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Mistake #4:

         Putting Too Much Stock in Paper Wealth


         Yes, net worth is  taken into consideration for loans;  however, when it comes to

         retirement, you can’t spend net worth until you sell the asset, pay your taxes and
         deposit  the  funds  into  your  bank  account.  401k(s)  are  a  perfect  example  of  the

         aforementioned statement.



         Let’s  illustrate  this  example  further  using  two  people:  we  will  refer  to  them  as
         Person A and Person B.



          Person A is 50 years old, and she earns $150,000 per year. She has 1 million
            dollars in her 401k plan and no debt. She is a millionaire, and her net worth is 1

            million dollars.



          Person B is 50 years old, and she earns $150,000 per year. She has zero in her
            401k plan and no debt. For the most part, she is broke, and her net worth is zero.



         Fast forward 15 years, they are both retired.



          Person A has 1.5 million dollars but no income. So she strolls into her financial
            professional’s  office  and  ask  for  guidance  on  drawing  down  her  1.5  million

            dollars without running out of money. The financial professional pulls out one
            report  after  another  that  states  4  %  is  the  maximum  drawdown  rate  she  can

            apply if she doesn’t want to run out of money (Google “4 percent withdrawal
            rate” and read the multitude of articles).

               Whoa! 1.5 million dollars times 4% is only $60,000 or $5000 per month be
                fore  taxes  and  living  expenses of  $2500.  Oops! That  is  not  going  to  work

                after enjoying $150,000 per year before taxes.


          Person B still has no money in her 401k and her net worth is still zero; however,

            she has been building contractual wealth vehicles that will pay her $12,000 per
            month when she reaches 65, of which half is  tax free. Her  expenses are also

            $2500 per month*... you do the math.
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