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

-$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.