Grant Cardone: Make This Change to Your Retirement Savings
Written by
Peter Burns
Edited by
Justice Petersen
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Individual retirement accounts (IRAs) and 401(k)s have been valuable tools for many American workers to save up for retirement. These accounts allow holders to pay fewer taxes on capital gains from their retirement savings.
But recently, businessman and personal finance expert Grant Cardone has noticed some disturbing trends around retirement savings, making him question the effectiveness of storing your savings in retirement accounts. He’s changed how he’s investing his retirement savings and provides advice for anyone who wants to follow suit.
Let’s dive into Cardone’s advice for making the most of your retirement savings:
Worrying Trends for Retirement Savings
Retirees already seem to have a lot to worry about. In a Fox Business interview, Cardone was presented with a poll showing that 68% of retirees worry about outliving their assets, and only 44% believe they’ve saved enough. To make matters worse, Cardone pointed out some troubling trends that are on the horizon for anyone storing their savings in retirement accounts.
Inverted Yield Curve
One concern for Cardone is an inverted yield curve.
An inverted yield curve describes when the interest rate on long-term bonds drops below the rate for short-term bonds. Cardone points out that historically, that’s led to recessions. During those periods, there were over 50% pullbacks in the S&P 500, and many lost over half of their retirement savings.
Inflation
Cardone also points to inflation as a potential problem for retirement savings.
The Bureau of Labor Statistics’s data shows that inflation has skyrocketed by 21% over the previous four years alone. Many retirees may not realize the extent of how this affects their savings. Cardone called it an “invisible tax.” He says, for example, that if someone had $200,000 in their retirement account in 2020, inflation would cause that sum to lose nearly $50,000 in value.
Possible Increase to Capital Gains Tax
A third worry Cardone shares is President Biden’s promise to raise capital gains tax. Cardone believes the Internal Revenue Service (IRS) and Wall Street benefit from delaying this tax bill for another ten or fifteen years. If a tax increase does happen, Cardone explains that the IRS would likely take $50,000 in taxes from that same $200,000 that has already lost value due to inflation.
Because of these three negative trends, Cardone has decided to take a different approach to investing his retirement funds.
Protect Savings with Real Estate Investments
To combat the problematic course retirement accounts seem to be on, Cardone pulled his savings out of Wall Street. He sees the current market heights as having a high potential for a quick loss and believes there are better ways to invest to produce cash flow. Instead, Cardone has chosen to convert his savings at no penalty into physical real estate.
Investing in real estate provides various advantages that help retirees weather the storm ahead. Cardone explains that real properties produce cash flow, benefit from inflation, and avoid major changes to capital gains tax.
“When you’re 65, you don’t need a lump sum. You need cash flow,” Cardone says in the interview. His point is that income-producing investments act as an ongoing source of cash instead of slowly spending your life savings little by little. Purchasing real estate and renting or leasing it out can provide a monthly income retirees can live off.
The second benefit of this idea is that real estate can help protect you from inflation. While markets and investments wrapped up in retirement savings accounts can be greatly affected by inflation, real estate has historically been a hedge against inflation. In fact, increases in rent and home prices significantly affect inflation, meaning if it’s rising, the value of your investment is likely also increasing.
Finally, you don’t need to pay capital gains tax unless you sell an asset. If you choose to keep your property as income-producing real estate, you won’t be immediately affected by any major changes to how the IRS taxes capital gains.
The Final Take
Retirees or those saving for retirement should keep an eye on economic trends like an inverted yield curve, inflation or a potential increase in capital gains tax.
After considering how these events could impact his retirement savings, Cardone has taken action. By taking his money out of Wall Street and investing in physical real estate, he’s found a way to benefit from inflation, avoid future adjustments to the tax code and receive cash flow.
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