Austrian Economics—What the Heck IS It?

What is “Austrian economics”? Let’s break it down:

Economics: “A social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services.” Ooo-eee! That’s gotta be a page-turner! Thank you, Merriam-Webster.

Austrian economics: “A school of economic thought that is based on methodological individualism.” Gads! But thank you, Wikipedia.

I never studied economics in college. And I’m pretty sure I didn’t take economics in high school either. Or if I did, I slept through it.

Ron Paul, 2012 Republican Presidential Contender

But “Austrian Economics” is a phrase you hear from time to time—even if it’s said in code, like what Ron Paul said following the 2012 Iowa presidential primary. “I’m waiting for the day when we can say, ‘We’re all Austrians now!’”

That struck me as odd. As Matthew Yglesias colorfully observed in his Slate article on Austrian economics, “The average Republican presidential candidate would sooner officiate at a gay marriage than praise Europe, yet here was Paul pledging allegiance to Vienna. What did he mean? Why would we all be Austrians?”

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The Truth About Whole Life Insurance and Why It’s More Than a “Rich Man’s Roth”

I came across an online article by an anonymous blogger who claimed that the only good purpose for whole life insurance was as a rich man’s Roth. He was certain whole life insurance was only for individuals whose high incomes made them ineligible for the tax-saving advantages of a Roth IRA.

That’s actually pretty funny. Why restrict the incredible advantages of whole life insurance—including the tax advantages—only to the wealthy?

Let’s look at how a Roth IRA works and then compare it to a Bank On Yourself-type whole life insurance policy.

How Does a Roth IRA Work?

A Roth Individual Retirement Arrangement (Roth IRA) is an IRS-approved strategy that allows you to invest money you have earned by making contributions to a Roth IRA plan you have set up. You are not allowed to take a tax deduction for your contribution as you are with a traditional IRA. However, none of the money you take from your plan in the future is taxable. As far as the money in your Roth IRA is concerned, you will not be affected by future changes in the tax rate.

How a Roth IRA differs from a traditional IRA

Roth IRAs are quite different from traditional IRAs.

Chart Comparing Key Differences Between Traditional And Roth IRAsWith a traditional IRA, your contributions are tax-deductible. However, when you withdraw money from your traditional IRA—and you must withdraw specific percentages annually, beginning soon after your seventieth birthday—you must pay taxes on everything you withdraw—at whatever the tax rate happens to be at the time.

See the table for a summary of the key differences between a Traditional IRA and a Roth IRA. [Read more…]

Bill Williams’ AHA Moment: How Bank On Yourself Freed Him from 401(k) Loans and Mutual Funds

Bill Williams is an enthusiastic believer in the Bank On Yourself concept because of how it has helped his family financially. He wrote to me several years ago, and I included his letter on page 228 of my 2014 New York Times best-selling book, The Bank On Yourself Revolution:

Thanks for all the good things you are doing, Pamela. I am working with my Bank On Yourself Advisor to set up my third policy, and I am so appreciative of her guidance and expertise. She has been tremendously supportive.

The real “snake oil” is all of the purported advice about savings and investing we have been fed by the “experts” in the past. I get so upset by the advice to invest with before-tax dollars into 401(k)s or 403(b)s.

I’m over sixty years old and know when I turn 70½, I’m going to have to take required withdrawals from my plans and have the added burden of paying taxes on them. After all, the IRS wants to get its hands on the taxes they let me avoid paying all those years.

I wish not only that I had learned about Bank On Yourself earlier, but that the concept could be taught to the masses when they are young enough to get the maximum benefit from it.

Here’s why I say that: I think of all of the purchases I’ve made through the years where Bank On Yourself would have been a much better means to fund them. As an example, my son’s college expenses, which I paid every cent by selling stock and mutual funds and taking a loan from a 401(k).

Needless to say, my son received a great education (to his credit), but dear old dad has nothing to show for it. I had to put money into the stocks, 401(k), and mutual fund, so I had the resources—which could have been so much more powerful in a Bank On Yourself policy! It’s as simple as that. If I had done that, I would now still have the policies, which would have even more value.

I am depleting an IRA to fund my third policy and to help fund my first two Bank On Yourself-type policies. I just hope I live long enough to enjoy all the benefits.

Bill Williams writes again, about Bank On Yourself, tax-free retirement, and dividend-paying whole life insurance

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52% of Americans Will Have to Reduce Their Lifestyle in Retirement

52% of American households are at risk of not being able to maintain their standard of living in retirement – even when factoring in potential proceeds of a reverse mortgage.

That’s according to the Center for Retirement Research at Boston College.

Let’s take a look at three critical reasons for that… and what you must do now to protect yourself…

Problem #1: People continue to live longer, but aren’t working longer

According to the Social Security Administration, 25% of people turning 65 today will live past 90, and one out of ten will live past 95, yet most financial planners base their projections of how much money you’ll need on your living to age 85 or so.

What if you’re one of the lucky ones who hangs on until 100 or longer? And just how “lucky” will you feel if you can’t provide for yourself during those final years?

Solution: Assume you’ll live to at last age 100 when determining how long your money will need to last you.

Problem #2: Underestimating health-care and long-term care costs in retirement

The numbers are shocking, and almost no one is accurately accounting for this: A 65-year-old couple retiring now will need $245,000 just to cover out-of-pocket health-care costs during retirement, PLUS another $255,000 to cover one average stay for one person in a nursing home.

Whoa! That’s half a million dollars you’ll need just for medical care… but most people close to retirement don’t even have that much in total retirement savings. [Read more…]

Trump Tweets, Black Swan Events and Your Money

How much does your financial future depend on a 140-character Trump tweet, stroke of a pen on an Executive Order, or an off-hand comment to a reporter?

A lot, as these recent news headlines reveal:

  • “Trump Sinks Pharma Stocks on Medicare Price Negotiation”
  • “Dollar Dumps Most in 30 Years as Trump Raises Doubt Over Strong Dollar”
  • “When Trump Tweets, Wall Street Trades – Instantly”
  • “Trump, Not the Fed, Is What Moves Markets Now”
  • “Toyota Stock Drops Immediately After Trump Tweet”
  • “Trump’s Executive Orders Send S&P 500 to an All-Time High”
  • “Dow Jones Industrial Average Sells Off After Trump’s Executive Order on Immigration”

As you can see, when President Trump tweets or speaks, the markets react – in some cases violently.

Whatever your opinion of Trump is, there is one thing we can all agree on:

We are in uncharted waters. We have never had a president like Trump. We’ve never had an administration like Trump’s. There is no historical precedent for this. [Read more…]

Five Pieces of Free Financial Advice on Saving and Investing You Should Avoid

We all love free advice. Why pay for advice if someone is willing to give it to you for free?

Some advice will cost you little or nothing if it’s wrong. “You should wear these shoes with that suit.” “Try the catch-of-the-day. You’ll love it!” “I think you should turn left here.”

Other bad advice can be much more costly—both now and for the rest of your life.

This article focuses on free financial advice. We’ll tell you why five bits of so-called “wisdom” you’ve heard over and over again are wrong.

We’ll give you some tips on choosing sources of free financial advice you can trust, while avoiding all the dumb financial advice that’s out there.

Why Free Financial Advice Is Often Dumb Financial Advice

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SuperMoney Interviews Personal Finance Expert Pamela Yellen on Savings and Investing Strategies

Pamela Yellen, Founder of Bank On Yourself

Pamela Yellen, Founder of Bank On Yourself

I was recently interviewed by SuperMoney, a website that rates various financial products and the companies that provide them.

In this wide-ranging interview, I answered questions like these:

Why did you decide to start Bank On Yourself?

I reveal the frustrations my husband and I experienced following the conventional wisdom about investing and retirement planning. Maybe you can relate…

If someone were to say to you, “I don’t have the expertise to handle my finances. I’ll just hire some investment firm to deal with them,” how would you respond?

Here I discuss how and why 80% of all mutual funds, financial advisors and investment advisory services underperform the overall market. If the experts can’t even do it well, how can we regular folks be expected to? [Read more…]

Could the Government Seize Your 401(k) and IRA Money?

Is it far-fetched to wonder if the government could take control of your retirement savings in 401(k)s and IRAs?

Or is that just a paranoid conspiracy theory?

The fact of the matter is that it’s not far-fetched, or a conspiracy theory. The groundwork has already been laid.

And the government already gave banks the green light to seize your bank accounts.

Read on for the facts – and I urge you NOT to discount the importance and urgency of this issue affecting your hard-earned savings…

The Government Has BIG Plans for Your Retirement Savings

An article in American Thinker titled “The Feds Want Your Retirement Accounts” revealed that, “Quietly, behind the scenes, the groundwork is being laid for federal government confiscation of tax-deferred retirement accounts. Slowly the cat is being let out of the bag.”

And Bloomberg reported that,

The U.S. Consumer Financial Protection Bureau is weighing whether it should take a role in helping Americans manage the $19.4 trillion they’ve put into retirement savings.”

For the last 18 months, the Treasury Department has been testing the “myRA” program – which Obama created through executive order – no Congressional approval needed.

The myRA, which stands for “My Retirement Account” supposedly “guarantees a decent return with no risk of loss.”

And the only investment allowed in this account is a low-yielding Treasury security.

Of course, the Treasury wants to get more people signed up for this program, because it means more funds flowing right back into the U.S. Treasury to help the government meet its voracious borrowing needs. How convenient… [Read more…]

Dalbar 2016 Report: Many Investors Haven’t Even Kept Up With Inflation

The latest report from DALBAR reveals the harsh reality about the actual returns stock market investors have been getting for the last 30 years.

Would it surprise you to know that many investors haven’t even been able to keep up with inflation for the last three decades?

Many investors haven’t, according to the 2016 Quantitative Analysis of Investor Behavior.

Here are the facts about actual long-term investor returns

The average investor in asset allocation mutual funds (which spread your money among a variety of classes) earned only 1.65% per year over the last three decades!

These investors didn’t even come close to beating inflation, which averaged 2.6% per year.

The average investor in equity mutual funds averaged only 3.66% per yearbeating inflation by only 1% per year. (Was that worth the roller-coaster ride and sleepless nights?) [Read more…]

What’s In “The Big Black Book of Income Secrets”?

If you receive emails from investment advisory services, you may have gotten a sales pitch for The Big Black Book of Income Secrets from the Palm Beach Research Group.

The promo promises you’ll discover “30 unique income tools” in The Big Black Book of Income Secrets.

The offer entices you with a “risk-free 60-day trial subscription to the Palm Beach Letter.” If you’re not satisfied before the two-month trial is up, you’re told you can get a refund and keep the book and some “bonus” reports that are included in the offer.

To find out if The Big Black Book of Income Secrets lived up to its promises, we signed up for the “Platinum Subscription” for $99 for the first year, which comes with additional “bonus” reports.

Three weeks later, the book arrived, containing 22 (not 30 as promised) strategies, with a cover letter from the Publisher, Tom Dyson, explaining that we could log into their website to access the reports we signed on for and back issues of the Palm Beach Letter. (I guess for $99, they can’t afford to mail you hard copies of the reports.)

The First Red Flag in The Big Black Book of Income Secrets is “Income For Life”

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