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What about pensions? Retirement. So, in the UK we call it a pension. I think you guys call it a 401k. But over across the world it's pretty much the same. Across the western world anyway. If I'm 25 or 30 or whatever, should I be paying in to my pension as a way to generate to make myself wealthy someday? Is that a smart idea? I don't have a 401k. I don't have an IRA. But the reason why people like these accounts and why they can work for some people is because they are tax deferred accounts. Meaning I can put my money in whether I pay taxes now or later. The money will then sit there, grow, and I don't pay taxes until I pull my money out. But there's a couple problems.
Problem number one is I have very little control over where my money can be invested. Maybe this will change. Uh the Trump administration has passed a new executive order on 401k's to change what you could potentially invest in 401k's, but that hasn't happened yet. You have very limited options. They're primarily just mutual funds and many of them have a fee. I think NerdWallet said 92% of Americans don't know what the 401k fees are. So, if you don't have know what your 401k fee is, this is your uh notice to go check what the expense ratio is and you should know that. So, you have very limited options.
You're going to have to pay a fee, which means somebody on Wall Street is going to be paid forever until you retire. Number two, I can't touch this money until I'm 60 years old, 59 and a half. If I do have to pay a 10% penalty. And number three, the whole discussion is you're doing this for tax benefits. But kind of like we talked about earlier, there's a lot of tax benefits that you can get outside of a 401k, which is why for me, I don't like it. But I'm not everybody. For some people it can be a great place because your employer might say, "We're going to give you a 3% match." So, if you invest let's just say a $3,000 into your 401k and they match it 100%. They might also just
throw $3,000 into your 401k, but you have the same risks and concerns um along the way. I don't think most people even know what a pension is, to be honest. I think we pay into it, but we don't really know what's working. And I saw this really interesting debate take place on X the other day, where someone was a guy was saying in the UK, "I've paid into my pension my whole life, um so I deserve it and it'll be there when I'm ready." And then everyone underneath it was telling him that by the way, it's not like some piggy bank that you get to break open. The money you paid into a pension was used to pay for the people that needed a pension when you were working. So, you're talking about social security in the United States.
Because as an employee in the United States, you have to pay into social security. So, 6.2% of your income. So, you have a lot of taxes. You're going to have to pay income taxes on what you make, and then you have social security tax. So, on your income, you're going to pay 6.2% of that separately from your income tax, but 6.2% into the social security fund, and then your employer is also going to pay 6.2% into this fund. Yeah. This money, in theory, is supposed to grow and compound, that way when you retire, you have this retirement fund that's going to pay you every single year. You don't get to choose. I mean, you can choose when you pull it out, but
you don't get to do anything with it. The government's going to be in charge. Yeah. This is what is running out of money in the United States today. Why? Because people that are in their 20s, 30s, and 40s that are paying into it today, it's not paying for their retirement, it's paying for the people who are retiring today to pay for their social security benefits. The way you build wealth is by owning assets, like businesses. And there's two ways to own a business. You can buy the business, like a stock on the stock market, or you can build it. Now, starting a business is not easy, but
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Well, the there is some truth to that. The part in the United States at least that you are guaranteed what the wording is that you're going to get the social security until you pass away. But the part that they never tell you and just does no asterisk about this either, is how much that value of that check will be. So, here's what's going on. People are paying into the Social Security fund thinking that they're going to be able to fund their retirement. Every financial advisor historically has said that retirement is a three-legged stool. You have your 401k, your personal retirement, you have your own personal savings, and then you have Social Security. Well, you pay into Social Security by force because
you don't get an opt out of it unless you are an investor. You don't have to pay your Social Security income or Social Security taxes on your investment income, but you pay into this until you hit retirement age, and then you get to pull this money out. Well, the government is running out of Social Security money, but people misconstrue that because they say, "Oh, that means the government's no longer going to pay Social Security." That's not true. They'll still pay it, but they'll just print their way to pay it, which is what you've been talking about. So, great. They're giving you a bigger check. The problem with that bigger check is that bigger check can't buy you as much stuff. So, yeah, you're based off what the United States
government says, assuming that they don't default, you're going to get the Social Security check, it's just not going to be able to buy you as much as you thought before. Other big misconceptions are that people think their employer is putting enough in to cover their full retirement. They think it's the same as a savings account. They think they can access it whenever they like. Um the government will cover them when it runs out. And I don't need to think about it until I'm older. And lastly, my pension pot is tax-free. So, the big shift that happened around 20 years ago was a shift from what's known as defined benefit to defined contribution.
So, defined benefit used to work for Ford or American Airlines or whatever company. You retired, you got 60% of your final year's salary forever. Ah, that was bankrupting all of these pension plans. These people are living longer, all the other stuff. And so they kind of changed it to defined contribution. Basically, you get out what you put in. Plus the investment returns. But there's fees. Maybe you didn't give it to a good manager. Maybe you didn't know when they said, "Well, do you want to put it in bonds or equities?" You're like, "Bonds." Then it didn't grow as much or whatever it was.
And in the end, you're just not sure that you're the average 401k in the United States for a baby boomer, I believe is about $100,000. What age? A baby boomer, like 65? Yeah. I think it's right now around 200,000. Okay, fine. 200 is not enough to retire. That's 10 years of 20 grand a year. Right. So there's so little money in the US pension system, particularly, um, that there is no hope for these people. I did this whole video on this called the retirement crisis. It became a huge kind of viral success years ago just
explaining there is no way out of this for the pensioners, the boomers, all the millennials, and everyone's going to have to change within this to figure this stuff out. I think you said it earlier today. You were talking about a Ponzi scheme. Here you have one. But nobody wants to say that, but everyone is paying in to keep funding this thing, but the only way it's running is because people are paying it in. The problem is there's not enough money coming in because the Remember we talked about the beginning, the demographics?
There's less and less young people. because we're having less babies. tons of these retired people. So And this keeps going in perpetuity cuz we're having babies, so that's workers in 20 years time. The baby's now workers in 20 years time. We can forward project this. It doesn't stop. So how the hell are we going to pay for this massive amount of baby boomers, of which there's in the United States there's 78 million of them, our largest cohort in history at the time. We can't won't for them. And this is where the proposals are to tax your Bitcoin. The value of your Bitcoin or tax the value of your assets or tax your investment income. But the UK's got the same. This whole wealth Everybody's got the same problem.
Everybody. What do you think of it in terms of retirement crisis? I think that So, I have a different take on Well, I think first of all, I think Jess Breed and Roe, you guys were talk and you were talking about social security, right? Yeah. But I have a different take on retirement altogether, I think. Uh Well, I think 401(k)s are good for the average person because it's a forced savings mechanism. A lot of people wouldn't contribute to a retirement account unless they the employer offered it, right? And so, the whole match thing is a great thing for behavioral finance. It's like, "Okay, if I do this, I get some free money from my employer and at least I'm saving some money instead of nothing."
You're working for that money. It's not really free. A 401(k) for anyone that doesn't understand is you agree to invest in a investment pool alongside your employer. It is more like an individual retirement account that is awarded to you because you work for an employer. You have the option to invest within a 401(k) and that 401(k) is typically tax-deferred. Uh which means that you pay taxes on it later in life. And what's the difference between that and a social security? A social security is a government program where you are required to pay into it every paycheck that goes into this big pot and then when you do
retire, the government will send you a social security check every month. Okay. But I still think that there are plenty of ways to retire and retire with some sort of freedom, retire early. Have you heard of Coast FIRE before? No. Coast FIRE is another newer thing that's a that's kind of on Reddit, but it's a variation of financial independence retire early. And it's essentially you get your nest egg to a point where you don't have to invest any dollar into it after that, but because you get it to let's say a certain number, and that number is usually pretty reasonable. The investment returns, if you're invested in the S&P 500, will get you to a full retirement by the time you're able to retire at 65. So, it doesn't
mean you retire early completely, but it means that if you get to your CoastFIRE number, which is what it's called, maybe you have more freedom of choice in what you're working on. So, like maybe you don't have to work for the employer that you absolutely hate. You can maybe go do something that's a little bit more suited to your lifestyle. You're still working, but you're not working to save for retirement anymore because you hit that CoastFIRE number. So, for example, at the age of 35, I think the CoastFIRE number is like $150,000. If you can hit 150K by 35, if you have 30 years of investment returns at 8%, you'll have $1.5 million by the time you retire, which is a little bit more palatable for people that are having a
hard time wrapping their heads around, am I ever going to retire? They're not going to retire in that they're not going to be kicking up their feet on the sand beaches of Aruba, but you're still going to be doing something, and I personally think if I was retired, I'd be so bored out of my mind doing nothing, right? So, I'd like to work on something. The idea is you just don't have to work for maybe the job you hate or something like that. So, if I hit the $150,000 in savings, Mhm. and I put it into the S&P 500 and get 8% return. 8% return, by the age of 65, I'll have 1.something million. 1.509, yeah. But what's that worth then? That's true. There that's it that is another part of the equation is with
inflation, what is it going to be worth? And is this what you're trying to do? Cuz I remember an hour ago you said, "I'm just trying to retire early." Or words to that effect. Yeah, I mean, I'd like to be CoastFIRE, and CoastFIRE is, you know, however you would like to define it, but, you know, I already think I'm pretty close or if not I've already reached it, which is like I get to work on the things that I love, and I I think that my retirement nest egg will eventually grow to a point where by the time I hit 60, 65, I'll be able to coast and chill.
Did you create a number, do the math on what you'd need to get to? Yes. Okay. Yeah, so you can project out your expenses of what you think your expenses are going to be on an annual basis, and then kind of work backwards to that number. Okay. Yeah. Hm. A lot of math involved, but you kind of have to do it. Do it on ChatGPT or something these days. Retirement crisis. Hm, that's concerning. So, your approach is to do the Coast FIRE thing. My approach is let's stay disciplined, consistent with our savings and investing, and actually get to a place where retirement might be possible.
I mean, I love that idea, and that's the same as when I started with the manifesting your destiny. You say, "Well, I need this goal. How do I do it?" We do this and grow up our investments, right? So, it's brilliant to do that. And then you can take more risk. If you isolate that and say, "Well, any capital I build now, I can do whatever I want." Um, that was the same idea that I had with the home. It's It's like I've de-risked my life. Now I can take risk, and that's a really nice thing to do. And I love the way that you do it by saying, "Well, my future self wants this. For me to do that, I need to do this now, and then it should take care of
that." Now, it's There's always riskier than you imagine, but yeah. And then you have extra dollars to do whatever you want with, right? And [clears throat] I also love that you've been disciplined on like what you like and what you know. Yeah. And uh I appreciate that. Thank you. Cuz you said I think 90% are in index funds and ETFs. That's what I would recommend for people. Okay. For me personally, I'm like 50, 60% index funds. But still, that's that's pretty high and not having that, you know, shiny object syndrome or whatever you want to call it.
Yeah, yeah. But whatever it might be, um to be disciplined, I think that's such a valuable trait. And you know, you talked about the scarcity mindset, I think that's also a discipline mindset that you have that So, I would reframe that and I think you've done an excellent job. I think personal finance is personal. It's official. President Trump's plan to abolish the IRS is progressing. Why? Over the last few days, he has renewed or increased tariffs on dozens of countries around the world. And he says that this is his way to potentially replace the IRS or at least the income tax with the
