Page 8 - SixMistakesSuccessfulWomenMake22

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.