Personal Finance Blog for Retirement and Investment Advice

Should You Treat Your 401(k) Like a Bank?

A recent article in the Wall Street Journal says it’s time to consider borrowing money from your 401(k). These loans have become more popular as more Americans get deeper into debt at high interest rates.

Most 401(k) plans offer participants the option to borrow from their plan. No credit check or collateral is required.

The IRS requires a mandatory repayment schedule of principal plus interest, currently 9.5% in many plans. That interest rate is lower than personal loans and significantly lower than the average credit card interest rate, making it appealing in today’s climate.

The article went on to explain the significant downsides of these loans. That got me thinking about how a 401(k) loan differs from a loan from your Bank On Yourself plan. So, let’s compare…

Recall that the Bank On Yourself strategy relies on a high-cash-value, low-commission, dividend-paying whole life policy. It’s guaranteed to grow by a larger dollar amount every year, regardless of what’s happening in the market or the economy.

How Much Can You Borrow and What Hoops Do You Have to Jump Through?

The IRS only allows you to borrow 50% of your 401(k) value up to a maximum of $50,000. However, you can typically borrow up to 90% of a Bank On Yourself-type policy’s equity or cash value.

That’s how, during the depths of the financial crisis, when banks weren’t lending, and credit lines were being shut without warning, my husband and I got $500,000 from our family’s policies to grow the Bank On Yourself company.

We only had to answer two questions: “How much do you want?” and “Where do you want it sent?” The money was in our checking account in less than a week.

In some companies, taking a 401(k) loan involves a 13-step approval process… just to use your own money!

[Watch Me Duke it Out in an Imaginary 6-Round Championship Fight: 401(k) Vs. Bank On Yourself Loans]

What’s the Loan Interest Rate?

The companies used by the Bank On Yourself Professionals charge below-market, simple interest, currently around 5.5%. And, like the interest you pay on a 401(k) loan, the interest you pay benefits you, as we explain in our Consumer Guide to Bank On Yourself Policy Loans.

However, unlike taking a 401(k) loan, your Bank On Yourself policy will continue growing as though you never touched a dime of it! And you don’t have to liquidate any assets to get money.

These are just a few of the reasons why so many Bank On Yourself policy owners say their only regret is that they didn’t start their plan sooner. It’s also the best sleep-through-the-night savings strategy, providing guarantees, predictability, control, and numerous tax advantages.

To find out what your bottom-line guaranteed numbers and results could be if you added Bank On Yourself to your financial plan, request your free, no-obligation Analysis and Recommendations here now.


Are There Restrictions on Repaying Loans?

Unlike mandatory 401(k) loan repayment schedules, you set your own repayment schedule with a Bank On Yourself loan.

Some 401(k) plans don’t allow you to make contributions while paying back a loan; some have a set time to wait before contributing again. If your employer matches your contributions, you’ll take a double hit.

These are just a few of the hoops you have to jump through for a 401(k) loan.

Taxation of Interest Payments:

You’re taxed twice on the interest payments you make on a 401(k) loan. That double taxation reduces the benefit of paying yourself interest on a 401(k) loan from 9.5% to an after-tax 6.65% for those in the 30% tax bracket. There is no such consequence for Bank On Yourself loans.

Are There Loan Fees?

The typical 401(k) administrator charges a $75 loan origination fee plus an annual loan maintenance fee of $25. That raises your effective borrowing cost.

There are no fees to borrow from your Bank On Yourself policy.

What Happens if You Can’t Pay Back a Loan?

About 8% of actively employed workers default on 401(k) loans, which jumps to 65% of people who leave their jobs. Most 401(k) plans require a borrower who leaves a job with a loan outstanding to pay the remaining balance, often in 30 to 90 days, or face default.

If you default, you must pay income tax on the remaining balance, plus a 10% penalty if you’re under age 59 ½!

Taking a Bank On Yourself policy loan is blissfully free of these pitfalls.

As I’ve pointed out in my books and on the Bank On Yourself website, even though you’re not required to, you should pay back the loans you take to make major purchases on the schedule you set. That replenishes your cash value so you can use it in retirement to take tax-free income.

If you borrow and never repay your loans, or you don’t at least pay the loan interest due, your policy could lapse if you have no cash value left to cover the loan interest. That could result in an income tax liability on any gain.

You don’t typically pay back loans used to provide income in retirement. Instead, they are deducted from the death benefit upon the insured’s death.

How to Add Guarantees, Control, Predictability, and BIG Tax Savings to Your Financial Plan…

To find out how you could enjoy liquidity, control, guaranteed growth, and peace of mind by adding the Bank On Yourself strategy to your financial plan, request your free, no-obligation Analysis right here.

You’ll get a referral to a Bank On Yourself Professional who has passed a rigorous training program and who can answer your questions about this concept and show you how you could benefit from a custom-tailored program:


Find out how the Bank On Yourself strategy can help you reach your financial goals and dreams…withOUT taking any unnecessary risks!

Are You Prepared for These 3 Financial Shocks?

In today’s crazy world, it’s crucial to remain vigilant against major financial shocks that often catch people unprepared. Here are three shocks many people will face and strategies to help you safeguard your financial future against them.

Shock #1: Your Social Security Benefits Can Be Taxed

Most people don’t realize that it’s common – even for middle-income folks – to pay taxes on Social Security benefits. 48% of Americans already pay taxes on their Social Security benefits, according to the SSA. And because the cutoff isn’t benchmarked to inflation, more and more beneficiaries will soon be subject to the tax.

Doesn’t it bother you that the government may require you to pay taxes on the money you get from Social Security – a system you paid your hard-earned money into for all those years? It’s like double jeopardy!

But most people also aren’t aware that you can reduce – or even eliminate – the taxes you may have to pay on your Social Security benefits.

How is that possible? [Read more…] “Are You Prepared for These 3 Financial Shocks?”

Average 401(k) Balances Have Barely Budged in 5 Years

Fidelity Investments, the largest provider of 401(k) plans, just reported that the average 401(k) account balance barely budged in the 5 years since the 3rd quarter of 2018. They increased by only $1,200 from $106,500 to $107,700… less than 1.2% total.

To make matters worse, inflation was a whopping 21% during the same period. (Here’s a great inflation calculator.) That means those average 401(k) accounts needed to be at nearly $129,000 – just to keep up with inflation!

Okay, but what if you waited longer, say 10 years, like the “experts” say you should. On the surface, that looks better. The average 401(k) was $84,600 10 years ago and is now $107,700 (a 27.3% gain). But inflation over that period was 30.45%, so the average 401(k) would have to be at $110,357 today to keep up with inflation.

In 2022, the average 401(k) balance plunged 22.9%, according to Fidelity Investments. As I write, the market has been rallying, but you’d need an increase of almost 30% to get back to where you were… and another 3.5% increase to keep even with inflation in 2023, let alone have a gain. It’s pretty nasty news if 2022 was the year you had planned to retire.

And the typical IRA hasn’t fared any better over the last ten years, according to Fidelity:
Average Retirement Account Balances [Read more…] “Average 401(k) Balances Have Barely Budged in 5 Years”

3 Tips to Unlock Prosperity Through Gratitude this Holiday Season

As Thanksgiving approaches, I want to extend my warmest wishes to you and your loved ones. It’s a time of year when we gather to express gratitude for the abundance in our lives, and I believe that the power of gratitude extends far beyond this special season.

I want to share how gratitude can transform our finances and overall well-being. Here are three tips that highlight the connection between gratitude and financial success:

Tip #1: Focus on What You Have

It’s often said that you get more of what you focus on. Instead of dwelling on what you lack, turn your attention to what you already have. Expressing gratitude for your current financial situation, whether modest or prosperous, can shift your mindset toward abundance. This change in perspective can reduce feelings of financial stress and open up opportunities for smart financial choices.

Tip #2: Be Consistently, Consciously Grateful

[Read more…] “3 Tips to Unlock Prosperity Through Gratitude this Holiday Season”

Should You “Ride Out” the Volatile Stock Market?

Both the Dow and the S&P 500 were back to where they were more than two years ago, as of May 31st. It’s been a stomach-churning roller coaster ride along the way.

The S&P 500, however, has been on a tear, up 10% this year. Maybe you’ve been looking at your investment and retirement account balances and wondering why you’re not seeing that kind of gain.

That’s because just five technology companies drove 96% of those gains!

According to the Motley Fool, nearly half of the stocks in the index were negative for the year on May 31. (MarketWatch just called the S&P 500 “ridiculous” and questioned whether you should bet your retirement on the fortunes of a small handful of stocks.) [Read more…] “Should You “Ride Out” the Volatile Stock Market?”

Is There a Safer Place for Your Money Than in a Bank?

The problems at Silicon Valley Bank, Credit Suisse, and First Republic Bank are fueling anxiety for people who want to make sure their money in banks and money market funds is safe.

Adding to the fear that this may just be the tip of the iceberg is that banks borrowed a record amount from the emergency last-resort support the Federal Reserve set up in the last week.

So, it’s not surprising people want to know how safe their money is in a Bank On Yourself plan. Read on for the answer. And, since you must “park” your money someplace, I’ll also explain why you would be hard-pressed to find a safer, more advantageous place to put your dollars – in good times or bad – than in a Bank On Yourself plan. [Read more…] “Is There a Safer Place for Your Money Than in a Bank?”

Why “10 Times Your Income” Isn’t a Smart Retirement Goal

ChatGPT has been making headlines since it launched last year and gained 1 million users in the first week.

If you’re not familiar with ChatGPT, it’s an artificial intelligence computer program that generates human-like answers to almost any question you ask.

So I decided to conduct a little experiment and ask it a simple question:

How much do I need to retire?”

Here’s what the “robot” told me:

 ChatGPT's answer to how much money you need to retire [Read more…] “Why “10 Times Your Income” Isn’t a Smart Retirement Goal”

The 5 Biggest Financial Threats You Face in 2023

As the New Year gets underway, it’s good to set goals and make plans – but it’s also important to review the biggest threats you face.

Here are the top 5 threats to your financial future in 2023…

Threat #1: 2023 Recession

If you had money in the stock market, you know how bad 2022 was. The S&P 500 lost nearly 20%, and the average 401(k) lost 22.9%. Seeing one-fifth of your life savings vaporize in a single year is a hard pill to swallow.

And after having the worst year in the markets since the 2008 financial crisis, it’s only natural to want to put that behind us and move on. However, what we want to happen and what is happening are two different stories. Economists surveyed by Bloomberg see a 70% chance of a recession in 2023 – which means it’s very likely things will get worse before they get better.

Threat #2: High-Interest Rates

[Read more…] “The 5 Biggest Financial Threats You Face in 2023”

The Secret to Eliminating Your Financial “Icks” in 2023

Two-thirds of Americans intend to make a financial New Year’s resolution for 2023, but only 20% are confident they’ll be able to keep their resolution.

That’s according to a new survey from The Ascent, a Motley Fool service. It’s not surprising why. It’s been a very challenging year, and everybody’s got a case of the financial “icks.”

In a year that many would just as soon forget, a few of the “low lights” include…

A Majority of People Worry about Money Daily, and Many Lose Sleep Because of It

[Read more…] “The Secret to Eliminating Your Financial “Icks” in 2023″

Social Security’s Big Cost of Living Increase (COLA) Means MORE Taxes to Pay

Happy Birthday Pamela

I just turned 70…

Which means I’ll be receiving a special “birthday gift” from Uncle Sam for the first time.

Happy Birthday Pamela

Yes, I’m talking about my first Social Security check.

Even though I could’ve started taking Social Security eight years ago, I decided to wait until now since I’m still working and don’t need the money now.

Which is great because now I’ll get the maximum amount possible.

So, I’m glad I waited…

And I was even happier when I heard that in January, we’ll see an 8.7% increase in our Social Security checks with the cost-of-living adjustment (COLA) – the largest increase since 1981.

On the surface that sounds like great news, right? I mean, who wouldn’t want a bigger Social Security check?

However, the devil is in the details, especially when it comes to retirement income, government benefits, and taxes!

[Read more…] “Social Security’s Big Cost of Living Increase (COLA) Means MORE Taxes to Pay”