By Teresa Kuhn, JD,
RFC, CSA
Bank on Yourself® Authorized
Advisor
Tapped out
and discouraged?
A study published
in 2013 by the Employee Benefit Research Institute shows a record 28% of
the respondents indicating that they have little to no confidence in ever being
able to retire.
Job insecurity,
inflation, tax increases, and continued high levels of debt are just a few of
the legitimate concerns that keep Americans from saving for the second half of
their lives.
Another
contributing factor is that the same money strategies that might have worked,
albeit often in a hit-and-miss fashion, in the past, simply aren’t viable in
this new age of economic flux. The
evidence of this failure is hard to ignore- it’s literally all around us.
I’d like to suggest
that it’s time to move on from conventional financial advice that has not
served you well in the last few years and acquire a more contrarian approach to
protecting and growing your wealth.
If you’re like most people, you’ve been content to let your
CPA, financial advisor, banker, or broker handle the details of your financial
future, relying on your monthly statements or an occasional phone call from the
agent.
Maybe you’ve augmented that with
some iffy advice from one of the financial entertainment television shows or a
newspaper column or two.
I am going to be so
bold as to suggest that you need to change your money habits now, or risk being
unprepared for what lies ahead.
In the future, I
believe that you’ll find that more and more of life’s big decisions; decisions
about everything from how to protect your cash to how to handle your health care
will land squarely in your lap. You need
to be prepared to take a more informed and proactive role in those decisions.
Is what you’ve
“always done” working out as you expected?
Are you where you want to be in life right now? Are you satisfied that you have done all you
can do to ensure that you and your family have the best possible futures?
If the answer is
“no” to any of those questions, then you must consider what I am about to tell
you very carefully. It might run
contrary to everything you think you know about money, but it might also be
just what you need to hear in order to avoid making mistakes with your money
from which you can never recover.
Myth
Connections: How What You Thought You Knew About Money Is All Wrong
In an attempt to
wring one last breath of truth out of a very tired cliché, I would like to
propose that you think about building your house on a solid foundation.
I know, I
know. You’ve heard it before: at church,
from a relative, maybe even in school or at work.
However, truth is
truth and there is no way to deny the power of a solid foundation for your
financial future.
I work with a
diverse client base with people in many different phases of building their own
personal economies. Yet, even if I am
dealing with my richest, most money-savvy clients, I always have them begin
with a stable, secure mechanism for managing cash flow.
For me, using specially-designed,
“turbo-charged” life insurance policies is the ultimate way to achieve steady
growth while staving off the erosive forces that destroy wealth.
Having such a means
of securing cash in place ensures that, should a client decide they want to
take advantage of real investment opportunities, they can do so with greater
peace of mind.
I’m often asked
why, if my methodology is so effective and so much safer than exposing one’s
nest egg to banks and Wall Street, more people aren’t taking advantage of it.
The biggest barrier,
I think, is the lack of financial education in our country. Most Americans aren’t told the truth about
money, especially when they are young.
We aren’t made
aware that money is organic, that it is susceptible to erosion from forces over
which we exercise little to no control.
They don’t call it
a “nest rock,” but rather a “nest egg.”
Imagine you had a
big box of rocks. You take those rocks
to a secret location, bury them, and then return years later to collect
them.
What would you find
when you opened that box? Rocks- still
in the same condition as when you left them.
If, on the other hand,
you buried a box of eggs and then, ten years later, you went to retrieve them,
what would you have?
Reeking globs of
organic matter that barely resemble the original eggs!
The reason for that
transformation, of course, is that outside forces, such as heat, rain, and the
chemical makeup of the eggs themselves, have combined to transform them into
something else; something that we’ll never be able to use.
There’s a reason
eggs have expiration dates stamped on the carton.
Money, too, has its
version of an expiration date. While you
don’t actually see it printed on currency or advertised on the news, the idea
that money expires becomes apparent when we don’t make good money choices; when
opportunities are lost or the high price of financial ignorance, what I call
the “dumb tax” must be paid.
Money only stays
fresh so long. You have a limited window
of opportunity after it is earned to put into place sound strategies that will
help it grow safely, without exposure to risk, unnecessary taxes, and other
erosive elements.
That’s why getting
a good financial education is one of the best things you can do to protect your
future.
In the United States
(and probably elsewhere as well) people certainly aren’t given much direction
as to what to do with money- how to grow in a safe, steady, and sane manner.
The
results of this lack of education become apparent later in life when we are
earning our own money and making our own financial decisions. This is the time when we fall prey to what I
call “whizzdumb”- information doled out by our friends, family, and the
financial entertainment industry that isn’t very wise at all.
We
also watch television programs and read books that tell us things like “no pain
- no gains.” “You have to put all your
money on Wall Street to get ahead.” We
learn that permanent life insurance is bad and that we should always “buy term
and invest the difference.”
Slick
marketing campaigns have many convinced that they must always court risk to
make gains, and turn to our friends the bankers when we need a loan or a safe
place to put our cash.
There
are dozens and dozens of money myths which I could debunk. Due to space limitations, however, I want to
focus on just a couple of the most persistent and pernicious of those myths.
1. All you need to retire is to fully-fund
your 401 K
When the current
economic crisis hit, millions of ordinary Americans saw their "safe and
secure" 401 K accounts losing hundreds, sometimes thousands of
dollars.
Unfortunately, a
lot of those people were at or near retirement and had little time to recoup
that lost money.
Those same people also
discovered another dirty secret:
Many 401 K plans
contain hidden, but very costly fees that some financial advisors fail to take
into account when designing plans for their clients.
If you are one of
the rare people who actually read your monthly statement, the fees may not seem
significant enough to cause worry.
However, just 1%
in excessive fees can hurt you... big time!
To further compound
the problem, there are many plans where the fee is charged based on a
percentage of your balance. This means
that becoming a diligent saver actually HURTS you.
What if there was something you could do to
help you avoid paying unnecessary fees and help you get back some of the thousands of
dollars you've been giving away simply because you don't know the alternatives?
Would knowing this
information help you reach your goal of having a safe, prosperous retirement?
I believe it WOULD...
That's why I
sponsor webinars and workshops to educate ordinary people on how they can
become their own sources of financing for major purchases, business expansion,
college tuition, etc.
Using a simple, but effective system, you can accumulate wealth more quickly and safely than you ever thought possible, and accelerate the process of getting out of debt.
Bad advice and myths share something in common: when either of them is
repeated often enough and by the right people, they become so ingrained in a
culture that anyone challenging them is seen as a virtual heretic.
In the world of personal finance, as in other areas of life, myths can
do a lot of damage, causing people to make decisions that, given the right
information, they would never ordinarily choose to make.
Another one of the most common, and in my opinion, worse pieces of financial advice I have heard over the years is the venerable and oft-repeated mantra:
2. "Buy
term life insurance and invest the difference"
You've heard it on TV from those talking head financial gurus.
Or maybe it was
your mom or dad, looking stern and waggling a finger in your direction as they
repeated it to you.
Your significant
other swears that “Warren Buffett does it this way.”
Your hair stylist,
auto mechanic, the guy down at the grocery
store, are all true believers in the idea that buying term and investing on
Wall Street is the way to achieve
financial security.
"Buy term life insurance
and invest the difference”
sounds logical, doesn’t it?
However, when you
dig a little deeper, there are issues which "buy term and invest the
difference" doesn’t address.
For example:
For example:
1. Most of the term policies advocated by
financial "experts" do not increase the death benefit level during
the policy term. This means there is no remedy for inflation. (And
I believe that inflation is bound to be much higher in the future!)
Bestselling author (Bank
on Yourself) Pamela Yellen
did the math and she figured it out:
A
$250,000 20 year term policy, adjusted for 4% inflation, will have lost 56%
of its value!
Even
policies which include an "increasing benefits rider" may not
increase at a rate that will overcome
the erosive effects of inflation.
2. What if you lose your health during your
insurance term?
Some
term policies are written so that if your health deteriorates during the policy
term, your renewal rates increase. If you don't renew and try to seek coverage
elsewhere, you might discover that you are uninsurable - at ANY price.
3. You
can invest the difference easily enough, but you can't "time the
market" or accurately predict how much money will be in your account when
it comes time to retire.
No
one can possibly know the future, which, according to best-selling author Barry Dyke (Pirates of Manhattan) is
one reason that Wall Street investing is so risky and usually ends up losing
you money.
With
the types of accounts I design for my clients, they always know exactly how
much they have at any given time, which is absolutely crucial to planning one’s
financial future accurately.
My
clients don't have to worry about timing the ups and downs of the stock market
and they have access to their money, when
they need it.
4. "Buy term and invest the difference"
advocates usually know nothing about the
specially-designed whole life policies I use to structure my financial
plans.
The reason for this is that these policies are only written by a few select companies and have special provisions which are unlike those of traditional whole life insurance policies.
Any
advisor who assists his or her clients with this type of specialized policy
must have thorough training and must also be willing to forego the usual high
commissions on whole life in order to make the plan work
for their clients.
Thus, policies used for becoming your own personal financing source are far beyond regular whole life policies in both complexity and purpose.
Thus, policies used for becoming your own personal financing source are far beyond regular whole life policies in both complexity and purpose.
5. Most financial gurus fail to factor in the
tremendous amount of money saved on interest and fees that result from
implementing this type of plan.
By financing your large purchases (ex: your car) yourself, the interest you pay ultimately benefits you, as a policy owner. And there are no added-on fees – all fees are already taken into account in the premium you pay. (My clients LOVE this!)
Now, just for the
record...
I believe that
everyone who can afford to do so should have as much life insurance as
possible.
Term IS a great way
to get more coverage for less money and if you can get term, you should have
it.
However, the primary
reason for getting one of the specially-designed whole life policies has little
to do with the death benefit.
Instead, the idea
behind these policies is to provide you with a savings and cash management
vehicle that gives you growth, stability, and safety in sharp contrast to the
ups and downs of the stock market.
Also, when you use
the money in your policy to make major purchases, it can continue to grow as
though you hadn't touched a dime of it.
Only certain companies offer this feature, and I put my clients’
policies with those companies.
The permanent
insurance you also get is just icing on the cake...
You can find out
more about how to avoid paying too much money to banks and finance companies.
There are lots more
financial myths that threaten your savings.
Do your own research and take action.
You can start by getting my free report and other valuable financial
planning information now. Just go www.livingwealthyfinancial.com
and fill in the form to request your financial education materials.
