Cracking My Nest Egg

I cringe when I hear old stale cookie cutter advice about retirement funds and how borrowing from your 401k is so bad. For instance, when you borrow from your retirement account the contributions or money available to invest is smaller forgoing higher stock market returns. The idea of working and contributing to a retirement account for 20 to 30 years is so conservative and boring. That is why I’m taking that old financial advice and turning it upside-down.

I rather borrow from my 401k to invest in assets that yield residual income. I really love the concept of residual income; continuously generating income even after putting in initial and up front work. Like rental property, for example I bought a duplex in July 2014 and after down payment and closing cost I needed $5,000. The property needed little cosmetics like paint and carpet. I didn’t want to deplete all of my working capital, so instead I borrowed from my 401k to pay for renovations. I wanted the property to start cash flowing as soon as possible; did not want to experience vacancy for too long, if I waited later trying to save the needed amount. Now before I jumped in and borrowed I made an agreement with myself: to pay back the loan within six months. I chose to pay back in 6 months instead of the required 5 years. How would I pay back the loan? I did the math on how much would be taken out of my paycheck. I know you can adjust how much is taken out of my check; nonetheless I was comfortable with the default amount.

To accelerate and meet my six month goal; I used income from preparing taxes. The interest rate was lower than a personal or business loan which helped paying back. I’m not worrying about missing potential stock market returns because I’m cash flowing from rental properties. My goal is to generate enough residual income to buy myself out of the linear income (day job); that I'm currently earning and plan to continue to earn for the next 5 years and wane off would be dependence of a retirement account when I'm in my sixties. Because essentially you expect the retirement account to do the same thing, right; which is providing income during retirement years. Borrowing from a retirement account and investing in assets that provide residual cash flow is a nifty way to extract and utilize those funds. I don’t mind borrowing a short term retirement loan and I would do it again to acquire rental property. I’m not waiting on retirement; I’m cracking my nest egg now.