(Complete Show Notes Below)
In this 25th episode of the Financial Procast:
We’ve Got a Problem with the 401k
I’m sure that all of our readers/listeners will get a huge shock from hearing/reading this statement. In previous episodes, we’ve sort of tip-toed around our dislike of the 401k. Today we just come out and tell you exactly what we think is wrong with the 401k and why it should never be used as a primary retirement funding vehicle.
We also discuss the “auto enrollment” feature that has been prevalent on almost all 401k plans since 2006. The intention behind forcing people to save for retirement is probably not a bad idea, if you look at in a vacuum; however, we think it’s a slippery slope in terms of government intervention. Naturally the investment industry is pleased by the automatic enrollment because they get more people contributing more money on a regular basis which generates higher asset management fees for them.
Finally we discuss the issues with the lack of guidance most employees get with their 401k and how stagnate wages are leading to a gross under-funding of the 401k for most people.
Americans Need a Plan…And it’s Not Just Poor People Doing a Bad Job
There was an article published a couple weeks ago on CNBC discussing the huge disconnect that most retirees have with the reality of their retirement vs. what they’re planning to do. What’s interesting is that the survey quoted in the article was supposedly one of 1000 affluent retirees, those who make over $100,000/yr.
They had an average of $696,000 of investable assets which included their 401k balances. The report said that they all thought they should have closer to a million bucks before retiring but 38% of the respondents had no idea how much income they were gonna need in retirement.
Can you see the disconnect here? It seems a great number of people who make a better than average income really have no idea how much they’re gonna need, how they’re gonna bridge the gap, and what they should be doing to solve both problems? That’s we coined it the “equal opportunity delusion”.
Life Insurance Might Be the Financial Parachute You Need
Again, for those of you who’ve been with us for a while, it should come as no surprise to you that we really life cash value life insurance. And we really like them all depending on the circumstance—including universal life insurance, participating whole life insurance, and indexed universal life insurance. So many times we get asked which product we like best…
And we don’t really have an answer for that.
It really depends on what you’re trying to accomplish. All of the products we evaluate have merit in different circumstances and that’s why we never try to guess, we run the numbers, and plug them into our proprietary analysis that allows us to give you an opinion based in face rather than corporate marketing platitudes. We compare the rather short list of viable products and companies to give the best recommendation to our clients.
Also, we talk about how arrived at our belief that cash value life insurance is awesome. If you ever thought we were just ignorant and hacks for the life insurance industry, we fill you in on what we really think.
Oh yeah…I almost forgot. Morningstar proves once again they have no understanding of life insurance at all.
We Attack a Whole Life Insurance Hack for Spreading Stupidity
Many people have asked us why we come out against Pamela Yellen but never mention Nelson Nash, the guy who wrote “Becoming Your Own Banker” Well, we change all that today when we break down an article that was published in one of his newsletters last year.
The article is titled, “The Top 10 Reasons NOT to BUY Equity Indexed Universal Life” and was written by Todd Langford.
Brandon and I briefly discuss each of the 10 points in Mr. Langford’s hack piece and tell you why you just can’t believe things like this. If someone makes sweeping statements but doesn’t seem to understand anything they’re saying, you gotta look with a more critical eye. We do that for you so that you can better understand that the issue with cash value life insurance is not so much the product itself but the use and design of the product that matter most.
Contact us if you have any questions regarding this episode or if you have any questions at all. We’re always glad to help.