Retirement: Fantasy versus Reality

Bank on Yourself Revolution book cover

By Pamela Yellen: Excerpt from The Bank On Yourself Revolution

“Errors of human judgment can infect even the smartest people, thanks to overconfidence, lack of attention to details, and excessive trust in the judgments of others, stemming from a failure to understand that others are not making independent judgments, but are themselves following still others–the blind leading the blind.” — Robert J. Shiller, Professor of Economics, Yale University

According to a 2012 AARP survey, 72 percent of baby boomers believe they’ll be forced to postpone retirement, and half have little confidence they’ll ever be able to retire. How can this be? To me, it’s obvious: So many of us blindly followed the conventional investing and retirement planning advice. And more than half of all boomers won’t have enough money to cover even basic living expenses, like food and medical care, during retirement. How wise does conventional wisdom look to you now?

If you’ve been doing “all the right things” financially, but have been disappointed again and again, do you think continuing along the same path will suddenly start bringing you a different outcome? (By the way, isn’t that a definition of insanity? Doing the same thing over and over and expecting different results?)

Dismal Stats

Too many of us are just beginning to wake up to how much we may need to save. The Employee Benefit Research Institute’s 2013 Retirement Confidence Survey reports that the percentage of workers confident about having enough money for a comfortable retirement is at record lows, in spite of an uptick in the economy and a rallying stock market in the spring of 2013.

The stats reported in the survey are bleak: More than half of workers report less than $25,000 in total household savings and investments (excluding the value of their primary home and any company plan promising a lifetime income). Only 24 percent reported savings of $100,000 or more.

When you hit retirement, what kind of lifestyle do you think you’ll have on $25,000 or even $100,000 spread over several decades? That greeter job at Wal-Mart? (I’m not against smiling, I’d just prefer to do it for fun rather than $8.47 per hour.) Living off your kids (who have their own children and retirements to worry about)? Sharing Tabby’s food while waiting for the monthly pittance from Social Security to arrive?

Comedian Henny Youngman really hit it on the head when he said, “I have enough money to live comfortably for the rest of my life — if I die by next Tuesday!”

Work Till We Drop?

Remember the scene from the 1983 movie classic, The Big Chill? Michael Gold (played by Jeff Goldblum) is arguing that rationalization is more addictive than sex and makes his point by asking, “Have you ever gone a week without a rationalization?” (Okay, maybe you had to be there.)

When faced with the dismal statistics about retirement, many of us simply try to rationalize away the fact that we won’t be able to retire when and how we had planned. “Hey, I enjoy my career. Why would I retire? I’ll just keep working.” But, according to the Employee Benefit Research Institute, almost half of all retirees were forced out of work earlier than they planned due to layoffs, poor health, or the need to take care of a loved one. So “working forever” may not be an option you can count on, even if you were okay with saying, “And would you like fries with that?” a hundred times a day.

Here’s a sobering fact from the US Senate Committee on Health, Education, Labor, & Pensions, July 2012:

“After a lifetime of hard work, many seniors will find themselves forced to choose between putting food on the table and buying their medication.”

How the heck did it come to this?!?

The Fix That’s Broken

A funny thing happened on the way to retirement. In 1978, Congress added Section 401(k) to the tax code, creating a tax-deferred way for employees to augment their pensions.

These plans were never intended to replace company retirement plans, but that’s what’s happened. Nearly 75 percent of all company retirement plans disappeared between 1980 and 2012. Companies figured out that it’s cheaper to offer a small matching contribution to an employee’s 401(k) plan than to fund and pay for the management of a company pension plan. So they transferred the burden of funding employees’ retirement to the employees themselves.

But before this recent trend, your grandfather’s or great-grandfather’s employer promised him a certain amount of money every month in retirement. Those plans are called pension plans. The technical name is defined benefit plans. But clearly pension plans are flying out of existence along with the dodo bird.

If you are an employee today, most likely your company offers a 401(k) or similar plan. That plan depends on the Wall Street Casino and since 2000, we’ve all witnessed how well that’s worked out. Technically, these plans are called defined contribution plans but the more accurate name is hope and pray plans.

Well, I hate to dash those hopes and disappoint those prayers, but you should know that even the man who’s considered to be the Father of the 401(k) now despises the whole system! Ted Benna, who three decades ago seized on an IRS loophole to transform American retirement savings, thinks he’s created a monster. He says that the 401(k) “monster is out of control. … It is far beyond what most participants were able to deal with. … We’re throwing tons of money away trying to teach participants how to become skilled investors, … but it just hasn’t worked. … I would blow up the system and restart with something totally different.”

Wait a minute! We’ve been told again and again that these plans are the best way to save for a comfortable retirement. Heck, the government legislates and blesses those plans and lets you defer paying taxes on your contributions–at least under current tax law. Your employer offers them and will even give you matching funds when you contribute. What’s not to like about that? So what’s the problem?

That employer match is almost irresistible, isn’t it? But it’s the same marketing ploy that hot Vegas casinos use: They’ll give you $20 in free chips after you plunk down $100 from your own pocket. Great!

So now you get to lose $120 rather than $100! You’re still gambling.

In 401(k) plans, your company administers the plan, makes its match (when times are good), then washes its hands regarding the outcome. Your employer offers you a plan and–thanks to the law Congress passed–often even invests your retirement funds without your permission. Then, if the investments flop, your employer can’t be held responsible. Wow!

Today’s government-approved retirement plans, offer absolutely no guarantees — except the guarantee that brokers and plan administrators are going to make money, no matter how much money you lose! For many retirees, these plans have been worse than nothing.

According to the U.S. Census Bureau, the average value of 401(k) accounts of pre-retirees between the ages of fifty-five and sixty-four is only $170,645, and the average value of their IRAs is only $147,345.

And half of all those close to retirement age have less than $50,000 in these plans.

A 2012 study by the Center for Retirement Research at Boston College found that, “Even if households work to age sixty-five–which is above the current average retirement age–and annuitize all their financial assets, including the receipts from reverse mortgages on their homes, more than half are at risk of being unable to maintain their standard of living in retirement.”

I want you to realize that you do have another option, and you can take charge of your retirement planning. You can take back control of your finances and your future retirement by simply understanding the five essential issues: predictability, control, liquidity, tax consequences, and fees and expenses.

Do You Have a Crystal Ball?

Let’s face it: If you have a conventional retirement plan, you don’t have a clue what your retirement account will be worth on the day you’ll finally tap into it. Considering the unknown of how much you’ll be paying in fees, the volatility of the markets your money is thrown into, what tax rates will be when you retire, changing government regulations, and that the people administering your fund may have limited skill and knowledge, no matter what conservative number you plug into that spreadsheet, you simply don’t know what the heck you’ll end up with.

So how can you make plans for the future? How can you set a date for retirement or figure out the lifestyle you’ll be living? When you don’t know what you’ll have, can’t plan for the future, don’t know when or if you’ll be able to retire, and can’t even predict your lifestyle with any certainty, isn’t that the ultimate loss of control?

Contrast that with the certainty you have with a Bank On Yourself plan. Before you even sign on the dotted line of your policy, you know exactly how much money you’ll have — guaranteed — at any point in time. That means you can know how much you will have in your plan ten years from now and forty-five years from now. Rather than dreading opening your latest 401(k) statement to tell you whether you even can retire, you’ll be confident making decisions about when you want to retire, how you want to live and where you want to live. The only thing that’s unpredictable is how much better you might do than the guaranteed returns, based on potential dividends!

Bank On Yourself

Bank On Yourself plans make sense for people who have seen the promised security of pensions and defined contribution plans evaporate. A Bank On Yourself plan can provide a much-needed supplement to whatever your pension plan manages to deliver.

With traditional retirement plans, you have surrendered control to the government and Wall Street. You cannot easily calculate all the fees and expenses you’re paying, and over time, these fees and expenses will dramatically reduce the size of your retirement nest egg. Bank On Yourself plans, on the other hand, remove all the mystery by clearly stating your guaranteed bottom-line results after taking all fees and expenses into account.

But by joining the Bank On Yourself Revolution and using a strategy that has been successfully building wealth and retirement security for well over 160 years, you can conquer the problems of predictability, control, liquidity, tax consequences, and fees and expenses.

There are (at least) eight reasons Bank On Yourself makes an excellent alternative to conventional retirement plans:

  • Guaranteed, predictable growth and retirement income — with no luck, skill, or guesswork required.
  • No volatility. Your plan doesn’t go backward when the markets tumble. Your principal and growth are locked in. It’s not subject to market risks.
  • You’re in control. You have control of your money without government penalties or restrictions on when or how much income you can take.
  • Tax advantages. You can access your principal and growth with no taxes due, under current tax law.
  • Liquidity. Your cash value can easily and immediately be tapped for any purpose at all, and your plan continues growing as though you never touched a dime of it.
  • Fees don’t compound against you. Studies show that the fees in traditional retirement plans can consume as much as one-third to one-half of your savings over time. With a Bank On Yourself plan, all fees have already been deducted from the bottom line numbers and results you’ll get.
  • Income tax-free legacy. The death benefit is likely to be many times larger than the total amount you’ve paid into your policy. This passes to your loved ones and/or favorite charities income tax-free and without going through probate. If you die prematurely, the death benefit allows your plan to finish funding itself. That won’t happen with traditional retirement plans.
  • Peace of mind. Perhaps the best reason of all: you’ll know the minimum guaranteed value of your plan on the day you plan to tap into it–and at every point along the way!

About the Author: Financial security expert Pamela Yellen is a New York Times best-selling author whose latest book, The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future, is due out in February, 2014 (Get a FREE chapter here). Pamela investigated more than 450 financial strategies seeking an alternative to the risk and volatility of stocks and other investments, which led her to a time-tested, predictable method of growing wealth now used by more than 500,000 Americans. Visit

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8 Responses to Retirement: Fantasy versus Reality

  1. Petunia 100 says:

    “According to a 2012 AARP survey, 72 percent of baby boomers believe they’ll be forced to postpone retirement, and half have little confidence they’ll ever be able to retire. How can this be? To me, it’s obvious: So many of us blindly followed the conventional investing and retirement planning advice”

    To me, it is obvious that so many don’t follow conventional wisdom. Conventional wisdom would have workers regularly tucking away 10 – 15% of earnings in diversified portfolios, and keep their hands off until retirement. Is that what is happening? You go on to note that more than half of workers have less than 25k saved.

    Logic dictates that either your fact is untrue, or your conclusion is wrong.

  2. carlyt says:

    The key is to start planning and saving/investing early in life, be consistent, take advantage of any employer matching plan, max out contributions when possible, eliminate debt, avoid risks with your nest egg and plan for multiple streams of income once retired (social security, pensions, dividends, part time work, etc.). There is a great deal of information about retirement available on the web.

  3. getforfre says:

    How do you really prepare for retirement and don’t run the risk of inflation? Any money you save might become worthless due to inflation. I am young, but even I noticed that almost everything costs 2x more now than 10 years ago. Gas actually costs 3x more. Rent, food, clothes — all costs more now. So, if I save a $1 today, in 40 years it will only worth about 13 cents.

    I think, I would like to have a paid off house with low overhead (utilities), a vegetable garden, some animals for food (chickens, a goat), lots of fruit trees, so the expenses would be low, about $300-400 in todays money, so the even lowest social security income or even some kind of welfare income can cover it.

  4. SGC says:

    How can I eliminate debt if I max out my contributions to a plan I can’t touch until I’m 60? Invariably, something will happen during the course of my lifetime that will require a large infusion of cash. If my money is on lock down because I’ve maxed out my contributions, I will need to use debt for unexpected events, right?

  5. Petunia 100 says:

    You can’t avoid infation, getforfre. That’s why you need to invest your long-term money, not just save it. :)

  6. Petunia 100 says:

    If you can’t afford to max, then don’t max. Put away what you can afford to put away. :)

  7. Petunia 100 says:

    I just want to add that I think this “Bank on Yourself” thing is a huge scam. It is just a new way to sell an old product, namely whole life insurance. It uses the same type of fact-twisting that traditional whole life insurance salespeople use, to push a high-commissioned low-quality product on the unsuspecting. Oh, and to sell books. Let’s not forget that.


  8. Life Agent says:

    Petunia, I’m not a “Bank on Yourself” authorized advisor but will tell you that, based on your comment, you know nothing about how the product of life insurance works and the tool it can be during an entire lifetime. High commission? We life insurance advisors make more commission selling 20 year term (some carriers pay 105% of the premium) vs whole life. So, before you bash, please be sure you understand. You can compare notes at age 65 with my 18 and 20 year old kids that have permanent insurance :)

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