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Missed Fortune – Prosper On the Path the Crowd Doesn’t Follow

Posted on | November 18, 2013

Are We Building Debt or Retirement Savings?

A recent eye-opening article on Zero Hedge may come as a shocker for people who are nearing retirement. The article by Tyler Durden reveals that over the past couple of years, nearly 60% of individuals participating in 401(k)s have stacked up more personal debt than they have retirement savings.

This means that the average person is deferring over 8% of their annual income towards retirement through their plan and Social Security taxes. That’s a sizable chunk of income, in fact it’s now one of the largest household expenses. Hello Wallet has found that the average worker nearing retirement only has about 2 years of  replacement income saved. That’s about 15 years short of their expected lifespan post-retirement.

This trend means that retirement readiness remains stubbornly low.

One explanation for the stubbornly low retirement readiness of workers is an increase in bad household debt and the amount of income required to pay that down.

This doesn’t mean that all debt is bad. Certain types of debt, used by disciplined individuals, is actually good. For instance, if you purchase a widget machine or hire an employee that makes you 4 times what it’s costing you, that’s a good investment. Business owners understand this concept.

It’s also very interesting that some folks are putting more into their 401(k)s than is being matched by their employer. That’s not necessarily a bad thing, but there are far better ways to enjoy tax advantages.trans Missed Fortune   Prosper On the Path the Crowd Doesnt Follow

Considering that people tend to live about 17 years past retirement, we may want to rethink the whole idea of putting ourselves out to pasture. A far better way to view this is to redefine ourselves upon reaching those golden years.

The takeaway message for the 60% of 401(k) participants who are accumulating more debt than they’re contributing to retirement is this: Stop following the crowd.

Learning to Find the Safer Pathways

When Doug would travel to Chicago on business, he would contact his hotel from the airport to find out where to meet their courtesy shuttle. The hotel desk would always tell him to follow the crowd.

This required crossing 8 lanes of traffic, and walking outdoors to get to the correct place of his shuttle pickup and drop-off. On one trip, in particularly cold and wet weather, Doug followed the crowd to the appropriate spot. But he arrived with windblown hair, his suit soaking wet from the rain, and chilled to the bone.

He noticed that a man with whom he had shared the flight into O’Hare was already waiting for the shuttle. But this guy didn’t have a hair out of place, he was warm and dry, and was actually enjoying a snack while he waited. Doug asked him his secret.

The man explained that there was another path that led him safely through a series of underground walkways all the way to his shuttle pick up. There were a few signs that could have led Doug to take the same way, but they were difficult to see if you didn’t know what to look for.

When Doug asked the desk manager at his hotel why they hadn’t shared this better route, they told him it would have been too difficult to explain. That’s why they encouraged him to follow the crowd instead.

The safer, more sheltered path had been there all along, but until someone else made him aware of it, he didn’t know it was there.

When it comes to financial planning, what would you rather do?

Many people tend to follow the crowd, by putting money in IRAs and 401(k)s or sending their mortgage company extra money in principal payments. But there are better paths that can lead us out of debt and to a comfortable retirement.

People who keep moving with the crowd are setting themselves up for a big shock when they reach retirement.

That’s when the triple whammy of taxes, inflation, and ongoing market volatility will take their biggest toll by shrinking their retirement nest egg. The rude awakening might also include outliving their retirement savings.

The key lesson here is the same one Doug learned in Chicago: Stop following the crowd.

The safer, sheltered path has always been there, even if it’s not widely recognized. It’s the path that will allow you to build liquid assets safely while safely enjoying a predictable rate of return.

If you’re ready to get the directions you need, visit with a wealth architect today.

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*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

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