In this episode of The Tactical Empire, Jeff Smith and Shawn Rider discuss strategies for managing 401k investments when transitioning out of corporate jobs. They explore the importance of age versus the amount of money in determining the best course of action. Whether to cash out or reinvest in personal ventures like real estate or businesses, they weigh the pros and cons, including tax implications and potential returns. They also emphasize the value of peace of mind and making informed decisions tailored to individual needs. The episode provides actionable strategies for people looking to take control of their financial futures.
In this episode of The Tactical Empire, host Jeff Smith is joined by Shawn Rider to discuss the complexities and opportunities surrounding 401k management when leaving a corporate job. They explore various strategies, including cashing out your 401k, transferring it to a self-directed IRA, or rolling it into a life insurance policy. The discussion emphasizes the importance of considering age, investment goals, and the potential returns of putting the money to work in real estate or business ventures. Jeff and Sean also highlight the psychological and financial impacts of these decisions, encouraging listeners to evaluate all options and choose the path that provides the most control and peace of mind. The episode concludes with actionable advice and a reminder to join The Tactical Empire community for additional resources and support.
00:00 Introduction to The Tactical Empire
00:30 Reuniting with Shawn Rider
00:41 Discussing Winter Weather
02:12 Spouses Leaving Jobs: Financial Concerns
03:58 401k Decisions: Cashing Out or Rolling Over
06:45 Evaluating Financial Strategies
08:59 Real Estate vs. 401k Investments
10:19 Personal Experiences and Advice
14:23 Final Thoughts and Recommendations
24:11 Closing Remarks and Call to Action
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[00:00:00] How do you find the will to fight back against a world that wants to keep you sedated, averaging, stuck in place? Join us for the tool and strategies you need to create a life of abundance, discipline, and high achievement. This is The Tactical Empire, with Jeff Smith.
Jeff Smith: Welcome to another episode of the Tactical Empire. I am joined by none other than Sean Ryder. Reunited. What's up, man? How are you?
Shawn Rider: Reunited and it feels so good. Yes, man, we are good. I mean, we're recording already on the tail end of January, uh, it's been a very cold winter so far in the state of Virginia.
So this is probably the most snow and early cold we've had in the last two or three years. So we're getting after it. But [00:01:00] I think I walked my dogs in four degree weather this morning. So it's good. No, thank you.
Jeff Smith: It's freezing.
Shawn Rider: As long as the wind's not blowing, it's not bad, but like, when you're used to, when you're used to like 40, 45 degree water, the four degree air is not that bad, unless the wind's cutting, then it's real bad, but I think, I think you're down in Florida, so hopefully you got a little bit more sunshine, uh, down there, no snow.
Jeff Smith: Yeah, not today. It's, it's like 46 degrees and cloudy. It's not, I, I asked myself when I wake up on mornings like this that I can, why am I here? Because I can go anywhere. But it seems like if you look at the, the United States right now, there's not really anywhere to go. That's a lot warmer than this. I'd have to drive down to the keys or something.
So.
Shawn Rider: I was going to say, you can't go much further south than Florida. So if Florida is cold, you probably don't have much better options unless you're crossing the border.
Jeff Smith: Yeah, exactly. [00:02:00] Exactly. So we're trying to stay dry and, uh, Life's good. Life's good, man.
Shawn Rider: Fantastic. Well, look, I'm actually pretty jacked up for some of the guys in the group.
It seems like, um, not just my wife, but other spouses in the group are making decisions to leave jobs. So I want to set some time aside on this episode and the next episode to talk about the two big things that people are concerned about. And worry about and have questions about when they have a spouse leave their job outside of if they're losing a source of income.
I think that's the biggest one, but we talk about finances a lot on this. Um, so, uh, if you implement the seven levels of financial freedom, uh, over the longterm, you should be fine from a cashflow perspective. But one of the things, one of the big things that people get concerned about is benefits packages, uh, more specifically 401ks.
And insurance [00:03:00] benefits. So we're going to break these, this out into two episodes. We're going to start with, um, the, the financial one first to 401k. Um, while they're both financial in and of themselves, but we'll start with the 401k, what is your. It's hard to say a rule of thumb because it is. dependent on the situation and probably the amounts we're talking and someone's situation and their goals and the strategies that they may have in place or may not have in place.
But what are some general thoughts, maybe a rule of thumb that you have when it comes to 401ks? As people leave corporate America, let's say they've been diligent, sets the money aside. Um, and we can talk different levels of amounts in a 401k, but what would, what would you be asking someone? What would you be saying to someone when it comes to what should I do with this 401k as I leave corporate America and go do my own thing?
Jeff Smith: Yeah, I will start this by [00:04:00] saying I am not a financial advisor. So everything that you will hear is my opinion. And, uh, I, I think it doesn't matter on the amount. Um, but to, to provide context, I worked for a fortune 50 company for 18 years. And so I am familiar with qualified programs. I've had benefits packages and all that.
And so I've made this. Exact decision personally in my own life. Um, I don't think the amount matters. I think your age matters more than the amount because of the time in which you'll have access to it. Right. So like it, in my decision, I think I was 37, 38 years old when I left corporate America, uh, finally.
And, uh, I, So for me, I cashed out because, so, and to provide context on what cash out looks like, you pay your earned income, uh, tax rate, and then you pay a 10 [00:05:00] percent penalty. Um, there's been times historically when that penalty is waived. So during emergency situations, COVID was one of them. Um, there, there's been other times throughout our lives when that 10 percent penalty has been waived.
So that would leave you at your earned income rate. Somewhere between whatever, 25 percent and 40%, um, you also have to pay state income taxes. So wherever you're coming, wherever you're retiring from coming out of that job from, um, that, that's something you should take into account. Um, but for me, it, the time.
That I could use that money before I could actually access it was that that's my decision making process on it like, okay, I'm 30 something years old, you have until I think you can. You, you would have to double check all this shit, but like, I think you can first start accessing your 401k at 59 and a half, maybe 62 and a [00:06:00] half.
It's one of those, and I don't know what the current law is because I don't have a 401k anymore. And so I don't pay attention to it per se. If I was 58 years old coming out of corporate America, or if I was 55 years old and I had millions of dollars in there or something, I would, I would leave it alone because it's going to be so soon until you can access it.
The paying the penalty is going to be a negative. ramification, right? If you're in your thirties, if you, if you cash out now and take control of your finances, because that's what we're all about taking control over your situation in as much control as you can glean. Um, I, I would cash it out. It doesn't matter if you have 5 million in there.
If you're 30 years old, I would go get it and I would, I would pay the taxes on it today and I would go invest it. into something that pays me [00:07:00] next month and for the next 30 years. And because that result financially is going to be more advantageous for you putting that money to work, putting money in your pocket today than it is going to be allowing it to accrue and save over time.
Uh, and also all the other things we talk about. I mean, a 401k is actually not a great investment. If you look at your management fees and everything else that they include in there. Um, There's a lot of fees that erode your overall earning potential. Um, and, and so now that said, it depends on what you're going to put it in.
Like if you're just going to pull it out and put it in an index fund or back in the stock market, um, I don't know that I would do that either. I would probably just pull it and transfer it to an Ameritrade or something that's more efficient, a Fidelity, [00:08:00] um, timeline account or whatever those are called.
Do you, do where you're choosing like 2050 or 2060? Yeah. If you're just going to leave it in the market, I would pull it and take control of it. I would no longer let your company manage it. Because you have even less control if you leave it behind that wall. Um, but when you exit your company, you have a period of time to choose that.
And it, that money can get moved that period of time into another financial institution that you have more say over. And so I would recommend doing that. Um, but like I said, I mean, depending on your age and what you're looking to do, like if you're running a business or if you're investing into active investments like we do with real estate and businesses and things like that, your ROI is generally much higher with.
Having control over that money and putting it to work today. You [00:09:00] could also move it into like self directed IRA, which people do quite frequently as well, which you can buy real estate out of and you can buy businesses out of and things like that. There's just more rules and rigor behind it. So while most people will bristle immediately at me saying, I would just cash it out and take the money and invest it.
Um, there are other ways to do it. And, and so there are other ways to take more control over that money, and that's what I'm mentioning, because certain people can't stomach the, the, the 45 percent haircut you're going to take, or whatever the number is, uh, and so, which, which I totally understand. Um. And, and so you really have to, this is one of the things where you really want all options on the table and to be able to evaluate each of the different scenarios that you're going to go down, um, so that you can choose what's best for you and your family.
Shawn Rider: [00:10:00] Yeah, I think, I think you stumped my answer with your first line on saying it's, it's not numbered, it's not money dependent, it's age dependent. I think that was a, I think that was a great fucking answer, um, because the way that I think about it is I think the chunk of money is, is where the, the tough psychology comes into play.
Uh, I, I will also only speak to my, my personal situation and current situation is, um, during the COVID lockdowns, I chose to liquidate a Roth IRA. So that was post, uh, tax dollars. So I did not get penalized on. Taxes. I, I paid tax on the gains within that account. Yes. Um, but it was not, uh, it was not the, the amount that you would think with a pre tax count.
And then they did waive the 10%. Uh, before 59 and a half. So I got out of, of that Scott free. So I was excited about that, but full transparency that Roth IRA had like 18 [00:11:00] grand in it, and then I ended up, uh, cashing out, paying taxes on, um, a government. Retirement account from public being a public school teacher.
So a state investment account that was less than 10 grand. So I paid like 2500 or 3500 of taxes and a penalty or whatever. Um, so To me, it was like, I'm only eating a couple thousand dollars. I'm not eating 150, 000. Um, but now, you know, we do have the decision to make about my wife's 401k and it is not 10, 000.
It's not 20, 000. It's more than that. Um, and so I like what you said about the age versus the amount, but then the last comment you made, um, geez, what was the last comment you made? Self directed. Yes. Oh, sorry. Your last comment was about getting all the [00:12:00] options on the table. I think that matter. So I think, I think for me, I think about the amount first in, in regards to how quick I'm going to come to an answer.
So I think that's my answer today. I like your statement about the amount versus the age. But for me, I look at, are we talking 10 grand? Are we talking 10? 250 grand. Are we talking half a million or a million? I think that's where I'm going to take a little bit more time on my answer, um, for myself and get all the options on the table.
Because then you start thinking about time a year. And one of the things that I discussed was, okay, well, how much How much earned income did we make this year? So what is our tax rate? Okay. Then next year on paper, are we going to make as much earned income on paper? No, we will not. So next year in theory, our tax rate should be smaller.
How do we feel about the potential? No one controls the stock market, [00:13:00] but at this time in January of 2025, do we feel more confident in the direction of the. Economy could be wrong, but I feel fairly optimistic. So do we want to have a potential earning of 10, 15, 20 percent this year while we make less earned income on paper?
And then at that point, you know, at the end of this coming year, early next year, do we want to strategically remove? A certain amount of money to do the investments that we're doing. Um, we don't necessarily inherently need the money today to make the investments. We have other sources of capital, but if we pulled it all at once, then we could streamline and accelerate those investments and that plan.
So that's part of the conversation. That's part of the struggle. There's no, uh, in, you know. Right or wrong answer. There's just how quickly do we want to move? And do we trust the next 12 months that that money is not going to go down in value anyways? [00:14:00] Because if it did go down in value, that may change our answer.
So those are my thoughts on it. Not going to tell anyone else really what to do. But I think I think, um, the amount will dictate how quick I come to a conclusion, but I also don't want to take six months to make a decision, right? So, uh, as I say those things, how else, how, how would you respond to me on those comments?
Jeff Smith: Well, I mean, I think for everybody that goes through, like, let's get all the game pieces on the table and see what they look like and then see what the 10 year ROI is on that. Um, I, I think what everyone really needs to think about is like, what is the next play? Because for me, let's, let's just hypothetically say that Jeff, me, has 500, 000 in a 401k right now, right?
Um, and I leave my job. So just for simple math, we'll say, we're going to cut it completely in half when I leave. Okay. So I'm, I'm going to pull it, pay the taxes. So I'm looking [00:15:00] at two 50, right? Two 50 would give you about a million to a million and a half in leverage. If you wanted to invest it in something, or maybe I have a business.
That I am stepping into because I've decided to leave my job to buy myself a job and I'm an operator of a business now, and, and maybe I've taken on 250, 000 worth of debt there. Um, and, and we're using like an SBA loan or something like that, right? Now, could, could I take, is there enough money coming from that 401k, regardless of the penalties, to zero out the debt at the new business that I've got, because now that's a cash flow tool for me.
So like, if I, if I flip that on its head, and now I'm not paying 5, 000 of debt service at that business, that gives me, An extra 3, 500 I could bring home and leave 1, 500 in the bank, right? So the, the net on that year one is 40, [00:16:00] 000 and, and now I have a business that has no debt, which is an asset that's growing in value as well.
Um, cause eventually we'll sell that asset, but also the cashflow of a net 40, 000 take home. Instantly is it. It does a couple things for you personally, so it makes the transition easier. It gives you more stability at home. It also gives your asset a free and clear like bill of goods. There's no more debt.
Anymore on that business and, uh, so it's just a, I don't know. So when I say that I'm saying like, what is your next move? And then what, because there's, there's more than just dollars and cents to ROI, right? There's peace of mind. And like, that's why some people pay real estate off and [00:17:00] other people use leverage.
And so like if I had a cash flowing business or a service based business that I could zero the debt on or like better yet zero the debt and have a little bit of money for marketing, like now I'm taking home that 3, 500 extra beyond what I was already paying myself, but like now we've got a little bit of gasoline to pour on the marketing engine to grow that potential business of which I am now 100 percent focused on because I'm not doing, um, My other thing, like they're calculating that 20 year period is next to impossible.
And, but, but I can tell you all day and twice on Sunday, I would take that bet because right now I'm, I'm choosing to like go chips in on me, right? Like at that point in time. And so what that extrapolates itself to over. Over 20 year period is like, who [00:18:00] knows eight figures, mid eight figures, something like that.
It's, it's not, it's not an apples for apples comparison. So it not to confuse the situation tremendously, but like, that's just an example I think of in my head, like, what are you going to do with it?
Shawn Rider: Well, yeah, it goes to what we actually teach the men in the inner circle is like. A lot of people in traditional personal finance only look at ROI, return on investment.
What is that percent? What is that average percentage? I'm going to get back next year. And so again, without being a math wizard, let's say you have a half a million in the stock market that is averaging 11%. The rule of 72 is you take your average rate of return, divide it into 72. And that's how long it's going to take to double your money.
So 72 divided by 11 is six and a half years. In six and a half years Your half a million might be a million dollars. Now you know how I feel about averages. Average returns are not real returns. Okay. So let me say that on the podcast. [00:19:00] Average returns are not real returns. The math doesn't cut out when you use average returns, but let's say your half a million is going to take six and a half years to double to a million.
If we use Jeff's example and you take the half a million out. And you have the worst tax rate in the country and you get penalized and you only have a quarter of a million dollars left. A quarter of a million dollars could get you, in the next few months, 1. 25 million or more of real estate, depending on how you're leveraging it.
So you're taking a half a million dollar asset, cutting it down to a quarter of a million dollars and then buying over a million dollars worth of real estate minimum. Now people are going to say, okay, you use leverage. You have debt against that. Cool. But if my real estate appreciates at 6 percent a year, What is 6 percent of 1.
25 million, that is 75, [00:20:00] 000 a year. So 75, 000 a year in year one on a 6 percent appreciation, well that's phantom equity. Well what do you think 11 percent returns inside a 401k is? It's phantom returns. It's not, it's not paying you. Right. And so, so when we only look at ROI and this is the same argument about, um, the stock market versus high early cash value life insurance, they're like, well, your life insurance is getting 6.
1 percent internally and I can get eight to 11%. I'm like, yeah, but you're looking at pre tax dollars. I'm looking at post tax dollars. I also have a big death benefit associated with it and I'm leveraging it to buy real estate. So, and the real estate again. Ideally has cashflow. So you're getting paid every month for the next 25 plus years while your other money's sitting there.
So, you know, as we talk this out, it would make sense to pull your money from a 401k, or again, I'm talking to me directly pull money from a 401k and put that money [00:21:00] to work. It's going to buy you a lot more number on what is a 401k is just a net worth. Now you, you cannot buy groceries with it. So at the end of the day, your 401k is just a number on your net worth.
If you use it to buy real estate. The value of the real estate is just a number on your net worth, but I want the cashflow to pay me monthly. I think that's the big argument on what you can do with it. I do like how you brought in for the business owners out there, like clearing out business debt. If you have a substantial amount of credit card debt, whether that's personal or business, your credit cards are 20, 21%.
That's an instant return on your money. Yeah, that money, poof, it's gone, but that gets an instant return on your money. Whereas again, money inside of a 401k is just a number on a sheet of paper. That you can't dictate and don't control.
Jeff Smith: Well, I, I mean, I didn't even say what I would do with it because you would roll it into a life insurance policy first, then you would clear out that debt and then you're earning 6, 6 percent on it.
And you bought [00:22:00] yourself, like if you, if you put 250, 000 into a higher early cash value, you're probably gonna buy three, four or 5 million worth of debt, death benefit right there. And then if you deploy that capital to do these things we're talking about, you're still getting 6 percent on your money.
You've bought your Family, a huge ass death benefit. I would take it all day and twice on Sundays I did. And, uh, and, and I put it to work and it's benefited me and my family today. And you're not even talking about inflation either. So everybody, you know, that's 65, would they prefer to have a million dollars today at 65, or do they want a million dollars from 1990?
Where, where do you think their money goes further? Right? So like if you get $250,000 today, or $500,000 in 30 years, that two 50 is probably worth more money today than that 500 will [00:23:00] be. in 30 fucking years. So like, there's so many nuances to this conversation and it's hyper emotional and it's very specific to the people doing it.
Um, that's why I'm like throwing everything out there because I want you to think through all these different things and then there's no wrong fucking answer. You've been a great saver is what I would tell those people. And, and cool thing about having that skill of being a great saver is that you have a lot of options.
And so, and there, there's no real wrong answer. Whichever one makes you sleep at night.
Shawn Rider: Yeah, we, we try not to have a blanket and I'll be all answer for everyone. So if you're struggling with this in and of itself, uh, reach out to Jeff and I, this is where we love to see the context of your life and the situation.
And our job is to just throw scenarios at you. If you did X and Y with the money, but ultimately it's your decision, it's your money, and you got to be comfortable with [00:24:00] the decisions that you make. So Jeff, I appreciate your insight on this topic. I'm sure it will be brought up again, maybe in the near future.
So why don't you send the people out?
Jeff Smith: Guys, uh, like, and subscribe to our YouTube channel. We would appreciate that. It helps us greatly. We've been producing. Ask loads of content for three years. Um, and we want some more listeners. Send this episode to anybody you think it might be helpful to. Um, and also hit us up on Instagram.
If you have any questions, we DM over there all the time. Um, and join our free Facebook community in the Tactical Empire community and let us know if you have any questions. Uh, it is a really great time to get things moving on your life and you've still got 11 months out of the year. I can't believe how much this first month has flown by, um, but we are in a great time for making money.
So let us know if we can help [00:25:00] you.