Personal Finance Blog for Retirement and Investment Advice

5 Financial Myths that Are Destroying Your Wealth

The problem isn’t so much what people don’t know, the problem is what people think they know that just ain’t so.”
— Will Rogers

Remember when you were absolutely certain about something that turned out to be false? Like Santa Claus or the Tooth Fairy. Or how about the witch that hides under your bed waiting to attack so you have to flip the light switch then spring into your bed before she gets you? (Okay, maybe that one’s just me.)

In honor of National Financial Literacy Month, let me just debunk a few “things you know that just ain’t so”:

1. You’ll come out ahead by deferring your taxes, and that’s one of the prime benefits of retirement plans such as 401(k)s and IRAs

Remember Wiley Coyote? He’d come up with some brilliant, fool-proof plan to catch the Roadrunner, only to have it backfire and nail him every time! Deferring taxes is like sitting on a Wiley Coyote ticking time bomb.

What direction do you think tax rates are going over the long term? If you’re like most people I talk to, you probably think tax rates are going up, which means if you’re successful in growing your nest egg, you’re only going to end up paying higher taxes on a bigger number.

2. To build wealth and grow a sizeable nest-egg, you must be willing to accept risk

Just like doctors in the 1950’s promoted the health benefits of smoking cigarettes, Wall Street has been promoting the financial health benefits of risky investments since the 1980’s. “The higher the risk, the more you can make!” Yeah, right. And the more you can lose!

Ignoring the Wall Street hype, millions of Americans have implemented steadier, safer ways to build healthy nest eggs. Check out the safe wealth-building strategy called Bank On Yourself that’s never had a losing year in more than 160 years!

3. If you’re carrying debt, your priority should be to pay it off before trying to save money

Were you ever conned into putting your fingers in one of those Chinese finger traps? That little woven straw tube where the harder you tried to pull your fingers out, the more they got stuck?

Unless you already have a substantial stash of liquid savings, simply focusing on reducing debt leaves you vulnerable. Every emergency or unexpected expense will send you right back into debt, no matter how hard you’ve worked to pull yourself out. To get out and stay out of the debt trap, give equal priority to both savings and debt reduction.

4. After you retire, your basic expenses will be much lower

This reminds me of those perfect-looking models in magazines who’ve had every wrinkle, freckle and last bit of cellulite photo-shopped away. It’s a lovely illusion, but the untouched reality is not so pretty.

In whose universe will your expenses be less as you age? Your utilities, groceries, and home and car insurance costs won’t be less. And your healthcare costs are likely to be more: Studies show that a 65-year-old couple retiring today will need $220,000 to cover out-of-pocket health-care costs during retirement. (That figure doesn’t include possible nursing home and long-term care costs. And it assumes you do have Medicare.)

Unless your dream retirement is sitting on the sofa watching TV (with no cable channels!) eating peanut butter sandwiches, don’t count on your expenses being lower.

5. Fees associated with mutual funds are negligible compared to the returns that are possible

Reminds me of the Tooth Fairy: “Just give me your tooth and I’ll give you a whole quarter!” Sounds like a pretty good deal. But if you give her a tooth every year for the next twenty-five years, you end up with $6.75, a mouth full of nothing, and a glass full of dentures on your night table!

According to the Department of Labor, fees of only 1% can slash the value of your retirement fund by 28% over the next 35 years. Think you’re not paying that much? Check again. On average, participants in small retirement plans pay nearly 2% in fees annually, and participants in large plans pay 1.08%.

What other financial “truths'” do you know that just ain’t so? False notions that are undermining your financial well-being? Take our quick and fun What’s Your Financial IQ Quiz and find out.

yellow-quiz

HOW TO DEEPEN YOUR UNDERSTANDING OF MONEY AND PERSONAL FINANCE

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Why a Little Financial Information is Dangerous

Just cuz you’re following a well-marked trail doesn’t mean that whoever made it knew where they were goin’.”
— Texas Bix Bender

I respect people who are self-educated, and I respect people who continue to educate themselves about various topics, even after they’ve finished their degrees. As legendary basketball coach John Wooden used to say, “It’s what you learn after you know it all that really matters.”

That said, a little financial self-education can go a long way – toward completely destroying your financial future!

Why? Because when you cobble together your financial education with bits and pieces of advice you see on the internet, read in articles or hear on TV, you’re not really building a strong foundation of financial literacy. It’s like that old story of the 12 blind monks and the elephant. Each monk felt a different part of the elephant and used just that part to figure out what the whole animal looked like!

So one blind monk tells you to pay off all your credit debt ASAP, while another tells you that you need to build up a rainy day fund. One insists that you max out your 401(k), while another says to secure your future by paying off your mortgage. And the blind monk standing at the elephant’s tail thinks the economy stinks – so you need to get yourself a stash of precious metals!

When it comes to personal finances, you really need to see the whole elephant

[Read more…]

The Checklist: What You Need to Know Before You Commit to a Financial Product or Plan

People are quick to dispense advice on any subject, regardless of their qualifications. Most people don’t even distinguish between ‘opinion’ and ‘knowledge’. That’s why you must.”
— Dan Kennedy

Your Uncle Vinnie corners you at the Sunday barbeque: “You got to get on board! It’s like buying into Microsoft in the ’80’s.” Your dentist tells you to open wide and “You gotta check out this once in a lifetime opportunity. It’s the mother lode!” Your golf buddy swears she’s found the “ultimate tax shelter.” Your advisor calls with an exciting new financial product “that will get you 15% plus annual returns with little or no risk!”

Whatcha gonna do?

Hey, I’ve spent 25 years investigating over 450 financial products and vehicles. The research was intense and required sleuthing skills that probably qualify me for CSI. I can tell you that, though these products were sparkly and seductive on paper, 99.9% of them didn’t stand up to scrutiny!

I’m guessing you don’t have the time or inclination to put in that kind of effort. But to protect your family’s financial future, you need to get answers to at least a few basic questions before you (and your money) jump in: [Read more…]

It’s National Financial Literacy Month – Do You Know Your Financial IQ?

April is National Financial Literacy Month, and here at Bank On Yourself, we’re doing our part to give Americans the knowledge and skills they need to make smarter financial decisions.

As President Obama noted in a 2011 Proclamation supporting National Financial Literacy Month, “We must strive to ensure all Americans have the skills to manage their fiscal resources effectively and avoid deceptive or predatory practices.”

And the Senate resolved in 2012 that “increased financial literacy empowers individuals to make wise financial decisions and reduces the confusion caused by an increasingly complex economy.”

Wow! I think “complex economy” may be an understatement!

So we’ve put together a quick 20-question quiz here that increases your understanding of the most critical things you need to know about managing your money, investing, and planning for a secure retirement. [Read more…]

Can You Put a Lump Sum into a Bank On Yourself Plan?

This is the fifth installment in our series of answers to the most-asked questions we got on our recent “Ask the Bank On Yourself Advisors” online event.

This question is about whether you can pay a larger amount of premium into a Bank On Yourself policy in the early years, to supercharge the growth.

The answer is “yes,” and the big advantage is that it allows you faster access to a higher amount of cash value that you can use for a variety of purposes.

Here are three common situations where people do “lump sum” funding of their plans…

Situation #1: Debt Consolidation

[Read more…]

Is it Too Late? Am I Too Old to Benefit from Bank On Yourself?

One of the most-asked questions we got on our recent “Ask the Bank On Yourself Advisors” live online event was when is it “too late” to start a Bank On Yourself plan?

A number of people said things like…

I’m only 10 years away from retiring. Can I still benefit from this?”

In most cases, the answer is “yes.” In fact, one of the Advisors who presented during the event walked us through a case study of a couple who became Bank On Yourself policy owners at the ages of 59 and 60.

Happy Retirement

Is it too late for a comfortable retirement?

I started my own biggest plan yet last year when I was 61. (Oops! I just gave away my age!) And people older than I start new Bank On Yourself plans, as well.

The Bank On Yourself Authorized Advisors are masters at structuring plans to meet their clients’ unique situation and goals – and they have a LOT of flexibility in plan design.

But there’s also a different kind of Bank On Yourself dividend-paying whole life insurance policy that I call a “Bank On Yourself for Seniors plan.”

This involves a one-time lump-sum premium payment, and then you pay no more premiums – ever.

These plans are available for people up to age 85, and even come with a FREE long-term care benefit for stays in a long-term care facility or for home health care, in most states. [Read more…]

Can you Roll Over your 401(k) or IRA into a Bank On Yourself Plan?

One of the most-asked questions we got on last week’s “Ask a Bank On Yourself Advisor” live online event was…

“Can I roll over funds from my 401(k)/IRA/403(b)/TSA into a Bank On Yourself plan – and what are the tax consequences?”

This is actually a common method people use to fund a Bank On Yourself plan.

Here’s how a retirement plan rollover works…

[Read more…]

How Sequence of Return Risk Can Devastate Your Retirement Lifestyle

There are three words that could have the biggest impact on whether you enjoy a comfortable retirement… or you have to struggle and forego life’s luxuries – and even life’s necessities.

But almost no one is talking about these three words. And there’s a good chance you’ve never even heard of them.

These three words could have more impact on your retirement lifestyle than living longer than you expected… or than being forced to retire sooner than you planned (which happens to nearly 50% of Americans, according to the Employee Benefit Research Institute).

The three words may sound a little technical, but I’m going to make them brain-dead simple to understand. [Read more…]

Slacker’s Guide to Goal Setting

Many of us spend half our time wishing for things we could have if we didn’t spend half our time wishing.”
– Alexander Woollcott

It’s still early in the year and time to set our bright and shiny new goals for the next twelve months, often with the grand title of “New Year’s Resolutions.”

Give me a break!

Aren’t we busy and stressed enough just trying to keep up with where and what we are without the added effort of trying to make our lives better? Why waste our time going after goals when we can put our feet up and watch new episodes of The Good Wife?

Besides, if we set goals, our lives might actually change – and who likes change? We’re all comfy cozy with our current problems and headaches. Why rock the boat?

However, you might be surrounded by obnoxiously chipper goal setters and goal getters harassing you to join them. Ugh!

To keep them off your back so you can join that happy 40% of people who set New Year’s Resolutions and fail within the first month, I’ve come up with some sure-fire tips:

The Slacker’s Guide to Goal Setting

Follow these pointers and you’ll never, ever have to worry about goals mucking up your perfect life! [Read more…]