average person achieving $1 million in a 401(k) is almost impossible – without living well below your means and starting early.
Also, the Social Security Administration has already announced that the fund is in trouble and Social Security Benefits are barely above the Federal Poverty Level.
Instead of investing in a 401(k) and hoping for a miracle to happen, why not invest in securing long-term cashflow instead?
There are lots of franchises with steady, proven business models that generate monthly returns of $3,333 or more, and they won’t cost a million dollars.
With some franchises, you can become a franchisee for as little as $20,000.
Owning a franchise is a great way to achieve monthly cash flow, which is exactly what you need during retirement anyway.
Franchises are less-riskier than entrusting someone you have never met to manage your investment account because they come with a proven business model. Someone has already figured out exactly what, and what not, to do so you are already ahead.
While some franchises are susceptible to recessions just like the financial crisis witnessed in 2008, there are others that are recession proof.
The eLearning market is HUGE
One example of a recession-proof business model is in the education sector – specifically eLearning.
Student loan debt in America would not have soared to reach $1.5 Billion if the education industry was susceptible to a recession.
Research & Markets forecast that eLearning will grow to $325 Billion by 2025.
Teaching English as a Foreign Language (TEFL) already accounts for $150 BILLION. That’s right – Billion.
TEFL is in high demand because there are over 500 million students in China alone that want to learn English. This is only scratching the surface.
There are students in South Korea, Japan, and in several countries in South America that want to learn English too.
Luckily, there is a way you can claim your piece of a BILLION DOLLAR industry.
You can become a certified TEFL teacher for as little as $200.
Final thoughts about 401(k)s
In summary, for most people, the chance of becoming a “401(k) millionaire” is a myth.
The average salary is just way too low for this to happen – unless you start investing when you are 20 years old, live well below your means for 40 years, and not have any financial emergencies – health problems or a car breaking down.
To achieve your desired cash flow objective during retirement it makes better sense to invest in a suitable business.
There are lots of businesses and franchises you can buy into that cost less than a million dollars.
In the years ahead when outsourcing is expected to increase, being an entrepreneur is a lot less risky than being an employee.