Would you be prepared if you suffered a 30% pay cut?

A shocking new report reveals that the average person’s pay levels off when they’re in their 40′s.  After that, about all you’ll be likely to count on will be cost-of-living adjustments to keep pace with inflation.

That will come as a real surprise to many people who assume their pay will continue to rise as they get older.

And if you lose your job while in your 50′s, you’re likely to remain jobless longer than when you were younger, according to the report.

Read this sobering and well documented article from the Wall Street Journal.¹

What’s your best self-defense?  When planning for retirement, assume the only salary increases you’ll get will be cost-of-living adjustments.  And identify a worse-case scenario – such as a 20% pay cut during your final ten years in the workforce – and try living on that income and putting the rest into savings.

A surprising reason why consumer spending is so slow these days

A paper by a Federal Reserve Bank of San Francisco researcher reveals that the recession has so far cut spending by $7,300 per person from what it was during the housing boom.²

That equals about $175 per month less being spent by each person, on average.

What’s most fascinating is the question the paper’s author, senior economist Kevin Lansing, posed…

People are wondering why consumer spending is so slow these days.  What they should be asking is:  Why was it so strong in previous years?  You’re comparing it to an artificial economy that was driven by debt.”

Looking back, how do you feel about all that money we Americans were spending when we were treating our homes as ATM’s?  Did you avoid falling into that trap?  If not, did the stuff you bought give you lasting satisfaction?  If you could turn back the clock, would you do anything differently?

Tell us in the comments box below…

When refinancing your home doesn’t make sense

While treating our homes like they’re ATM’s was dangerous to our financial health, a new trend has emerged that is equally dangerous.

Anxious to shed debt and prepare for retirement, people are now opting for larger monthly mortgage payments and shorter-term loans.

In the first quarter of 2011, an astonishing three out of four homeowners who refinanced their mortgages paid additional money at closing in order to reduce their balance.³

To me, this is a classic – and potentially very dangerous – example of following the conventional wisdom.  Didn’t we learn anything from the real estate crash and crisis?

None of the payments of principal you make into your home make money for you.  The equity in your home earns a zero rate of return, and it’s also not liquid.

What if you need or want access to some or all of that money now locked up in your home, but you can’t sell or refinance it or you’d have to take a big loss to do it?

Life has a way of throwing us curve balls when we least expect it.

Think about this for a moment:  What if you had enough saved up that you could pay off part or all of your mortgage if and when you choose to?

Isn’t the real key to financial security and reducing money stress about having options and choices?

This won’t happen if you’re saving and investing using the “hope and pray” method most Americans do in the Wall Street Casino.  That’s a sure-fire recipe for financial insecurity.

But it can and does happen for savvy Americans who use the Bank On Yourself system of building wealth safely and predictably.

I’ve always been open about how I walk my talk and use the Bank On Yourself method.  I even post copies of my own policy statements on this website.

Rather than pay down our mortgage faster, my husband and I have always taken out 30-year fixed-rate mortgages.  The lower payment allows us to save more money in our Bank On Yourself plans, and, as a result, today – if we choose to – we could write a check to the bank and own our home free and clear.

But we’d much rather have that money in our Bank On Yourself plans where it is working much harder for us.  Plus, we can get access to that money any time we want or need it by answering just two questions: 

How much do you want… and where do you want it sent?”

This won’t happen overnight, but almost anyone can do what we did.

The Bank On Yourself system gives you many additional advantages, including:

• You can borrow your equity in your policies and they will continue earning interest and dividends as though you’d never touched the money (NOTE: Only a few companies offer this feature)
• You set your own repayment schedule, and if you have to reduce or skip some payments, no one will hound you or put a black mark on your credit report
• You don’t have to sell or liquidate your investments to get access to capital
• While you do pay interest on your loans, the interest ultimately benefits you, as explained in detail on pages 100-103 of my best-selling book
• You control the money in your plan – there are no government restrictions or penalties on when or how much money you can withdraw or borrow from your plan
• You can take a predictable, guaranteed income in retirement from your plan, with little or no taxes due, under current tax law
• This is an asset class that has increased in value every single year for more than 160 years
• You would need to get a 7-8% return in a taxable account, like a 401(k) or IRA, in order to equal the return of a properly structured Bank On Yourself plan.  But you don’t have the risk or volatility of stocks, real estate and other traditional investments to get that!

1. “The Other Midlife Crisis,” by Ellen E. Schultz and Jessica Silver-Greenbert, Wall Street Journal, June 18, 2011
2. “Fed Says Recession Cost $7,300 Per Person in Lost Consumption” by Vivien Lou Chen, Bloomberg.com, July 11, 2011
3. “When Refinancing Doesn’t Make Sense,” by Jilian Mincer, SmartMoney, July 11, 2011

The reason given was, “A life insurance policy loan is not truly a loan.  Rather, it is an advance that the insurer must eventually pay out.  Worse yet… policy loans can erode a life insurance policy over time.”  It also pointed to “potential tax liabilities.”

This review brought to mind one of my favorite quotes…

If you’re looking for an excuse, any one will do.”

– Dan Kennedy

So I wrote the editor and explained there was some misinformation in the review, and that I would like an opportunity to correct the record, pointing out that their motto is “Unbiased Investment Education.”

The editor told me to let him know what I think is incorrect, and he “will take a look at it.”  I suspected he was just “humoring me,” but gave him the benefit of the doubt.  However, when I submitted my rebuttal, he replied that they would not publish it because “there are no factual corrections to be made.”

I informed AAII I would be publishing my rebuttal on this website, and let YOU decide who is taking things out of context, committing sins of omission, and twisting the “facts”… and who is being fair and unbiased.  We’ll pick three of the most interesting, insightful and/or humorous comments made on this blog and award the posters their choice of a $25 gift certificate for a restaurant in your area or a personally autographed copy of my “too good to be true” book.

Besides that, there are several points made in my rebuttal that I have not made elsewhere, so you will find value in reading this (I made it a bit more colorful for your reading pleasure)…

When you take a policy loan, you’re actually taking a loan against your cash value and using your death benefit as collateral for the loan.  Should the policy owner die with a loan outstanding, it will be deducted from the death benefit, along with any interest that has accrued.

So, in essence, an unpaid policy loan would be an advance against your death benefit, which in most cases will be far greater than your cash value.  With any other financial product, you wouldn’t even have a death benefit larger than your equity to use as collateral.

And what most people (and even most financial advisors and experts) don’t know is that in a dividend-paying whole life policy, both your cash value AND your death benefit grow exponentially, and the growth is both predictable and guaranteed.

Here’s an eye-opening personal example of how this works:

I started a new policy designed to maximize the power of the Bank On Yourself concept a little over four years ago.  The death benefit (known as the “face amount”) at that time was $605,000.

Just four years later, the death benefit had grown to $1,104,332 – an increase of over 82%.

One and a half years ago, with almost $125,000 of cash value in the policy, I took a $100,000 policy loan to expand my business.  At the time, all my business-owner colleagues were crying on my shoulder about how their bank wouldn’t give them a penny – even those who had perfect credit and long-time relationships with their bankers. They were astonished to discover how I got access to capital by answering just one question:  How much do you want?

I am in the process of paying back that $100,000 policy loan now.  I set my own payback schedule, and I can reduce or skip payments if and when I need to.  Try doing that when you borrow from a bank, finance or credit card company!

Suppose I passed away with part or all of that loan unpaid?

My husband would get nearly $1 million, income-tax free.  That’s almost $400,000 more than the original death benefit was four years ago!  And it’s ten times the current equity remaining in the policy beyond the outstanding loan balance!

Meanwhile, I used those funds to grow my business, and I’ve already gotten close to a 100% return on that investment in my business.

So do you think it bothers my husband that if I die before I finish repaying the loan, he’ll “only” get $400,000 more than the original death benefit, rather than $500,000 more?  Or that he’ll “only” get ten times the current cash value?

And can you tell me any other product or strategy that could accomplish anything even close to this result?

Note to Bank On Yourself Blog readers: AAII’s response to this part of my rebuttal was that my statements “point out that the policy can be adversely affected by outstanding loans.”  And, thus, “no factual corrections need to be made in our magazine.”

Okay, let’s assume AAII didn’t take this wildly out of context.  Their statement that a policy loan “is an advance that the insurer must eventually pay out” is an error of fact.  If they already advanced it to you, they don’t have to pay it out again! (Duh!)  One problem is that  four different people on my team read this statement and each interpreted it a different way.  So it wouldn’t surprise me if you do the same.

Additional benefits of the Bank On Yourself method include:

As mentioned in the AAII review, you continue to receive the exact same annual guaranteed cash value increase PLUS the exact same dividend you would receive if you had never borrowed a penny.  This let’s you use your money and still have it working for you.  And you don’t have to sell your investments to take advantage of this feature.

Please tell me where else can you get this advantage?

This is true for “non-direct recognition” policies, which don’t “recognize” you have taken a loan when crediting dividends.  The policies recommended by the Bank On Yourself Authorized Advisors meet the requirements that maximize the power of the concept.  These advisors also have advanced training in how to structure policies to maximize the growth of your cash value and minimize the taxes.  To get a referral to an Authorized Advisor, simply request a free Analysis that will show you how much your financial picture could improve if you added Bank On Yourself to your financial plan.

You do pay interest on policy loans, and the interest rate is typically below commercially available rates.  However, as I explain on pages 100-103 of my best-selling book, the interest paid ultimately benefits the policy owner.  You will end up with the exact same cash value in your policy if you borrow from your policy and pay it back at the interest rate the company charges as you would if you didn’t use your policy’s equity at all.

The AAII review of my book never even mentions a central part of this concept:  It is not about just taking policy loans!  It’s about becoming your own source of financing.

As noted in the AAII review, there are potential tax consequences to policy loans that are not repaid.  A policy that lapses or is surrendered can result in taxes being owed on the gain.  As long as you pay the premium and the loan interest, the policy will not lapse.

However, it should be pointed out that defaulting on or renegotiating mortgages or credit card and other debt can result in tax consequences, too.  A friend of mine settled $50,000 of credit card debt for 50 cents on the dollar.  She got slapped with a tax bill for the $25,000 that was “forgiven.”

Note to Bank On Yourself Blog readers: AAII’s response to this was, “Again, you reiterated what we wrote (about potential tax liabilities).”

Critics of whole life insurance will be surprised to learn that I had $125,000 of cash value in that policy when the policy was only 2-1/2 years old.  They might be even more surprised to know that I had tens of thousands of dollars of cash value at the end of the first year.

That’s because policies designed to maximize the power of the Bank On Yourself concept have riders incorporated into them that significantly increase the growth of the cash value.  You could have up to 40 times more cash value in your policy in the early years than you would in a traditionally designed policy (the kind most experts and advisors talk about), as explained in Chapters 3-6 of my book.  This allows you to use your policy as a powerful financial management tool right from the start.

(Note: No two policies are alike – each is custom tailored to the client’s unique goals and situation.  To find out what your bottom-line numbers and results could be if you added Bank On Yourself to your financial plan, request a free Analysis here, if you haven’t already done so.)

The review ends by saying that “loans, when necessary, should be taken out separately from your portfolio.”

The Bank On Yourself concept can beat financing, leasing and even paying cash for things, for the reasons described above.

One final comment on this review:  It refers to whole life insurance as a “portfolio,” which implies it’s an investment.  It is not and is not subject to the ups and downs of traditional investments.  Dividend-paying whole life insurance is an asset that has increased in value every single year for more than 150 years, including during the Great Depression.

The Bank On Yourself method gives you a financial foundation that can help you weather tough times, access to capital when you need it on your terms, it allows you use your money and still have it working for you, AND it lets you grow a nest-egg you can predict and count on.

The Bank On Yourself method gives you a financial foundation that can help you weather tough times

That is what most of my book is about.  I wonder why none of this was even mentioned in this review?

So, is Bank On Yourself “too good to be true”?  I hope you’ll decide for yourself with the facts at hand.

Note to Bank On Yourself Blog readers: The AAII says that it stresses “hands-on participation in your financial future through education and understanding,” and that, “our reporting is unbiased and we are not beholden to anyone.”

Coincidentally, an article appeared in the Wall Street Journal ¹ this week that noted that AAII surveys its members each week and that “some investors have looked to the AAII survey as a compelling contrarian signal.  An ebullient reading often is a clue that the market is due for a fall.”  Translation:  AAII members tend to move with the herd and buy and sell at the wrong times.

Why am I not surprised?  And, given this revelation, I realize we should be concerned if and when AAII endorses Bank On Yourself.

We want to hear from you! And the best comments will win prizes…

Did the AAII review of my book twist things, commit sins of omission, and take facts out of context… or was it fair and unbiased?  Speak your mind in the comments box below.  We’ll pick three of the most interesting, insightful and/or humorous comments and award the posters their choice of a $25 dining gift certificate or a personally autographed copy of my “too good to be true” best-selling book. (To qualify, you must post your comment in the comment box below by Monday, January 24.)

1. “Dow’s Doubters Say Market Is on Borrowed Time,” by Jonathan Cheng, January 17, 2011, wsj.com

-$62,734.06. That’s the “unrealized” loss we’ve had in one of the mutual funds in our retirement account, according to the statement we just received.

A $62,734.06 unrealized loss.

I keep staring at the statement, hoping that number will somehow magically turn positive.  After all, we’ve had a nice run-up in the stock market recently, and that mutual fund has one of the best long-term track records of any fund.

What the heck is an unrealized loss, anyway?

I realize I’ve lost a whole bunch of money.  And I remember working my butt off to make that money!”

A $62,734 “unrealized loss.”  Is that an oxymoron, like “Great Depression,” “small fortune,” “accurate forecast” and “quickly reboot”?

I dunno if it qualifies as an oxymoron.  But I do know it’s moronic that we pin our hopes and plans for financial and retirement security on things we can’t predict or count on!

My husband Larry is 61 and theoretically four years away from retirement.  He probably won’t retire when he’s 65 because he says he’d get bored.  But if we were relying on the conventional wisdom about saving for retirement, it wouldn’t even be an option for him.

Did you know that 40% of retirees were forced to retire sooner than planned, due to health problems, job layoffs and other factors beyond their control?

Of course, none of us want to think that could happen to us… but what would you do if it did?

Another mutual fund in our retirement account shows an $8,012.16 “unrealized” gain.

And there lies the rub:  You don’t actually lock in a gain or loss until you sell an investment.

(November 22, 2011 Update:   Our most recent retirement account statement shows our “unrealized loss” is virtually unchanged since I wrote this blog post almost a year ago.  And looking at the Dow’s ups and downs over the past year makes a day on the roller coasters at Six Flags look tame.)

Unfortunately, studies and history show that most of us are far more successful at locking in our losses than our gains.

Can you tell me what your retirement account will be worth on the day you plan to tap into it?  (Not what you hope it will be.)  If your answer is “no,” how can you even call it a plan? And what will you do if the market plunges by 50% – again – right before you planned to retire?

Contrast that with Bank On Yourself.

Last year around this time, I showed you how one of my Bank On Yourself policies had grown from the beginning of 2000 through the end of 2008, a period that included not one, but TWO devastating market crashes.

I did a side-by-side comparison with the growth of the S&P 500 over the same period.

Now I can  give you an update for 2009 and 2010 on that comparison:

Bank On Yourself-type policies get better (more efficient) every single year, simply because they are engineered to do so!

The graph below shows the typical growth pattern in a Bank On Yourself-type policy.  It’s based on one of my policies and shows the growth I’ve had so far, along with the growth I would have if the dividends stay where they are today.  Right now, dividends – like interest rates – are at historic lows.  If they increase, the growth will be greater.  Keep in mind that dividends aren’t guaranteed, however, the companies preferred by the Bank On Yourself Authorized Advisors have paid dividends every single year for over 100 years.

So, will your policy growth look like the graph above?

If you’re referring to that growth curve that just keeps increasing every year at a steeper pace, the answer is “yes.”  Because, as I noted above, that’s how these policies are designed to grow.

If you’re wondering if your actual numbers will be similar to the ones in the examples of my policies above, the answer is no.  Because Bank On Yourself isn’t an off-the-shelf product.

Every policy is custom tailored to help you reach as many of your financial goals and dreams as possible, in the shortest time possible, given your situation today.  This process is illustrated in Chapters 3-6 of my best-selling book.

If you haven’t already started to Bank On Yourself, you can take the first step now by requesting a free, no-obligation Analysis.

Do you make New Year’s resolutions?

If one of your New Year’s resolutions is to get your financial house in order, you need to do more than just think about it and write it down.  You need to take action.

You need to lay the foundation down now that can ensure you never again suffer a “lost decade”… or even another lost year.

And when stocks, real estate and other investments continue on their endless roller-coaster ride, you can pull out your Bank On Yourself policy statements and sleep well knowing you have taken back control of your financial future.

And while there are some hopeful signs of new life in the economy, this year has also brought us:

• Massive bailouts
• A tripling of an already-bloated federal deficit
• A falling dollar
• Rising foreclosures (and likely to spike as billions of dollars in ARM’s are now coming up for adjustment)
• Major banks and investment houses taking on three times (!) the risk they were before the collapse

So what do you think next year has in store for us?

No one really knows for sure.  (Well, except maybe the folks at the Psychic Hotline.)  So how do you prepare for a very uncertain future?
Here’s a quick quiz that may reveal an answer for you…

What’s the one financial asset that increased in value during the market crash of 2008?  And in 1929?  And in every period of economic boom and bust in between?

Answer:  The product used for Bank On Yourself:  Cash-value life insurance.

As I’ve mentioned, my husband Larry and I now have 18 Bank On Yourself policies.  I’ve picked one of them to show you how a dividend-paying whole life policy like this can grow over time – even when the markets are plummeting.  It’s a great example of how Bank On Yourself gives you the peace of mind that lets you sleep at night.

Here’s how much this plan has grown each year since the beginning of 2000, a period that includes not one, but TWO devastating market crashes.  In four of these years, the S&P 500 was down for the year, as you can see in this side-by-side comparison:

If you had put $10,000 into an S&P 500 Index fund at the beginning of 2000, how much do you think it would be worth today?

Take a guess before you read on.

Based on where the S&P 500 has been trading this past week (week of December 7-14, 2009, it would be worth only about $7,488!  That doesn’t even factor in inflation over that period, which would slash the value of your investment by about another 27% – to $5,466!

Have you considered that maybe – just maybe – return OF your principal is at least as important as return ON your principal?

If you could turn back the clock, where would you rather have put that $10,000 – in stocks, mutual funds and real estate?  Or in an asset that has only one direction – up – and where all your principal and gains are locked in?

If you look at the chart above again, you’ll notice how this policy – like the rest of our other 17 Bank On Yourself policies – has increased in value each year by more than it increased the previous year, even though our annual “contribution” never increases.

I’ll be getting my next annual statement for this plan soon, and – like every other year – I can’t wait to see it!  Can you imagine looking forward to receiving every account statement, because they always contain good news and never any ugly surprises?

Of course, I already know how much growth I can count on receiving this year (and every year).  The growth in these policies is both guaranteed and exponential – with no luck, skill, or guesswork required to make that happen.

But there’s also the potential to receive dividends.  Dividends aren’t guaranteed, but the companies used by Bank On Yourself Authorized Advisors have paid dividends every single year for more than 100 years – including during every market correction, every bear market, and even during the Great Depression.

So, let’s fast-forward 7 years.  That’s when I’ll be 64. (Yeah, I know a woman isn’t supposed to tell her age.)  Suppose I want to retire at 65?  How much will the Bank On Yourself policy I used in the example above grow that year?

This particular policy is projected to increase by $47,709 that year, based on the current dividend scale.  I also know for sure the minimum guaranteed annual income I can take from this policy in retirement. And I can access that income stream with no taxes due on it, under current tax law.

I have NO idea how much my mutual funds will be worth nine years from now.  Or 30 years from now.  And I have no idea how much income I can count on receiving from them.  Same goes for my home value.  Do you?

And that sums up the problem with traditional investing and retirement planning methods.  They never have been – and never will be – anything other than a crapshoot.

It explains why, sadly, so many Americans are wondering, “Will I ever be able to retire?” and “What will I have to give up to be able to do that?”

But it doesn’t have to be that way!  Not when you Bank On Yourself.  Since I love what I do, I probably won’t quit when I’m 65, but it’s nice to know I’ll have a choice.

Every situation is different, and no two Bank On Yourself plans are the same, so your numbers won’t be the same as mine.  Each plan is custom tailored to fit your unique financial goals and dreams.  So if you want to find out what your bottom-line numbers and results could be if you added Bank On Yourself to your financial plan (if you haven’t already done so), you can request a free Bank On Yourself Analysis here.

Key Concept:  Unlike investments like stocks, mutual funds and real estate, where your gains aren’t locked in unless and until you sell them, all the growth you get in a Bank On Yourself policy is locked in! It doesn’t vanish because of a market correction.

Not only will you never have to worry about buying or selling at the wrong time, you will benefit from the continuous compounding of an ever-increasing base.

This also gives you some built-in protection against inflation

Can you see how, when you Bank On Yourself, you can shut out all the noise about the whip-sawing stock and real estate markets and other investments?  The peace of mind it brings you is indescribable.

We are only a few short weeks away from a new decade.  How confident are you that this next decade will give you a smoother and more predictable financial journey than the decade now coming to a close?

If you’re tired of hoping and guessing what the future may hold, and you’re ready to have a financial plan you can predict and count on, why not take the first step now?  Request your free Analysis and get a referral to a knowledgeable Bank On Yourself Authorized Advisor who can show you how a custom-tailored plan can help you reach as many of your short-term and long-term goals and dreams as possible!

These Advisors are also masters at helping you restructure your finances to free up money to fund your Bank On Yourself plan.