Because of this, most baby boomers have been forced to postpone retirement an average of five years.¹

I’m often asked how using the Bank On Yourself method to save for retirement compares to traditional plans, so I put together this short video that reveals seven reasons Bank On Yourself makes an excellent retirement plan alternative.

Click the play button in the video below and see how many of these seven advantages you’d like to have in your financial plan…

1.  Bankers Life and Casualty Center for a Secure Retirement, May 2011

At a dinner party recently, I sat next to a retired business owner and we got into a conversation about money and finances.

In response to one of his questions, I mentioned an important principle of finance, at which point he turned to me and said, “I’m a CPA and an MBA and I’ve never heard of that!”

Actually, it’s fairly common that I meet highly educated people who are unaware of some of the really critical basics of how money and finances work.

Funny thing is that I think many of our subscribers know these principles, even if they don’t have alphabet soup after their names.

Applying a little logic and common sense (which is admittedly in short supply in our society today) is usually all that’s needed.

And to prove my point, I’m holding a contest to see how many of our subscribers can answer the questions below correctly.

If you answer even one of these questions correctly and/or insightfully, you can win a prize.

I know that people deepen their understanding more when they participate and articulate their thoughts, so I decided to “ethically bribe” you to take a shot at it by holding a contest.

Here’s all you have to do to enter the contest…

Just type in your answer to any one or more of the five questions below, no later than Monday, November 14, at midnight.  If you want, you can comment on someone else’s answer to qualify to win.

After the contest ends, our team will pick the best entry (best because it’s correct, insightful, entertaining or a combination of those).  That person will win a $100 Amazon Gift Certificate.  And two runners-up will be chosen to receive their choice of a $25 Dining Gift Certificate, or a personally autographed copy of my best-selling book, Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future.

Three more winners will be chosen at random – all entries containing at least one correct answer will be entered into a random drawing for another $100 Amazon Gift Certificate and two prizes of your choice of a $25 Dining Gift Certificate or autographed book.  (Sorry – U.S. residents only.)

Although there are five questions, you don’t have to answer all of them to qualify.

So test your money IQ now by answering as many of these five questions as you want:

If you finance a $30,000 car through a finance company, your actual cost for the car is the money you spend on it, plus the interest you pay, less the value of your trade-in at the end of your loan repayment period.

Question:  If you pay cash for a car, what’s your actual cost for the car?

If you have a $20 stock and it goes up by 40%, how much money did you make on that stock?  (Hint:  This is about a key financial principle, not a math question.)

According to Morningstar, Inc., the top-performing mutual fund for the last decade (ending December 31, 2009) enjoyed an 18% annual return.

However, the typical investor in that fund wasn’t so fortunate.

Question:  What was the annual return of the typical investor in that top-performing fund?  And why was their return so different from the return reported by the fund?

What percentage of mutual funds, financial advisors and investment advisory services underperform the overall market?  And why?

You could have $10,000 in a mutual fund that reports an average annual return of 25% for four years… and at the end of the fourth year end up with only the $10,000 you started with.

How is that possible?

So there you have it – just answer one or more of these questions, or comment on someone else’s answer, no later than midnight, Monday, November 14, to get in the running to win one of the six prizes!

We’ll announce all the winners in a blog post later this month.

So scroll down to the comments box below and start typing!  (Note – all comments are moderated, so there will be some delay before your comment appears.)

Here is how the responses to each of our 10 survey questions have broken down.  The percentages reveal which option our survey-takers find more scary!

You’ll see that snakes, blood, public nudity, eating fire-hot peppers, and even close proximity to a psychotic killer caused far fewer trembles than did the terrifying prospect of winding up in a serious financial jam.

Here’s what Americans find most scary…

1. Which of the following is more frightful to you?

• 22.2% – Death

• 78% – Outliving Your Money

  

2. Which of the following is more frightful to you?

• 28.6% – Having all of your investment decisions — good and bad — published in your local newspaper

• 71.4% – Walking naked down a fashion runway while being photographed

3. Which of the following is more frightful to you?

• 17.5% – Having to remain awake for 48 uninterrupted hours

• 82.5% – Having to memorize all the fine print on your 401(k) plan in no more than 48 hours

4. Which of the following is more frightful to you?

• 64.3% – Watching your stock portfolio lose 40% of its value in only a few weeks

• 36.4% – Ingesting 40 habanero peppers within 24 hours

5. Which of the following is more frightful to you?

• 58.8% – Sitting for 30 minutes in a tub of live snakes

• 41.7% – Explaining to your family or other loved ones that you’ve lost your home to foreclosure

6. Which of the following is more frightful to you?

• 49.2% – Having to pick the one mutual fund (among hundreds) that will outperform all others during the year

• 52.1% – Bobbing for a 10 oz gold bar in a vat containing 50 gallons of cow’s blood

7. Which of the following is more frightful to you?

• 9.4% – Going on twelve once-a-month blind dates with a randomly selected bachelor or bachelorette

• 91% – Entrusting your retirement portfolio to an anonymous fund administrator, who may or may not have any special education or training

Editors Note: Although 9 out of 10 Americans fear entrusting their retirement to an incompetent administrator, millions of Americans may unknowingly be doing exactly that right now! Read our shocking exposé and learn the facts!

8. Which of the following is more frightful to you?

• 64% – Having my personal tax returns audited by the IRS

• 37.3% -Walking around for a week wearing pants with pockets overflowing with live worms

9. Which of the following is more frightful to you?

• 31.7% – Be strapped atop a vintage stunt plane while it performs a typical aerobatics routine

• 70.% – Be tied to the Social Security program as your sole source of retirement income

10. Which of the following is more frightful to you?

• 66.1% – Losing my job and having to live only off of my current savings for a year

• 34.6% -Renting an extended-stay room in the Bates Motel and sharing a shower with Anthony Perkins

Were you surprised by any of your responses?

These results are a sad commentary on the financial condition and current state of mind of so many of our family members, friends, neighbors and colleagues.

The definition of insanity is doing the same things in the same way and hoping for different results.  So, if you’re ready to find a better way to save and invest for your financial future that gives you peace of mind and lifetime financial security, check out the Bank On Yourself method.

To find out how much brighter your financial picture could be if you added Bank On Yourself to your financial plan, request your free, no-obligation Analysis now, while it’s fresh on your mind!

Forbes Magazine Shocker:  Why your 401(k) isn’t what it’s cracked up to be!

A stunning article appeared in this week’s Forbes.¹ Here are a few of the revelations you absolutely must know about, if you participate in a 401(k):

Compare…

How does a 401(k) compare to the Bank On Yourself Method?


• 71% of 401(k) investors believe – wrongly – they pay nothing to participate in their plan, according to a recent survey

• On average, participants in small plans (which includes 90% of all employees) pay 1.9% in fees annually!

• Even paying fees of just 1.5% could wipe out one-third of your nest-egg

• In spite of all the noise about “fixing” the 401(k) through new disclosure rules that will be going into effect, they “could cause some 401(k) services to get even more costly.”

Is repaying debt a “moral” issue?

Not long ago, it would have been unthinkable to many Americans to walk away from the debts they owe on their home mortgage and other obligations.  Today it’s commonplace.

This article explores whether our government’s attitude towards debt has encouraged that.²

Has your attitude about repaying debt changed in recent years?

If so, we’d like to hear how and why in the Comments box at the end of this post.

Why your retirement is much riskier than your parents’

More than half of Americans are now at risk of facing a significant retirement income shortfall, according to the latest National Retirement Risk Index.

This article gives four reasons today’s workers will be retiring in a substantially more challenging environment³

Eight reasons a 30-year mortgage beats a 15-year one

Many people have learned the hard way that the idea of paying off your mortgage as quickly as possible may be a noble goal, but tying up such a large sum in a home can be devastating.

This article gives eight great reasons you would be better off with a 30-year mortgage.⁴

What do you think?  Tell us in the comments box below…

1. “Find The Fees” by Emily Lambert, Forbes Magazine, June 06, 2011
2. “Debt: A Moral Issue”, by Paul Johnson, Forbes Magazine, May 18, 2011
3. “4 Reasons Your Retirement Is Riskier Than Your Parents’”, by Alicia Munnell, SmartMoney.com, May 23, 2011
4. “The 15-year vs. 30-year mortgage debate”, MSN Money, by Len Penzo, May 25, 2011

For so many people, that principle seems unrealistic, especially considering how very hard it is most months just to stay afloat – paying for necessities such as groceries, medicines, utilities, transportation, insurance and the like.  Oh yes, let’s not forget the always hungry tax monster!

Seems to so many of us that our paychecks are swallowed whole by our obligations before we ever get the chance to even sample the flavor of having some accumulated cash in our pockets and bank accounts.

To which we can only respond… how wonderful!

Wonderful? Really? Paying Bills! And Taxes?”

Absolutely.

If you haven’t done so already, it is time to come to view your monthly financial obligations in a fresh, new light.

In fact, it will prove most helpful if you consider your recurring expenses with two questions in mind:

1. What benefits do I actually receive in return for my monthly outlays?

2. What is my return on investment for the dollars spent?

Let’s begin by examining the second question first.

What would you guess is the better long-term investment?

Your monthly grocery bill or your monthly contribution to a 401(k) or other retirement plan?

Most people don’t view their grocery bill as an investment, so they automatically assume the answer is a long-term savings or investment fund.

But the correct answer is – in fact – a matter of perspective.

The money you contribute to a 401(k) or similar plan is locked in place for many years, even decades.  What you have to show for it are some numbers on a monthly or quarterly portfolio statement that might give you a sense – often undeserved – of financial security.

You really can’t enjoy the money in the present or the near future.  Moreover, funds in a 401(k) are subject to market fluctuations, management fees, inflation and eventually taxes.   For tens of millions of Americans, when those numbers on their fund statements implode, as they did during the market dive in 2008-2009 (and many times prior to that), then their retirement investments not only fail to bring them pleasure or satisfaction, but actually cause great pain and anguish.

Strictly in terms of numbers, 401(k) plans hardly stack up to the value we all receive from our monthly grocery expenditures.

Here’s our thinking…

For every $1,000 you place in a 401(k) or similar plan – not factoring in a matching contribution from your employer* – you can expect to earn a reasonable return that might over the long term average 4% to 7% a year (far above what you are likely earning now).

In essence, you tie up all of your principal for a full year, at the end of which you have earned perhaps $40 to $70 in return for allowing some financial institution to utilize your money for 12 months.

Go ahead and tie up the same original $1,000 for a second full year, at the end of which you will have – roughly – between $81.06 and $144.90 in income on paper, before subtracting fees, taxes, and any decrease in purchasing power due to inflation.

And this assumes your investment portfolio actually grows – which is a generous assumption given how often retirement plans actually bleed money.

Stick to the plan, as do most wage earners, and your $1,000 may sit in a retirement account for 20 years (or more).  After two whole decades of confinement, your original $1,000 deposit would generate between $1,191.12 and $2,869.68 in growth (before you deduct fees, taxes, and inflation.)

That is 20 years that some financial institution – but not you– reaps the benefits of YOUR money.

Now let’s compare that with your monthly grocery bill…

The United States Department of Agriculture each year estimates the monthly costs of food at home for an average family of four.  The USDA’s calculation for 2011 runs between $663.60 for a low-cost meal plan to $1,184.50 for a liberal plan.

Let’s call it $1,000 and see how those groceries stack up as an “investment” against laying away the same $1,000 in a retirement plan.

At the end of the first month, assuming you consume all of the food you’ve purchased, you have zero left to show for your money (or at least that is the faulty perception many people hold).

That said, you owe no taxes on the $1,000 in groceries (other than the sales tax already included in the tab).  There are no management fees.  And there is zero chance the supermarket will come to you and ask for more money, even if the groceries you purchased subsequently rise in price.  (Translation: No supermarket “crash” will ever cause you anxiety and the loss of principal.)

One thousand dollars in groceries buys you goods worth a full thousand dollars in value regardless of any Wall Street misbehavior or greed.

It’s when you step back and ask yourself what the groceries, in turn, enable, that you realize their true investment value.

Given that you and your family can’t very well fast for a month, the groceries you purchase are the core fuel of your family’s income-generating and lifestyle machine.  If you bring home $65,000 a year in total household income, then the $1,000 you spend in monthly groceries is a vital cog in generating the $5,417 ($65k divided by 12 months) you earn in return for your labors.

Your $1,000 monthly grocery outlay produces a fabulous return – in just 30 days – actually dwarfing the 20-year yield you might receive placing the food money in a retirement plan.

Grocery bills… when viewed in the context of what they make possible, can be truly loveable.”

The same frame of reference should be applied to housing costs, gas and electricity, transportation, medical bills, etc.

Once you cast your financial obligations in the correct light, paying those monthly bills will take on a whole new positive meaning.

Dollar for dollar, these expenses, rather than being the economic balls and chains that most Americans label them, actually return some of the best values in the investment universe.

Once you cast your financial obligations in the correct light, paying those monthly bills will take on a whole new positive meaning.

Now let’s return to the first question we raised above: What benefits do you actually receive in return for your monthly outlays?

As Americans, we are blessed with an abundance that has no historic or even present-day equal.  As citizens, who pass much of our lives pursuing even better lifestyles, we often fail to pause and conduct a full and candid inventory of the uncountable blessings we already receive.

Reflect upon your present blessings, of which every man has plenty; not on your past misfortunes of which all men have some.”
~Charles Dickens

The true secret to enjoying our bills and applauding our taxes is to appreciate what they buy for us. Most people throughout history – and far too many people living elsewhere today – would consider themselves life’s lottery winners if only they could “suffer” our hardships.

Here are the sober facts of life…

There is no right to housing, much less a safe home that is equipped with clean, running water; electricity, and heat.  Phones, cars and household appliances are not mandatory, nor are computers, paid television services and the Internet essentials.

Yes, health care is expensive and getting more so all the time, especially emergency care and medication for chronic illnesses.

But really, have you got a better use for your money than staying alive? It hardly matters how much you’ve squirreled away for retirement if you are long dead before you ever reach your golden years.

And what about taxes?  How do we ever adopt a mindset that allows us to applaud them?

Simple.

Freedom, in the form of national defense, isn’t free.  Nor is crime fighting, fire fighting, road construction and maintenance, schooling, and a million and one other services and benefits provided to us by local, county, state and federal governments.

Are most politicians wasteful?  You bet.  Could they be better stewards of our public funds.  Duh!  Need you really ask?

We dislike and rail against wasteful spending that means higher taxes and less money in our own pockets.  And all of us can point to dozens of government programs that never benefit us and aren’t worthy of anyone’s tax dollars.

But the exceptions do not disprove the rule.

When we pay our taxes, we are rewarding ourselves and future generations with the greatest investment ever offered to mankind – shares in America and the American Dream

As a rule, there is no finer government, and has never been a better political system, than that enjoyed by the current citizens and residents of the United States.

When we pay our taxes, we are rewarding ourselves and future generations with the greatest investment ever offered to mankind – shares in America and the American Dream.

Those shares pay and have paid huge uninterrupted dividends for more than 235 years, without which our lives could never be as satisfying or great.

* We consider the employer match on your 401(k) as part of your salary – not an investment return.  If you put in $1,000 a month and your employer puts in $30 a month, really you’ve put in $1,030 a month.  Your return on that total remains somewhere between 4% and 7% annually on average.

Since AAII said they would not publish my response or correction of the misinformation contained in their review, I told them I would publish it here and let YOU be the judge of whether AAII was twisting and omitting things… or being fair and unbiased.

The response was swift, surprising and universal.  There were so many insightful comments made that I couldn’t pick only three to award prizes to, as was my original plan.

So I picked ten (the winners are listed at the end of this post – check to see if your comment was one that was chosen).  And I’ve excerpted from a number of the comments here, so I can share some of the highlights with you.

Jeffrey summarized the thinking of many commenters about AAII this way:

AAII naturally committed the typical strategic blunders essential to the charade proposed by the investment industry (Wall Street) and financial professionals (a.k.a. traders, gamblers, speculators, etc.). Any attempt to allow people an opportunity to truly grow wealth, reduce risk, and prepare for a more stable environment challenges the status quo of buy and lose (commonly referred to as buy and hold) and then industry pundits (AAII) start the negative attacks in order to establish fear of finances and preserve their base of profits. AAII omitted important aspects of your plan, distorted facts of your plan to promote obfuscation, and blatantly twisted all aspects of your plan in order to destroy your credibility.

Thank you for presenting people with an opportunity to actually prepare, plan, and realize a better financial picture.”

Reuben echoed that by saying…

Is anyone really surprised, it’s the fox guarding the chicken house, the blind leading the blind, the king has no clothes.”

And Daniel summed it up in one sentence…

Bank on Wall Street or Bank on yourself…a very simple decision.”

One thing we know for sure about life is that it’s unpredictable – stuff happens

The only actual reason or “excuse” given in the AAII review for why Bank On Yourself is “too good to be true”  had to do with policy loans.  But the ability to take loans from your life insurance policy has proven to be a real boon, and sometimes a life saver, for several commenters…

James wrote about how his wife Verna broke her wrist a few months ago.  Even though they had only been participating in Bank On Yourself for less than a year, they were “able to borrow enough to get us through surgery, the therapy, and all the physicals that were needed to allow my wife to get back to work.”

Deana says her Bank On Yourself policy “saved me a lot of hassle, frustration and money when I needed a loan to replace a transmission on my car, pay off medical bills, purchase a much needed storage shed and buy a used car.” It also helped her after her income from work was reduced.

“Unlike a bank loan, I set up my own payment schedule and set up how much I can afford to pay back every month and when I want to pay it back,” wrote Deana, who notes she did a lot of research into the concept before moving forward.  Now she says, “as with many other people (Bank On Yourself) is the best money investment I have ever made in my life.”

Troy says “Bank On Yourself is a life saver” and “we use our policy to buy every thing from our boats to repairs for our rentals – it’s a great way to borrow money when needed, pay it back, borrow it again, and watch the cash value continue to grow.” He ends by saying, “Keep up the fight, Pam, and thank you for educating all of us.”

Rik just started his Bank On Yourself policy six months ago, but “just took a loan out for $29,000 for a down payment on a new condo.  Compare that with the hassle of taking money out of a 401k.”

Bank On Yourself saves businesses, too

Allen wrote, “I, too, used my policy to expand my business in the last few months when no banks were (and still aren’t) lending money and have had similar results with my return on investment.”

And David Brimhall started a policy in 2004, “after losing 80% of my retirement account.” His money is now doing double duty for him and he has taken 9 loans, investing some of those funds.  As a result, “I have real retirement now,” and investments making money for him.

As I noted in my rebuttal to AAII, you do not have to sell assets to use your equity in a Bank On Yourself policy to invest it elsewhere or to make purchases.  And some companies will even pay you the exact same guaranteed cash value increase and dividend as though you hadn’t borrowed a dime.

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.

And Will posed the question…

How can you tell the difference between a Bank On Yourself user and an ordinary person?  The BOY user can buy a business with the BOY policy loan, and the non-Bank On Yourselfer can work for that business.”

Bank On Yourself lets you have a retirement income you can predict and count on

“Ahhhh – let AAII say what they may… but I know what my retirement will look like… I cannot wait to start another policy.  Keep up the great work, Pam,” wrote David.

“My hard-earned dollars have always lost money with any commodity/stock/bond type investment.  I have never had a gain except with a CD and that barely kept up with inflation,” noted Ang. “My Bank On Yourself policy gives me such security.  I can sleep at night.  It reminds me of  (the movie) ‘It’s a Wonderful Life’ – we are all banking on each other (instead of padding corporate executives’ lifestyles).”

I am thankful I found Bank On Yourself, otherwise, I may never see retirement in my future,” wrote Karen, who is starting her first policy now, at the age of 59. “Yes, I have a financial advisor and am a very disciplined investor in my 403(b) and, yes, I rode out the downturns and have not nearly recovered to this point… If I had known about this even 10 years ago, I might be looking at retirement, instead of working an additional 8-10 years.”

And William bemoaned how he lost 30% in his 401(k) between 1999 and 2001, and then another 40% in 2008 – after he had retired, because “I followed the advice of those who are paid to know and each time ‘rode it out.’ I do not want to go through any more of these ‘cycles.’”

Paul made some excellent points with this comment:

How easily people forget the lessons of history.  Our ancestors survived the Great Depression by using Cash Value Life Insurance and fixed annuities.  They didn’t use the investment vehicles touted by so many.  They relied on… the asset class so often overlooked today when all else is in flux.”

Paul also made a point I hadn’t even thought of when I wrote my AAII rebuttal – that…

Other loans must be repaid with taxable and probatable cash from elsewhere in the estate.  Death doesn’t cancel (other) debt.”

One of my favorite comments was this tongue-in-cheek response from Jim Vana…

WOW! After reading all the glowing posts about the Bank On Yourself system, I’m afraid I may have a different viewpoint. I set up plans for me and my wife and we recently received our first annual reports. But I hate to inform you, it’s no dang different!! Yes the policy loans need to be paid back. Yes interest is paid as well. And just like those typical “FAT CAT” bankers, my B.O.Y. banker is using MY MONEY to buy fancy cars, take exotic vacations and do all the other fun stuff at MY EXPENSE.  And he’s probably socking away tons of MY MONEY for HIS RETIREMENT!!!!!!! Oh wait a minute. THAT’S ME!!!!!!!! Never mind.

As for AAII, GO GET EM, TIGER!!!”

And Steve summed up the beauty and simplicity of Bank On Yourself this way: ”My Bank On Yourself plan consolidates my emergency fund, liquid savings, retirement and life insurance into a single flexible vehicle. This makes it really easy to manage my money!”

AAII gets poor marks from former members

“I joined AAII a few years back because their publicity made it sound simple and profitable.  But when I got their newsletters with investment recommendations, they left me in a fog,” wrote Val.  Park echoed that with, “I subscribed to AAII several years ago, but my eyes always glazed over trying to submerse myself into their data.”

I will confess that I delighted in JC’s comment: “I’m glad you revealed this about AAII – I had a membership application sitting on our table, and was intending to join. Due to the ‘contrarian indicator’ effect of AAII’s member surveys mentioned, and to the closed-mindedness of the organization to even print your response and let its members decide, I have decided AAII is not for me.”

I believe they call that “pay back”!

Steve may have summed it up best with this insight:

The AAII comments sound like they were drawn from the good ole’ boy tank of sour grapes.  I’m excited about Bank On Yourself, which has provided a much needed transition to a vehicle that is safe, predictable and provides not only a solid nest-egg for retirement, but also a funding pool over which I have complete control. I’ve seen nothing else that allows you to have your cake and eat it too.”

Now for the list of prize winners…

As I mentioned, there were so many thoughtful and entertaining comments to my AAII rebuttal blog post that I simply couldn’t narrow it down to just three winners. So, I decided to award 10 commenters their choice of a $25 dining gift certificate or a personally autographed copy of my best-selling book.  Those 10 winners are listed below and if your name is on the list, you should already have received an email asking you which prize you prefer.

And I want to thank everyone who commented from the bottom of my heart for your support.  I will keep fighting the good fight with your help!

We want to hear from you, too!  Just enter your comment in the box below…

Executive Summary: Most modern Americans overspend, assume too much debt, and fail to invest wisely for retirement.  Tim Austin, a leading proponent of ‘old-fashioned’ spending and savings strategies, recommends a time-tested 10/10/10 financial formula: saving 10% of gross income for the near-term; 10% for the mid-term; and setting aside 10% for the long-term.  Austin’s favorite savings tool is specially-designed dividend-paying whole life insurance policies such as those structured by Bank On Yourself’s specially trained and authorized advisors.

By Pamela Yellen and Dean Rotbart

Even back in 1975, the year comedian Woody Allen wrote, directed and starred in the movie Love and Death, the perception of whole life insurance as a savings instrument designed for fuddy-duddies and masochists was already commonplace.

There are some things worse than death”

…deadpans the film’s protagonist, Boris Grushenko, played by Allen…

If you’ve ever spent an evening with an insurance salesman, I’m sure you know what I mean”

(Read: A Savings Fish Tale: Why the Last Laugh is on Planners Who Mock Whole Life Insurance)

Meanwhile, holders of whole life insurance policies such as those designed by Authorized Bank On Yourself Advisors, were more like the Little Engine That Could, consistently climbing ahead and never once loosing a penny during those 35 years.

While no ‘Whole Life 500′ index exists to document the specific annual average performance of Bank On Yourself-style dividend paying whole life insurance versus the S&P 500, even Love and Death‘s village idiot can calculate that funds saved and compounded with interest and dividends without interruption since 1975 would yield a rich, secure and predictable financial nest egg.

Once Discarded Financial Precepts Reborn

Bank On Yourself-compliant whole life insurance policies, contrary to popular lore, actually turn out to be – and to have always been – a highly reliable savings and retirement vehicle.  Indeed, many discarded money-management precepts – the kinds our grandparents and great-grandparents once treated as gospel – are, with the benefit of 20/20 hindsight, proving to be anything but out-of-date.

(See: When it Comes to Money Management, Grandma & Grandpa Knew Best

Ranging from the value of whole life insurance as the cornerstone of a family’s financial plan, to the concept of setting aside as much as 30% of gross income in savings and investment accounts, old-fashioned financial ideas are getting a fresh new look.

Tim Austin, the 46-year-old Founder and President of the National Association of College Funding Advisors

Among the nation’s most-respected and leading proponents of revisiting the financial playbooks of our grandparents and great-grandparents is Tim Austin, the 46-year-old Founder and President of the National Association of College Funding Advisors.

Austin, who knows firsthand that the old sensibilities enjoy increasing modern day currency, has educated more than 5,000 families since 1994 on how average American families can pay for college without going broke.

Like so many financial advisors, Austin began his career dishing out the same commonplace investment recipes that every other planner was serving their clients: a steady diet of stock and bond funds.  When Austin’s grandmother – who lived through the Depression – asked him to safely invest $10,000 on her behalf, she instructed him: ” I want you to put me in something safe.  I don’t care about the interest rate, I just don’t want to lose any money.”

Grandma’s investment, it turns out, was a defining event for Austin.  Still young and relatively inexperienced, he followed the advice of more seasoned financial planners in his firm and put his grandmother’s entire $10,000 in a bond fund in February 1987.  Everyone assured him her funds would be protected.

Then came October 1987 and the global crash known as Black Monday, which up until that time was the largest one-day decline by percentage in stock market history.  Grandma Austin’s bond fund was not spared as it was supposed to be.

The experience caused him to rethink conventional financial planning.  “It made me look at what other people were doing and I realized I just wasn’t getting – or giving – the right advice.”

So Austin charted a new course – one more aligned with his grandmother’s needs, experiences and sensibilities.

The core tenet: there is no need to ever put money at risk in order to grow it and use it reliably

Today, Austin’s typical client is 47 years of age and faces the dilemma of juggling current debt, paying for one or more children headed to college, and still setting aside sufficient funds for retirement.  With his help and some individual self-discipline, Austin says that in roughly 13 years – or by the time his clients reach age 60 – they will have paid for college, be free of all bank and credit card debt, and be socking away savings.

Austin derives his inspiration from the decades of the 1940s and 1950s, when it was commonplace for Americans to set aside 10% of their gross income for short-term needs, such as a vacation or holiday gift-giving; 10% for anticipated mid-term needs and potential emergencies, including a new car, replacement of major appliances, a new roof, and college tuition; and 10% for long-term retirement planning.

For the first two categories – short-term and mid-term – Austin recommends savings instruments, including certificates of deposit, savings accounts, money market accounts and permanent whole life insurance.

For the 10% of gross income targeted for the long-term, he recommends the acquisition of multiple whole life policies, added strategically over time, and designed for income replacement.  Under current tax law, when properly structured, such layered policies provide a guaranteed and predictable retirement income with little or no taxes due on it.

Austin’s 10/10/10 approach avoids all conventional bank and credit card debt.  Instead, he recommends clients pay cash for their larger purchases, such as a car or even a home, or utilize Bank On Yourself-style whole life policies to self-finance major expenditures, effectively repaying themselves over time with interest ultimately ends up in their policy accounts.

In fact, Austin’s experience has shown that the average family could increase their lifetime wealth by $500,000 – or more – simply by financing their cars and vacations through their policies, without taking on the risk or volatility of stocks and real estate.  (To find out how much more wealth you could have by using this method, request a free Bank On Yourself Analysis.)

While our grandparents and great-grandparents instinctively followed a 10/10/10 style of living, now it’s typical for Americans to spend 30% or more of their gross income on mortgage interest, credit card debt, car payments, and other installment loans.

“Pretty much in today’s world, consumers have swapped debt payments for the 35% of their income that used to go into savings and investing,” Austin says.  Depending upon one’s tax bracket, he notes, 30% or 35% of gross income can actually represent as much as 50% of net income.

Listening to the Wrong Prognosticators

“Over the past 30 years, it has become very easy to accept the idea of  a car payment,” Austin notes, “Whereas in the 40s and 50s, no one would have thought about having a car payment. They would have paid cash for the car.  They would have saved the money and then they would have paid cash for that vehicle and they would have started saving again for the future.”  Except for the ultra-wealthy, the idea of acquiring a new car every two or three years was unheard of.

Not only have Americans come to accept debt-financing for many purchases, Austin says, they also have lost the discipline of saving 10% of their gross income for the long term.  Here, Austin believes, the main culprit is obvious: 401(k) plans and the unrealistic returns promised by the financial advisors who promote them.

The mantra for many employees has been and remains to invest only 3% to 5% of gross income in a 401(k).  Then, assuming their employer matches their contributions and that their 401(k) portfolios will grow at an average annual rate of 12% for decades to come, the typical American now assumes – wrongly – that should be plenty enough money for retirement.

Reality, as tens of millions of 401(k) investors learned in 2008, is not quite as rosy.

(See: A Savings Fish Tale: Why the Last Laugh is on Planners Who Mock Whole Life Insurance)

The 401(k) promise, Austin says…

Allowed people to have this illusion that they really didn’t need to put as much money into the retirement savings category.  The higher you forecast their expected rate of return, the less the consumer believes they actually have to save out of their income.”

“Americans,” Austin adds, “have been substantially misled on what needs to go into their IRAs and 401(k)s in order to hit the numbers they need to have.”

In late 2010, conventional financial wisdom, much like Love and Death’s Boris Grushenko, continues to mock those who recommend or purchase whole life insurance policies.

But back in 1942, according to a report titled, Family Spending and Savings, published by the U.S. Bureau of Home Economics, a majority of Americans viewed life insurance, annuities and endowment policies as a preferred method of savings.  And time has proven them – not today’s naysayers – correct.

“It was very common that the whole life insurance agent would be coming around on Friday mornings to collect the $1 or the $5 premiums,” says Austin, who was born in 1964, but has extensively researched the period.  “Those policies were very commonly used for emergency funds, car loans, business loans and such.”

Austin believes so strongly in the value and utility of permanent dividend paying whole life insurance policies that before his clients ever put another dollar at risk, he advises them to work with a Bank On Yourself Authorized Advisor to structure one or more policies tailored to their needs and budget.

(To get a referral to one of 200 advisors who have met the rigorous requirements to be an Authorized Advisor, request a free Analysis that will show you the bottom-line numbers and results you could have if you added Bank On Yourself to your financial plan.)

Austin’s general rule of thumb is for his clients’ first step toward financial recovery to be to accumulate roughly two years of average expenses in a whole life policy that is consistent with the Bank On Yourself approach.

Austin, himself, helped develop and leads the nationwide Bank On Yourself Authorized Advisor training program, so he understands the power of these advisors to help their clients restructure their entire approach to savings, spending and investing.

Savings Come Before Spending

Ideally, Austin points out, individuals would begin following his recommended 10/10/10 formula at the time they accept their very first job.  After setting aside his recommended 30% of gross income, what remains for the newly employed worker would constitute his or her living expenses.  “What remains is what you’d go out and coordinate your lifestyle around.”  (For those who can, Austin recommends keeping lifestyle expenses under 50% of gross income. His best clients, he notes, knock spending down to less than 40% of their gross income.)

(Read about how the Bank On Yourself method allows people to take advantage of opportunities that inevitably arise.)

While high school and college graduates in the 1940s and 1950s were accustomed to such pragmatic ‘home economics’ – as the field of personal finance was known back then, most men and women who walk into Austin’s Troy, Michigan office these days come peering into what they believe is the financial abyss.

“They are looking at college bills, looking at retirement, and just not seeing how the heck they are going to be able to do all this stuff,” Austin says.  “The reality is that if they stare ahead to age 70, it is going to be overwhelming.”  If he added to their trepidation by recommending that they immediately begin saving 30% of their gross income, Austin realizes his shell-shocked clients would walk out, saying, “Well shoot, I don’t have a chance, I might as well just give up.”

So rather than asking his clients to slam on the brakes and jam their financial throttle into full reverse, Austin patiently counsels those who seek his help: “You begin where you are.”

For starters, Austin asks clients to help him put their monthly budget under a microscope.  His goal: to begin reducing the percentage of their gross income that is directed at debt service to under 20% – and to do it as painlessly as possible.

“I have been specializing in this area for 20 years and I haven’t met a family, no matter what income level they are at – from $40,000 a year to $400,000, to $1 million – that I haven’t been able to find some very simple things within their monthly budget that they can trim using some very simple tweaks,” Austin says.

“So you start where you are, trying to find those dollars — $500, $600, $1,000 a month” to redirect to a whole life insurance policy, he explains.  As the cash value in a Bank On Yourself-style policy accumulates, Austin’s clients are able to use their policies to self-finance short-term and mid-term purchases.

Austin favors whole life policies that are consistent with the Bank On Yourself strategy because they have provisions that permit policyholders to continue earning interest and dividends on the cash value of their policies, even while borrowing funds against that very same cash value to pay for the kind of expenses that families previously financed with bank loans and credit cards.

NOTE: Not all companies pay the same dividend on borrowed funds.  An Authorized Advisor can recommend companies that meet all the requirements to maximize the power of this strategy.  You can get a referral to one when you request a free Analysis.

“If we look at Bank On Yourself from an engineering perspective, it is an economic machine that is built to get better with time,” Austin says.  “What happens, once you get policies going, is they snowball.  The more purchases that you finance through these special life policies, the more that these policies are going to snowball and snowball.”

For some clients who are able to build up a large cash value in their policies, the Bank On Yourself strategy actually permits them to purchase and self-finance a home – forgoing the need for a conventional 30-year mortgage.

“Thirty years from now, not only is all of the money that you paid returned to your (whole life insurance) policy, but you are going to have all of the growth from compounding interest, dividends and then some,” Austin explains.  And when the policies are properly structured, the funds grow in a tax-free environment.

A House is a Home, Not An Asset

Austin believes that housing choices and home mortgages are at the root of many American’s current perilous financial state.

In his grandparents’ day, those who needed to take out a mortgage to finance the purchase of a home put as much down as possible and signed up for a 15-year mortgage, which they paid religiously.  Moreover, once in a home, families remained there.

For baby boomers and subsequent home-owning generations, the trend has been to take on 30-year mortgages with as little down – if anything – as possible.  Moreover, Austin notes, during the course of their lives, today’s adults are likely, on average, to purchase four or five homes – often progressively more expensive – during the course of their lives.

Doing so dramatically reduces the opportunity to build equity, even while monthly principal and interest payments on a mortgage soar.  “During the first ten years of a typical 30-year mortgage, about 86% out of every dollar is interest,” Austin explains.  So for those who flip homes regularly, most of their housing dollars are lost to interest alone.

Many of Austin’s clients eventually come to realize how much better off they’d be trying to pay for their children’s college tuition and approaching retirement had they stopped at home number three or four.

Austin also bridles at the notion put forth by so many accountants and financial advisors that a home is an asset.  He doesn’t view one’s home that way and neither did his parents, who purchased their first house in 1958 and continue to live in it today, long after their sole mortgage had been paid off.

“My father never believed that his home is an asset,” Austin says.  ”He has always believed it’s a liability because my mom asks him every single year to change the carpet or make other improvements. They redid the kitchen a few years back.  He has got a pool to maintain.  And he’s got to pay taxes on the house.”

Austin acknowledges that his parents’ home may one day prove to be an asset for him and his siblings.  But his parents intend to remain in their house as long as their health permits – and even if they do eventually sell it, they’d still have to live somewhere else, he reasons.

Never Too Young To Learn

In addition to working with the parents of college-age students, Austin tries to convey his reborn 1940s and 1950s fiscal sensibilities through programs that he and his staff conduct for high school students and even those children who are elementary-school age.

If past can be made prologue for these students, Austin believes, they will grow up and enjoy a lifetime of fiscal stability and growth, unlike the baby boomer generations who pooh-poohed the common sense wisdom of their Depression-era parents and grandparents and now face such economic turbulence.

Most of today’s students are open to revisiting the financial planning wisdom of a bygone era, Austin says.  To the extent that he meets resistance, either from the students or parents, he is undeterred.

“It is a fight worth fighting,” he concludes.

About the Authors:

New York Times bestselling author Pamela Yellen is the originator of the life-changing Bank On Yourself system and related personal finance strategies. Pamela has worked as a consultant to successful financial advisors for more than two decades.

Pulitzer Prize-nominated investigative reporter Dean Rotbart has reported on business and financial topics since 1979. His editorial and research clients include numerous Fortune 500 companies and leading communications agencies.

© 2010 Hayward-Yellen 100 Ltd Partnership

Frightening 401(k) Fact #1:

Your employer can – and probably is – making risky decisions on how to invest your money for you – without your knowledge or approval.

Many employers are now automatically directing more of your pay into your 401(k)… and automatically moving it into more risky investments – even if you had previously chosen your own investments!

And most of that money is being re-directed into “target-date” funds, which lost so much money last year, it sparked scrutiny from lawmakers and regulators. Many funds for people who pinned their hopes on retiring in one year had losses far exceeding 20%, and some funds suffered losses of 32 to 41 percent, according to Morningstar.

Shockingly, stock allocations among those funds were found to be 26 to 72% of assets!

Not to mention that the fees charged by target-date funds are “significantly higher than those charged by other funds on plans’ investment menus”.

(Source: “Companies take reins of workers’ 401k’s”, MoneyCentral.msn.com, October 10, 2009)

The growth in a Bank on Yourself policy is both guaranteed and exponential. You can predict the minimum guaranteed value of the plan, the minimum guaranteed income you can take from the policy, and for how long you could take it.

Frightening 401(k) Fact #2:

The important decisions about your 401(k) are made by someone with no training or education in most companies.

90% of the country’s employees’ 401(k) plans are watched over by people who “need no special qualifications and no investing expertise or experience”, according to the November, 2009 issue of SmartMoney Magazine (“The Accidental 401(k) Planner”).

While many managers hire brokers to suggest funds, brokers are not legally required to pick funds with low fees, so “401(k) plan managers who sign off on pricey funds could cost their workers tens of thousands of dollars over the long haul”.

Frightening 401(k) Fact #3:

The impact of 401(k) fees is hidden and colossal.

Many fees are not required to be disclosed to you in the 401(k) prospectus, and “can eat up half the income in some 401(k) plans over a 30-year span,” according to an exposé on 60 Minutes. (“The 401(k) Fallout,” April 19, 2009)

Paying even an extra 1% in expenses “can reduce your nest egg by about 17%, assuming a 6.5% annual average return.” (Source: “It’s time to fix the 401(k)”, CNNMoney.com, February 16, 2009)

With a Bank on Yourself plan, like buying a couch or TV, all costs are already included in the price – in this case, the premium. There are no extra, additional or surprise fees. Which means that when you request a free, no-obligation Analysis, you will see the bottom-line numbers and results you could get, if you added Bank on Yourself to your financial plan.

Frightening 401(k) Fact #4:

The closer you get to retirement, the more your money is at risk.

According to a recent cover story in Time Magazine (“Why It’s Time to Retire the 401(k)”, October 9, 2009):

During the market downturn, the 401(k)’s of 55-to-65-year-olds lost a quarter more than those of their 35-to-45-year-old colleagues. That’s because in your early years, your 401(k)’s growth is driven mostly by contributions. But the longer you hold a 401(k), the more market-exposed it becomes. It’s a twist that breaks the most basic rule of financial planning.”

Frightening 401(k) Fact #5:

Don’t try using the money in your 401(k) as an emergency source of funds in a tough job market!

If you borrow money from your 401(k), and you lose your job or leave your company for any reason (and you’re not age 59½  yet), in most cases, you’re required to pay any loans back in full – with interest – in 30 to 60 days, or you’ll have to pay income taxes on it, plus a 10% penalty.

There are no such restrictions when you Bank On Yourself. A very unique feature of this kind of policy is that when you borrow your equity, your money in the policy can continue growing as though you never touched a dime of it.

Only a few companies offer this feature, in addition to meeting all the other requirements for a Bank On Yourself-type policy.  You can get a referral to a Bank On Yourself Authorized Advisor who has advanced training and certification in this method, and who works with the companies that offer the best products, when you request a free Analysis here.

Added Bonus: You can pay back your loans to a Bank On Yourself policy on your own schedule. And, if you use the equity in your plan to finance major purchases yourself, you could recapture every penny you pay for those items, as outlined in Chapters 2 and 6 of my best-selling book.

The average family could increase their lifetime wealth by $500,000 to $1,000,000 or more using this method, without the risk or volatility of traditional investments.

Frightening 401(k) Fact #6:

Income taxes will take a huge bite out of your 401(k) withdrawals.

Many people believe they’ll come out ahead tax-wise by deferring taxes.  However, deferring taxes could actually result in your paying a whopping 118% more tax – and that’s assuming the tax rates don’t increase at all.

It’s possible to take an income from a Bank On Yourself policy with little or no tax consequences, under current tax law.

Frightening 401(k) Fact #7:

The government controls how much you can put into your 401(k) or IRA, and when and how much you can take out. And they can change the rules any time they want.

If they want to make you wait until you’re 68 or 75 to be able to take withdrawals without paying a penalty, they can do it.

When you Bank On Yourself you’re in control. You can take an income from your plan when and how you want, without penalty or restrictions.

Is it any wonder so many people are redirecting money they were putting into 401(k) plans that they can’t count on or control into Bank On Yourself plans that they can?

The 401(k): Trick or Treat?

Tell us what you think below.

Of course, everyone’s situation is different, and I can’t make that call for you.

But I can suggest a few questions to ask yourself, that can help guide you to a decision:

1. The stock market is back where it was 11 years ago. But inflation has taken away at least 30% of your purchasing power.

History tells us that the market has stalled for periods much longer than 11 years. There have been stalls lasting 17 to 25 years. Since no one can predict the future, and most investors have already suffered a lost decade, what would happen if history repeated itself and you suffered a second lost decade? Could you live with that?

2. Do you know what your nest-egg will be worth when you plan to tap into it? If not, would you LIKE to know the minimum guaranteed amount your plan will be worth at any given point in time, as well as the minimum guaranteed amount you could take from your plan and for how long?

3. Do you have an emergency cash reserve you can get your hands on quickly to see you through at least six months of living expenses, if you lost your job or couldn’t work for some reason?

Bank On Yourself ensures your nest-egg grows every year, without the nail-biting ups and downs of the market, lets you grow a retirement income you can predict and count on, and can give you access to funds in an emergency without having to apply or beg for it.

An old African proverb comes to mind:  “The best time to plant a tree is twenty years ago.  The second best time is today.”  It’s not too late to rescue your own financial plan!

Bank On Yourself Authorized Advisors are masters at helping people restructure their finances to free up money to fund a Bank On Yourself plan that will help you achive your short-term and long-term personal and financial goals and dreams.  Here are the most common places to find the money.