Personal Finance Blog for Retirement and Investment Advice

3 Reasons Why the Money in Your 401(k)/IRA Doesn’t Belong to You

If you get regular account statements, you probably know the approximate current value of your 401(k) and/or IRAs, so please write that total down now.

Do you think all that money belongs to you?

It doesn’t… and what people find most surprising is how little of your account value actually does belong to you.

3 Reasons the Money in Your 401(k) Doesn’t Belong to You…

Reason #1: You May Not Be Fully Vested

Most people don’t think about this much, but until you are fully vested with your company, if you lose your job or switch companies, you usually won’t get some or all of your employer’s match, and you’ll forfeit some or all of the returns you’ve had on the match. Learn more about 401(k) vesting schedules here.

Nearly half of all companies use a “graded” vesting schedule – these plans slowly vest (give you “ownership” of more of your match) with every year of service until you hit 100%, which usually takes 5 or 6 years.

For example, let’s assume your employer contributed $100 to your match, the returns were $10, and you’re 20% vested. If you lose your job or switch jobs, you only get to keep 20% of the match and return – in this case you’d get only $22 instead of the $110 you thought you had.

And here’s an interesting fact: You’re typically not 100% vested for 5 or 6 years, but according to the Bureau of Labor Statistics, the average time people stay on the job is only 4.2 years!

Oh, and 22% of 401(k)s have “cliff” vesting schedules, which require you to stay with an employer for a minimum number of years or you don’t get to keep ANY of the match!

Reason #2: Deferred Taxes Can Devour One-Third – or More – of Your Account Value

According to Boston College’s Center for Retirement Research, “It’s a very big deal when people realize they only have two-thirds or three-quarters of what they thought they had [in their tax-deferred retirement account].”

And that is based on today’s tax rates. But with Congress continuing to spend like a drunken sailor and ever-increasing numbers of aging boomers increasing the strain on Social Security and Medicare, what direction do you think tax rates are going to go over the long term?

If they go up, as most people expect, Uncle Sam could easily take 50% of your retirement withdrawals. (And this doesn’t even take into account the “free stuff for everyone” movement that’s been gaining popularity.)

Read: The Ticking Tax Time Bomb of Conventional Retirement Plans

Reason #3: The Numbers on Your 401(k) and IRA Statements Are Only “Paper” Wealth

This means that unlike “real” wealth, the value of your accounts could fall by 50% or more in the next market crash, just as has happened in the last two market crashes we’ve experienced in the past 20 years.

Have you “accounted” for that possibility, which becomes more likely with each passing day, since we are (still) in the longest-running bull market in history (and they never last forever)?

The Solution is to Hold at Least a Portion of Your Retirement Savings Outside of a 401(k) or IRA

And the Bank On Yourself safe wealth-building strategy provides an antidote to all three of these problems:

Don’t Let Your Retirement Dreams Turn into a Retirement Nightmare

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Conscious Spending: How to Live a Richer Lifestyle Without Busting Your Budget

Ben Simon, a college student at the University of Maryland, founded an organization called the Food Recovery Network that organizes campus dining halls to donate left over food to hungry Americans. Ben noticed how many billions of tons of food are wasted each year by restaurants, caterers and other food providers.

He believes that, especially in this country, we don’t need to produce more food to see that everyone is fed. We simply need to stop wasting the food we have.

And so it is with many of us and our money.

Rather than increasing the speed of our hamster wheel to make more money, most of us would do well to figure out how to waste less.

Too many of us spend on items that give us very little in return: no lasting satisfaction, joy, or value

[Read more…] “Conscious Spending: How to Live a Richer Lifestyle Without Busting Your Budget”

The Wall Street Journal Podcast Interview with Pamela Yellen: The Biggest 401(k) Mistake People Make

I was just interviewed again by the Wall Street Journal for an episode of their “Your Money Briefing” podcast.

The episode is described as, “Financial security expert Pamela Yellen explains why employees should take control of their 401(k) retirement investments and not rely on their employer to invest for them.”

In this eye-opening interview I discuss:

  • Why it’s very likely that your 401(k) money is in a Target Date Fund (TDF) – even if you didn’t authorize it or request it – and three reasons that should concern you
  • 98% of all employers use TDFs, and 90% have it as the “default option,” which means they automatically put your money there unless you specifically direct them to do otherwise – and almost no one does
  • Near retirement? You’re not protected! TDFs are supposed to dial back risk as you near retirement, but in practice, that hasn’t happened. In 2008, some TDFs designed for participants expecting to retire in two years lost as much as 40%!
  • How the shockingly high fees of TDFs devour your hard-earned savings
  • The dangers of having your retirement savings in a one-size-fits-all financial vehicle
  • How to quickly and easily do your own research to compare the mutual fund options your 401(k) offers
  • How to protect your retirement savings from market volatility and ensure a guaranteed income for life

[Read more…] “The Wall Street Journal Podcast Interview with Pamela Yellen: The Biggest 401(k) Mistake People Make”

Can You Answer This Critical Question About Your Retirement Plan? (Most People Can’t)

Here’s the most critical question you must be able to answer about your retirement plan…

Do you know what your retirement account(s) will be worth on the day you plan to tap into them?

If you’re saving for retirement the way most people do, you couldn’t answer this question if your life depended on it!

And When You Get Right Down to it, Your Life Does Depend on it!

Here are three reasons why… [Read more…] “Can You Answer This Critical Question About Your Retirement Plan? (Most People Can’t)”

The Wall Street Journal Podcast Interview with Pamela Yellen: Why You Won’t Work as Long as You Planned

I was recently interviewed by the Wall Street Journal for an episode of their “Your Money Briefing” podcast.

The episode is described as, “Financial security expert Pamela Yellen explains why most people stop working earlier than planned, and offers safe investment tips to reduce the chances of running out of money in retirement.”

In this interview I discussed: [Read more…] “The Wall Street Journal Podcast Interview with Pamela Yellen: Why You Won’t Work as Long as You Planned”

Retirees Will Outlive Their Savings by 10 Years, According to a New Study by the World Economic Forum

The typical 65-year-old has only enough savings to cover 9.7 years of retirement income. That leaves the average American man with a gap of 8.3 years, and women (who live longer) face a 10.9-year gap with no savings left.

That’s according to a scary new study by the World Economic Forum. This assumes you live an average lifespan. If you’re one of the “lucky” ones who lives longer, you could outlive your money by 20 to 25 years or more.

6 Challenges You Face that Could Turn Your Retirement Dreams into a Retirement Nightmare…

How many of these challenges have you prepared for?

Challenge #1: The typical household nearing retirement has an average of only $135,000 in their combined retirement accounts – enough to provide at most $600 per month income. (Source: Federal Reserve Survey of Consumer Finances)

Challenge #2: Even healthy couples will face extreme health care costs in retirement. [Read more…] “Retirees Will Outlive Their Savings by 10 Years, According to a New Study by the World Economic Forum”

Retirement Can Be Fantastic … If You’re Prepared

What do you think of when you think of retirement? Freedom? Enjoyment? Less stress?

You’re not alone. Most workers today associate retirement with those concepts, according to What Is “Retirement”? Three Generations Prepare for Older Age, the latest study from the nonprofit Transamerica Center for Retirement Studies.

But the big question is … Will You Be Ready?

Will You Be Healthy Enough to Retire the Way You Hope To?

Just 16% of Baby Boomers surveyed said their health is “excellent.” But only about half of the workers in the survey said they exercise regularly … or eat healthfully … or get enough sleep.

Here’s the issue, as laid out bluntly by life coach Peter Sage …

If you don’t make time for health, you’ll have to make time for illness.”

How successful at life can you be, when your body refuses to serve you? And it will eventually refuse to serve you if you ignore your health.

Will You Have Enough Money to Do What You Want to Do?

Two out of three workers say their big retirement dream is travel. Half of those surveyed said they’re looking forward to spending time with their family and friends. And nearly half get a smile on their faces when they think of the time they’ll have to pursue their hobbies.

The problem is this: half of those surveyed have less than $50,000 total in all their household retirement accounts.

How far will $50,000 take you? [Read more…] “Retirement Can Be Fantastic … If You’re Prepared”

There’s a Good Chance You May Be Forced to Retire Sooner Than You Expect

Perhaps you’ve heard that the best way to make God laugh is to tell him your plans. … Particularly your plans for retirement!

And you’ve probably heard that with the unpredictability of the markets – stocks, bonds, real estate, whatever – you’re going to need to work longer than you had planned, in order to have enough to live on in retirement.

But that doesn’t mean the universe will cooperate.

Research from the Center for Retirement Research reveals that on average 21 percent of workers intend to work to age 66 or later. But more than half of them fail to reach this target.

The share of workers who say they expect to work past age 65 rose from 16% in 1991 to 48% in 2018. But the study shows that 37 percent of all workers end up retiring earlier than they had planned.

How can this be?

Why Are Hard-Working Americans Retiring Earlier Than Planned?

[Read more…] “There’s a Good Chance You May Be Forced to Retire Sooner Than You Expect”

Many Stock Market Investors Haven’t Kept Up With Inflation Over the Last 20 Years – DALBAR 2019 Report

What kind of return would you have to get in the stock market to make it worth the risk and gut-wrenching ups and downs?

Would you put your life’s savings at risk for a 5% annual return?

Or would you require at least a 7% return?

Or maybe even a 10% annual return?

If you’re like most people we’ve surveyed, you wouldn’t do it unless you thought you could get at least a 7% annual return over time, right?

Here’s the Harsh Reality of the Actual Returns Investors Are Getting…

I hope you’re sitting down because this is going to floor you: According to a new study, the typical investor in equity mutual funds has gotten only a 3.88% annual return… over the last 20 years!

But it’s actually much worse than that. Here’s why… [Read more…] “Many Stock Market Investors Haven’t Kept Up With Inflation Over the Last 20 Years – DALBAR 2019 Report”

Read Reviews for Using Bank On Yourself as an Investment Alternative

When the stock market is going up, investors love it. When it’s going down, not so much.

Many investors lie awake at night wondering, “Is there any good alternative to this crazy roller coaster? Is it possible to successfully and confidently grow my nest egg without playing in the Wall Street Casino?”

If you’re one of those folks who thinks saving for retirement shouldn’t have to be so unpredictable, read on! There is a safe and proven alternative to Wall Street. It offers guaranteed growth, a predictable income stream, tax advantages, and very little in the way of government interference.

Millions have found their investment alternative of choice in high cash value dividend-paying whole life insurance.

Huh? Life Insurance as an Investment Alternative to Wall Street?

[Read more…] “Read Reviews for Using Bank On Yourself as an Investment Alternative”