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Missed Fortune – Time to Stop Following the Crowd

Posted on | November 4, 2013

Why We Should Redefine Ourselves

A recent article by Tyler Durden has some stunning news for people thinking about retirement. The article points out that over the past couple of years, roughly 60% of 401(k) participants have accumulated more personal debt than they have retirement savings.

What this means is that the average person defers over 8% of their annual income towards retirement savings through their plan and Social Security taxes. What’s interesting is that people are putting more into their 401(k)s than is being matched by their employer. That’s not a bad thing, but there are far better ways of getting tax advantages.

This amount represents one of the largest outlays of yearly income for households; however, Hello Wallet has found that retirement readiness still remains stubbornly low.

The typical worker only has about 2 years of replacement income saved. That’s about 15 years short of their expected lifespan post-retirement. Considering that people tend to live about 17 years past retirement, a better way to view this is for us to redefine ourselves upon reaching those golden years.

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 suggest that all debt is bad. Some types of debt, utilized by disciplined individuals, can be good. For instance, if you bought a widget machine or hired an employee that made you 4 times what it cost you that would be considered a good investment. This is something well understood by business owners.

The takeaway message for that 60% of 401(k) participants who’ve accumulated more debt than they’ve contributed to retirement is this: It’s time to stop following the herd.

The Better Path

On Doug’s trips to Chicago, he would call his hotel from the airport and ask about where to meet their courtesy shuttle. The hotel desk would always tell him to follow the crowd.

This meant crossing 8 lanes of traffic, and navigating his way out of doors to the appropriate door of the shuttle pickup and drop-off. On one of his trips in particularly bad weather, Doug arrived at the appropriate spot with windblown hair, his suit soaking wet from the rain, and chilled to the bone.

He noticed that a man who had shared his flight into O’Hare was already waiting for the shuttle. But this man’s hair was neat, his suit was dry, and he was enjoying a snack while waiting. Doug asked him how he had managed to arrive ahead of everyone else and avoid the inclement weather.

The man replied that there was another path that allowed him to travel safely through a series of underground walkways without exposing himself to the wind and rain. There were a handful of signs that could have directed Doug to take the same way, but they were not conspicuously placed.

Later, when Doug asked the desk personnel at his hotel desk why they hadn’t told him of this better route, the reply was that it would have been too complicated to try to explain. That’s why they told him to simply follow the crowd instead.

The safer, sheltered path had always been there, he simply didn’t know about it until someone else made him aware of it.

When it comes to your financial planning, what are you doing?

Most people tend to follow the crowd, putting money in IRAs and 401(k)s and sending extra money in principal payments to their mortgage companies. But there are better ways to get out of debt and plan for a comfortable retirement.

People who keep moving with the herd are setting themselves up for a rude awakening when they get to retirement.

That’s when the triple whammy of taxes, inflation, and ongoing market volatility will take their biggest toll by eroding away a person’s retirement nest egg. This rude awakening may include outliving their retirement savings.

The key lesson here is the same one Doug learned at the Chicago airport: Don’t follow the crowd.

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

If you’re ready to be shown how to find this path, 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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