If you’re reading this blog, you’re probably a saver. And I’d bet you’d cringe a little if someone called you a spender. Frugality is nerdy. And by nerdy, I mean cool. So, I laughed a little when someone forwarded me an article written by Robert Kiyosaki (author of Rich Dad, Poor Dad) where he called me a loser:
And then it got worse. Robert called us out by name:
I was amused, but a little sad too. I read Robert Kiyosaki’s book when I was in my 20s and it was inspiring. He encourages entrepreneurship and thinking outside the box. His lessons are worthwhile and I respect him. But I digress…
100% Hate for the 4% Rule (Why I Won’t Run Out of Money)
Robert isn’t a fan of the 4% Rule or our retirement plans:
Perhaps this makes sense for them now in their 40s while they are relatively young. But what will happen when they get older and require more medical attention? Or what if their property taxes go up significantly over the next twenty years? Or what if inflation continues to grow over the next forty to fifty years at 2% a year? Or what if they get tired of living so frugally after all?
Without significant income, they won’t be able to stay afloat. They may enjoy life at $30,000 a year right now, but it will not be sustainable for their entire retirement.
You could come up with a million reasons for why the 4% Rule won’t work:
- Future market returns will be less: WW2 left Europe in ruins while America was virtually unscathed. The world is different now.
- AI/robots will take all of our jobs: This one will happen. However, society will adapt and move on.
- A war on the Korean Peninsula will demolish the markets: Scary, but probably won’t happen.
Worry all you want, but I believe that the same factors that fueled economic growth will continue to push it upward. Populations will continue to rise and so will productivity. Also, Robert seems to forget that the 4% Rule accounts for inflation. I’m not losing sleep over his criticism.
And I’m already more financially successful than I ever thought I’d be. I am not concerned about running out of money:
- In 11 years, my home will be paid off. My current 4% Rule projections include the mortgage. Once that is paid off, I’ll have an additional $14,000/year to spend.
- Social security is a sacred cow that no politician would kill. In less than 20 years, I’ll be eligible for it.
- My portfolio has far outperformed my expectations. With a portfolio of almost $1,500,000, I’m down to a 3% withdrawal rate now. And I’m still building wealth.
- I have $400,000 in home equity.
And the solution to worry is flexibility. If the stock market goes down by 50% the day after you retire, go back to work or clamp down on your expenses.
Wrong, Wrong, Wrong
Robert Kiyosaki got it wrong in three other places:
1) The Hedonic Treadmill Sucks
As a kid, my poor dad, my natural father, had this same mindset. Whenever we wanted something in life, he would say, “We can’t afford that.” Perhaps your parents said something similar like, “Money doesn’t grow on trees!”
My rich dad, my best friend’s father, asked a very different question. He would ask, “How can I afford that?”
I would ask a different question:
Why do you want that?
The hedonic treadmill is a dangerous game. Once you get that big home, are you going to want a bigger one? Once you have that, are you going to want a vacation home on a lake? What comes after that?
The solution is to be happy with where you are. Enjoy the moment. Hug your kids. Love your wife. Go for a walk after dinner and watch the sun disappear over the horizon. More isn’t a recipe for happiness, but endless jealousy and misery.
2) Robert Misunderstands Us
In today’s financial world, spenders are winners and savers are still losers. Of course, by spenders, I mean those who use their money to build their business or invest in cash flowing assets. And to spend wisely this way, you need financial intelligence that goes beyond just downsizing and cutting expenses. You need to understand how to create wealth, and in your own way, actually make money grow on trees.
I can only think of one person in the financial independence community that is just sitting on a huge pile of cash.
While the rest of us may not be the entrepreneur that Robert is, our money isn’t sitting around idle. FI folks are savvy investors with above-average financial intelligence. Some of us are landlords. Others invest in businesses. I loan money and invest in syndication deals.
3) We’re Not Losers
Robert’s use of the word loser is clickbait. He didn’t mean that I’m a pathetic person (Hey, no comment from you!); he meant that savers are doomed because of asset price inflation (assets include stocks, bonds and real estate) from poor monetary policy. He implies that because while Consumer Price Inflation (CPI) has stayed low, asset prices will rise disproportionately.
While Robert sees asset price inflation as my doom, it will only make me (and most early retirees) richer. Many of us own real estate and I even know some folks with VTSAX tattooed on inappropriate parts of their body. Just kidding, but I’ll bet someone has done it.
Sidenote: How much would I have to pay you to get a VTSAX tattoo?
CPI, which has been low, is much more harmful to the early retiree.
None of Us are Losers
Everyone has their own path to wealth. Robert chides us for not being entrepreneurs, but that isn’t the path for everyone. Not all of us want to be landlords or start a small business.
And none of us are losers in any sense of the word. The people in the Financial Independence community are some of the most incredible people who I’ve ever met. Robert Kiyosaki had an early impact on me, but you all are so much more inspiring.
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