Why the 401(k) Has Failed Retirees

8.18.23: Audio automatically transcribed by Sonix

8.18.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Producer:
Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.

Producer:
Welcome to Safe Money Masters with Greg Castle. Get ready for a full hour of financial information and economic news you can't afford to miss. Greg works hard each and every day to help hard working Americans like you navigate challenges and reach the financial freedom they desire and deserve. So now let's start the show. Here's Greg Castle.

Greg Castle:
Hello and welcome to Safe Money Masters, where our main goal is to help you, our listeners, become masters of your money and teach you how to keep it safe. You know, we hope that your Tuesday has been terrific so far. And I'm Greg Castle. I'll be your host along with my co-host and executive producer, Matt McClure. You know, Matt, here we are once again on another terrific Tuesday lineup. So why don't you tell our listeners what they can expect to hear on today's show?

Producer:
Well, yeah, Greg, absolutely. You know, a lot of great stuff coming up here. As per usual. We set a high bar each week, right? So we got to we got to keep raising it. So it just keeps getting better and better. That's that's what.

Greg Castle:
I was a, I was a pole vaulter in high school and college, so I'm used to high bars. See?

Producer:
There you go. Absolutely. And what I'm beginning to wonder, is there anything that Greg Castle has not done? Because you've done many things in your life.

Greg Castle:
Yeah, well.

Producer:
But but we that that's for another show on another day, probably. But anyway, we'll go through all the list of of careers and hobbies and sports and all the other things too, at some point in time, I'm sure. But on today's show, we do have a lot of great stuff coming up here. Greg, we've got, of course, our quote of the week, some words of wisdom from someone else, from from a very accomplished person who actually won a Nobel Prize. We'll talk about this week. We do have a segment on Social Security and how some cuts that could very well happen unless things change significantly in Washington. Um, how those cuts could affect retirees and why an income plan is so, so important for our listeners to have. Also the history of the 401. K, we'll talk about why it's actually failed so many people buy term and invest the difference. That is something that, you know, a lot of people might talk about or think about doing as far as their insurance goes and then investments for the future as well. On top of that, we'll talk about that. And you know, is it something for everyone? Well, generally, nothing is one size fits all. But I know that we'll we'll dive deep into that. The perils of following a financial gurus advice unconditionally.

Producer:
You can fall into some some pitfalls there. We've got some retirement savings and why late boomers are on the brink of disaster. And then also this week in history, some birthdays, some events and some just some interesting stuff. So all of that and more to come here on the show. And I got to say, Greg, you know, if our listeners out there, if you are someone who's been listening to the show for a while or if you're just tuning in, happen to find us for the first time, welcome, of course. But if you are listening or if you have been listening because you're interested in improving your financial situation and your ability to retire someday, let's hope that's the goal for us. All right. Let Castle Financial Solutions help you with some one on one attention. All you have to do, give them a call. 813430 7100. You can also visit their website. It is SafeMoneyMasters.com. They'd be happy to meet with you one on one in person and provide customized guidance and solutions based on your specific financial needs. So that is a great thing to always remind our listeners of here, Greg, as we start our show. And then of course, the next thing on the docket is the aforementioned quote of the week.

Producer:
And now wholesome financial wisdom. It's time for the quote of the Week.

Greg Castle:
This week's quote comes from economist and psychologist Daniel Kahneman. Who once said. And I like this one. Money doesn't buy you happiness, but a lack of money certainly buys you misery.

Producer:
I love that, too, because it it is so very true. You know, they say they say that money can't buy you happiness. And I do. I do agree with that. It's like, you know, you could buy all the stuff in the world and everything and have all of the material things and still be completely miserable. I get it. But not having money can definitely buy you misery. And I have been there in my life and I hope to not be there again.

Greg Castle:
No, it's, uh. I know a lot of folks that have, or I'll say a number of folks that have a lot of money and they're not very happy. And I know a lot of folks that I grew up in a, you know, in a probably a lower middle class family. We were all happy. You know, we got along. We had it was a it was a great time, but we always had enough to, you know. Get the things that we needed. Some of the things we wanted took a vacation every year. So we weren't we weren't broke. But if something were to happen, my dad would lost his job or other things because he was the primary breadwinner. You know, we would have really been hurt and been in that lack of money situation. So we were very, very fortunate that he stayed with the same people all of his life. But anyway, you're exactly right. You know, money doesn't buy you happiness, but a lack of money certainly can buy you a lot of misery.

Producer:
It certainly can. And you mentioned Daniel Kahneman there, who is credited with that quote. And in addition to being an economist and a psychologist, which makes a lot of sense, you know, after having read that quote, Daniel was also the winner of the 2002 Nobel Prize in Economic Sciences. So a guy who knows a lot about money and and really the psychology of money as well. So great. Great quote there.

Greg Castle:
Right. Hey, Matt, before we get into into today's topics, you know, once again, I'd like to take just a minute to remind our listeners what our show is all about. The whole premise of this show is to bring you topics and tools and information that help you protect and grow your wealth and retirement income. So we hope that you're going to keep tuning in. You can catch us here every Tuesday evening at £0.06 pm on Money Talk, 1010 and on your local FM stations, 92.1 down south and 103.1 up north. If you happen to miss an episode, you can always catch a replay of SafeMoneyMasters.com or wherever you listen to your favorite podcast. You can also check out our YouTube channel and subscribe to see weekly video highlights, highlights and special content. And if you have any questions or comments, we would love to hear from you. Feel free to email me personally at Greg at SafeMoneyMasters.com or give me a call at 813430 7100.

Producer:
Well, very good. And you know, as promised, we are going to talk a bit about Social Security as we begin the sort of meat of the show here today, Greg. And, you know, we often talk when we do talk about Social Security, we talk about, you know, the sort of uncertainty of the future of it and the fact that people shouldn't really be counting on Social Security as their retirement plan. I think it's very true because, you know, according to a new analysis, Social Security on track to cut benefits for retirees in 2033. That's that's a decade away from now, ten years away, 2033, is that sort of, for lack of a better term, drop dead date for for cuts in Social Security benefits? And that's when the trust fund reserves are forecast to be depleted and the reduction really could be substantial. Right.

Greg Castle:
The it really could. And, you know, again, 2033 is the magic number that that everyone's throwing out unless the program is shored up before then. The typical you know, the the typical newly retired dual earner couple are going to see their Social Security checks reduced by over $17,000 annually. That amounts to about $1,350 per month. And that's according to the nonpartisan Committee for a Responsible Federal Budget. A newly retired couple with one earner could see a cut of about $13,000, the report said. And the Social Security Administration has estimated that benefits will be cut by approximately 23%. And I've heard that number go anywhere between, you know, 23, 25 and 33. So 23 is a conservative number, but it could be cut by 23% in 2033 unless the program is strengthened. You know, those cuts could prove devastating to roughly 50 million older Americans who receive Social Security checks with the Committee for a Responsible Federal Budget, forecasting that, quote unquote, senior poverty would rise significantly upon insolvency. Now, still, there are plenty of proposals to fix Social Security, either by raising taxes or increasing the retirement age or a combination of the two. And there's a number of different proposals, you know, increase increase taxes on Social Security, increase taxes on those making above 400,000. Certainly increasing the retirement age. You know, we've had the full retirement age. The FRA increased from 65 up to as high as 67. Um. However, we've never had the minimum social Security age change, and as people live longer, I would not see that. Being disregarded as an option to raise the minimum Social Security age. Hopefully those folks that are close to retirement that are planning to be in there like within within a, you know, a certain window, hopefully they'll be grandfathered in to what they have currently rather than have reduced. But the plan currently is that it will affect everyone. If if the trust fund goes insolvent, then there'll be enough to pay out a portion of your benefits. But supposedly it will affect everyone and hopefully that doesn't happen.

Producer:
Yeah, that's definitely the hope and the the wish for for us all who are going to hopefully benefit from Social Security one day. And the thing is, folks, you know, if you're listening to this and and you know, we don't say this to to just scare you. We say this to inform you and let you know that there is help available out there if you are in this particular situation. So if you want a sound plan for your retirement that incorporates how your retirement life might look if Social Security is cut, give Greg and his team of professionals a Castle Financial Solutions group a call. You can call him today at 813430 7100. And you can let them help you develop your free inflation adjusted, safe money retirement roadmap. You got to adjust for inflation because as we know, it can pop up out of nowhere seemingly, and really, really wreck your budget and your planning for the future. So remember, it is your money and if it is important to you, it is important to Greg and his team as well. And Greg, that really does highlight right the the reasons why you need a plan. I mean, you've got to have an income plan for your retirement. And, you know, it's just super important that people do that and think that they should reach out to you and get that plan in progress so that they can sort of rest assured that their future is taken care of and that it's not just something that, oh, let's throw it at the wall and see what sticks. You know.

Greg Castle:
Not a good plan.

Producer:
Yeah, right. That's the thing. Thrown at the wall and seeing what sticks or hoping and praying, those are not, you know, two kinds of plans that that would want to be a part of.

Greg Castle:
Europium doesn't work. So. Right.

Producer:
Exactly. That's very, very true. Well, you know, a lot of people, when they think about their retirement, well, they say, okay, I am I'm going to have Social Security when I retire, but it's not going to be my sole source of income. Right. I'm going to have I've got this 401. K that's there. I've got you know, that at work. I don't necessarily like to check my balance all the time because the markets go up and down and all of that stuff and things can get rough as we've seen over the past couple of years here. Lots of ups and downs, too many downs for a lot of our taste and a lot of our blood pressures have have markets gone down. But let's talk about the 401. K here, Greg, and and talk for a moment, if you will, about that essential part of American retirement planning these days to start with. What is the original intent or I guess what was the original intent of the 401. K when it was first rolled out?

Greg Castle:
Firstly, we'll just talk about the four retirement. The plan has always been for retirees to have a three legged stool. The three legged stool consisted of pensions, which we know for most companies or most people have gone out the window. Unless you happen to be forced to be a federal employee, civil employee, union worker or some others. But for the most people, that that leg is gone. And then the second one was Social Security, which we just learned a second ago, is planned to be reduced if nothing happens by 2033. So that leg may not be gone, but it's a little bit wobbly and certainly shortened. It's kind of like going to a restaurant and finding that table that just won't level out. You put all this, put all the salt packs and sugar packs underneath it and napkins to try to level it out. That ain't happening. And then the third part was savings. So that really brings us back to the 401. K, because that really is your retirement savings. You know, the roots of the 401. Trace back to the Revenue Act of 1978 when Congress inserted a small clause in the Internal Revenue Code. That revenue code was section 401, paragraph K. Thus 401 K. This provision was initially intended to answer your question to be a tax loophole for corporate executives to defer compensation. However. Employers realize very quickly that it can save them a lot of money instead of offering pensions, and it was soon extended to all regular employees. So the idea was to encourage individuals to save for their own retirement by allowing salary deferrals on pre-tax basis into a company sponsored plan.

Producer:
Wow. So it originally was not intended to be this sort of widespread retirement plan throughout the, you know, all employees of particular companies. But over time, the very interesting thing here is that it became the primary option for many employees. Most employees out there seems like. So, you know, so many people, though, are really expressed dissatisfaction with their 401. K outcomes. So. So why do you think that is? Why do you think the 401. K hasn't really lived up to the expectations that a lot of people have for their retirement savings and investments?

Greg Castle:
Now, there are several reasons for this disappointment. First of all, it's just difficulty saving enough. You know, many Americans struggle to save enough in their 401. Due to increasing cost of living, especially with inflation, the way it was last year. And of course, stagnating wages and wages seem to be increasing, but only slightly. In some cases. They haven't kept pace with inflation, especially after last year. Another reason would be limited financial literacy. You know, selecting suitable investments within the 401. K plan requires a certain level of financial knowledge, and most individuals lack that knowledge. They basically listen to whatever the water cooler guru tells them to. You know, they ought to be doing. They don't know any better. So they begin to do it. And sometimes they luck out and sometimes they don't. Um, another reason would be market volatility. You know, returns on a 401. K are susceptible to extreme market volatility as they include investments in the stock market. More so market goes up. Your 401. K looks good. Stock market goes down, not so much. Another one would be retirement age. You know the form one penalty for withdrawal before age 59 and one half means funds are tied up.

Greg Castle:
You know, regardless of personal circumstances, early retirement needs. There are some loan options. There are some. If you withdraw, there's going to be a penalty. So if you take it out before 59.5, you're going to face that 10% IRS penalty. Uh, and also, there's fees. Here's a video that I would encourage our listeners to go check out. It's it's it was done right after the housing bubble of 2007, 2008, which ended in 2009. It bottomed out in 2008. But the it's a it's a 60 Minutes video on YouTube called the 401. Fallout. It's only about 13 minutes long. But if you go watch that video, you will find out all the secrets you don't know about your 401. K and you'll hear from people. I mean, this is how devastated they were. You know, 60 Minutes does a great job, but they go to a job fair and people are actually crying because they lost over 50% of the portfolio. They're right at retirement age and they couldn't retire.

Producer:
Yeah, that's just just sad to see. And I've seen a good portion of that video, actually. And it really is enlightening and and slightly horrifying at the same time. It could happen.

Greg Castle:
Again.

Producer:
It could. Exactly.

Producer:
Yeah. With with all that, you know, market volatility that you mentioned there a moment ago, almost anything can happen there because all of those funds are at risk in the market. So that's what you have to sort of be wary of. And so, yeah, all that, you know, makes makes a lot of sense. So do you think that they could have anticipated when 401. Plans were popularized, a lot of those issues that you just mentioned.

Greg Castle:
Why in hindsight, you know, yeah, at its inception, the 401. Was never envisioned as a sole source of retirement income. It was expected to supplement Social Security and pensions and personal savings.

Producer:
Yeah. So it's like as, as a supplement. It was, it was kind of a, you know, a fine okay thing. And then now as things have evolved over the years, maybe not so much. And so given given those issues, you know, should people stop relying solely on their 401. K, as I mentioned in the lead into this segment, that's what a lot of people really do, relying solely on that 401. K for retirement. Should they stop doing that and maybe look at some other options.

Greg Castle:
Absolutely. Diversification is the key to any financial plan. You know, A41K can be an important piece of the retirement puzzle, but it shouldn't be the only one. You know, savers should also consider other tax advantaged accounts like stuff like IRAs, Roth IRAs and and health savings accounts, which some companies offer, some don't. Depending on your level within an organization.

Producer:
Yeah, and those are tax advantaged accounts as well. So that offers that that benefit, as you say. And so, you know, diversifying retirement savings, very crucial, as you mentioned. But, you know, how can people really improve their saving habits to better utilize their 401. K options? And even, you know, people might hear that that term 401. K options and say, okay, didn't even know I had options in my 401. K just put money in it and it just it just kind of happens without me thinking about it. I didn't know I had options, you know? So how can they take advantage of those options?

Greg Castle:
And I hear that all the time, actually, when I'm dealing with people that, you know, their primary source of income or net income, but savings is their 41K, I mean, hear, hear exactly that a number of times. But some of the ways they can maximize the employer match, that's free money. So always contribute enough to get the full employer match. Um, another way would be the automatic contribution increases. In other words, many employers allow automatic annual contribution increases. So take advantage of them. Basically you sign up and say, okay, you know, as my pay increases, then, you know, I want to make sure that, you know, my contributions increased appropriately. Uh, invest wisely, ensure that your investments align with your goals and risk tolerance. That's a big one that most people miss in a 401. K because they're just looking at a bunch of mutual funds. They don't know which ones do what. They don't recognize the companies that are in there. They don't recognize all the different stocks and other investments that are in each one of the mutual funds. They just see one that says, okay, this one got a good return last year, let's do this one. It may not may not work out for you this year. Um, and also risk tolerance. You know, if you're very conservative, you don't want to go doing something that's a primary stock fund because, you know, if the market goes down like 2007, 2008, you'll lose your shorts. Um, another thing is regular reviews consistently review your 401. To ensure it aligns with your evolving circumstances and retirement goals. And probably most importantly, not just because I am one, but, you know, get advice from an expert, whether it's me or someone else or my team or someone that you already work with. Have a financial professional review what you have and make recommendations that align with your goals and tolerance for risk.

Producer:
Yeah. Mean that's why you know, you're you're sick. You go to the doctor and you know you're you have a problem with the car, you go to the mechanic. You need help with your finances, planning out your future. You go to the expert as well. And I happen to know a guy. His name is Greg Castle of Castle Financial Solutions Group and Safe Money. Masters.com, of course, is the website for a free no obligation consultation. So yeah, that diversity and retirement planning and education, you know, and really getting yourself familiar with smarter financial habits, putting that into practice that all seems like it is just absolutely crucial for a secure retirement future.

Greg Castle:
Oh, you bet. The 401. Hasn't necessarily failed. However, the interpretation that it was meant to be a cure all for retirement savings may have steered people off course a little bit. It's a component of a larger retirement strategy, not the end all solution.

Producer:
Yeah, and this.

Producer:
Is all great information. I think that's really enlightening to our listeners here, Greg. And the question for me then is like, okay, so who really benefits the most from these types of plans? 401. K is what we call a defined contribution plan. That's like the category that it falls under, right? So who benefits most? The employee or the employer?

Producer:
Mm hm.

Greg Castle:
Oh, that was an evil laugh. Anyway, you know, when the 401. K was implemented in the late 70s, you know, it sort of quickly transformed the American retirement landscape. Today, it's a prevalent part of employee benefit packages across the United States, presenting both what we call significant benefits and also some very notable drawbacks for both employers and employees.

Producer:
Yeah.

Producer:
So we've already talked about, you know, some of those pros and cons for the employees. But then on the other side, the plans also do have, as we allude to here, a number of benefits for the employer. And number one, we've sort of talked about at the top of this segment that would be cost savings. You know, those employers found out very early on in the implementation of these types of plans, oh, we can save ourselves a lot of money.

Greg Castle:
Yeah. Let me ask our listeners a question real quick to be sort of think, think, think to yourself real quick. Let's say, for example, that you have a company and your company is given a choice between a 401 K plan where you contribute an amount that you decide to the plan if you choose to. You don't have to contribute anything. But at the same time, let's look at the other option, which is a pension. A pension requires the company to put aside money every year to help fund that pension, and you have to pay those employees, each employee, for as long as they live. So call savings is a big one. So previously, many, many, you know, many businesses offer traditional pension plans that that guaranteed a certain payout to employees during retirement. These are known as defined benefit plans. Now, these plans were costly to maintain. The switch to a 401. K system transferred a significant portion of the retirement related financial obligations from the employer to the employee. You know, leading obviously to to cost savings for business. You know, another. Benefit for the employer as recruitment and retention.

Producer:
Uh.

Greg Castle:
A lucrative 401. Plan, basically one where they are making a significant contribution to the plan on the on the employee's behalf or basically what we call a match. A lucrative 401. Play. 401. Plan with a competitive match can attract prospective employees and retain existing ones by providing an enticing long term benefits package. And then finally would be tax benefits. Employers can deduct contributions made to employees 401. Plans on their federal income taxes, which offer the company, you know, valuable, significant tax savings.

Producer:
Yeah.

Producer:
So definitely some benefits to the employer there. But that's not to say that employees don't also get some benefits from 401. You know, we're not we're not here to just bash the 401. There are some positive things here on the employee side as well.

Producer:
Sure.

Greg Castle:
I mean, as most employees know, you know, one of the big ones is pre-tax contributions. In other words, I'm an employee. I want more money. I need more money in my paycheck right now. So by contributing to the 401. K, that money is money I'm not taxed on currently. Now, don't get me wrong, you will be taxed, but it's going to be as you pull money out in retirement. So employees contributions to 401 are pre-tax, which reduce their taxable income overall at the at the current level. Current current times. Another one is employer match. Many employers offer to match employee contributions up to a certain percentage. There's some where range between 3 and 6% with an average or between 4 and 5. Anyway, basically that's significantly reduced. That's free money boost the total retirement savings at no extra cost to the employee. And you should always contribute enough if it's, you know, if it's within your means. It doesn't take away food from the table. You should always contribute enough to get that match. Anything over that match would be better suited for an outside entity some way in most cases.

Producer:
Um.

Greg Castle:
Another thing is you. Another benefit is control over investments. This can be a two edged sword right here. You know, with four one plans, employees have control over how their money is invested, which provides a flexibility to adapt their investment strategy based on personal goals and risk tolerance. Unfortunately, as we mentioned before, most employees, most people who contribute a 401. Plans, really are not knowledgeable enough to know exactly what's going to work. It's sort of a herd mentality. They basically do what everybody else is doing. And of course, when everybody else makes money, they make money. If everybody starts losing money, they don't know what to do. They're all they're also lose money. Another benefit for employees is loan and withdrawal options. I would advise against doing this unless you absolutely need to. If you're under 59.5. Certain situations, though, allow employees to take out loans or make early withdrawals from the 401. Plan, which offers short term financial assistance if necessary. Again. I would advise against taking out the loan or withdrawals unless you absolutely need the money for some reason.

Producer:
Yeah, if you're in.

Producer:
A dire situation and you know it's take a loan against your 401. Or you'll be sleeping in the streets or something like that. Okay. But it's it's an extreme circumstance where that would be beneficial, definitely, because you don't want to be taking away from your retirement savings, taking away from your growth potential in in your investment account there. And even with those options that we've talked about, the benefits there, the 401. K system, it's still got some some pretty significant flaws that people just really need to be aware of, right?

Greg Castle:
Yeah. Employees now bear the investment risk that was previously, you know, shouldered by their employers under traditional pensions. The employee now has to navigate market volatility and all the fluctuations within the market that could potentially harm their retirement savings. Another potential flaw is that not all employers provide matching contributions. They're not required to and those who don't. Or the question those who do often require vesting periods before the employee can claim full ownership. In other words, you got to be there sometimes five years, sometimes you get a portion after three, Sometimes you're vested year by year by year up to a certain point. So if you leave within that period of time, you don't get you don't get all your money, You you get your money. You just don't get all the match that came along with it.

Producer:
Yeah. Yeah, that's that's right.

Producer:
It's something definitely a hurdle to to be aware of there. And you know, I would imagine that most of our listeners currently have a 401. K, they're contributing to their company's 401. K plan or have contributed to one in the past, a 401. K or a similar type plan there. So what are some if you had to sort of sum up here, Greg, what are some key takeaways from this 401. K discussion here?

Greg Castle:
Yeah, sort of wrap things up on it. Just, you know, first of all, company sponsored plans can be lumped into one of two categories. You know, one is a defined benefit plan, which is also known as pensions, where basically, you know, what the benefits are going to be the day you retire, you're going to get a percentage of your of your salary or your pay for the rest of your life. Or the second category would be defined contribution plan. That's where basically you contribute money into the plan. Hopefully you get a match and those are the plans like, you know, 401, 403 B's, Tsp's and so forth. Another thing, you know, from a monetary perspective, the shift to a 401. K type system has generally been more financially beneficial for employers by significantly reducing their retirement related obligations and cost. And then, you know, employee benefits, considerable employees can can, can't talk here. Employers benefit considerably from the tax advantages the employer match and investment control offered by 401 type plans. However, you know, they also face additional risk and responsibilities compared to traditional pension plans. So while the benefits previously discussed dramatically aid in amassing retirement savings for employees, it's evident then, you know, while the 401. Was really adapted by employers and that's basically a decrease in liability and expenses compared to traditional pension plans. So in conclusion, while both parties do offer benefits from the implementation of four one k's, the scales begin to tip and tend to tip in favor of the employer. Considering the associated risks and responsibilities that are transferred to the worker and making them responsible for their own savings plans.

Producer:
Yeah, there you go. That wraps it all up in a nice little bow here. And folks, if you are listening to the show and if you have a 401. K plan or similar plan from an employer now a previous employer, or you're tired of just kind of watching its value go up and down like a roller coaster or like a like a rubber ball. Sometimes give Greg and his team of professionals at Castle Financial Solutions Group a call. You can do that at 813430 7100 and let them help you develop a free, inflation adjusted, safe money retirement roadmap. They can also help you turn your hard earned investment savings into a retirement income that cannot be outlived and provides safety of principal that can provide market like gains without the risk of loss during market downturns or crashes just so, so much, you know, safety and reassurance there. That's why that's why the show is called Safe Money Masters. After all, we want you to keep your money safe from all of that volatility and those potential losses. So, okay, here is our our next sort of part of this discussion. Greg, you know, we talked about 401 K's, obviously involving, you know, investments in your future. Now, let's talk about investments as sort of, you know, taking a portion of some leftover money and investing that, right? So this is called buy term and invest The difference is it for everybody. So so talk about that concept and then we'll sort of delve into whether or not it's for everybody or not.

Greg Castle:
You know, first of all, every time I hear this expression by turning the abyss of difference, I cringe because know while it's good for some folks, it's not good for everybody. You know, buy term and invest. The difference is an oft repeated mantra in life insurance and investment circles. You hear the gurus will talk about gurus later. I'll call out a couple of names, you know, Dave Ramsey, Susan Orman, others. Susan started to get away from this now, but Dave still sticks to it by terminology. There's a difference. You know, this strategy involves buying a term life insurance policy and investing what you save on premiums that you pay for a permanent or whole life insurance policy into some other investment vehicle. Despite its popularity, this approach isn't appropriate for everyone's financial situation.

Producer:
Yeah, that's very true. I mean, and here's the thing, and we'll talk about this more later, too. You know, the sort of pitfalls of of following the big name financial gurus advice to kind of blindly. It's not one size fits all because my situation is different from your situation is different from my neighbor's situation, from my cousin's situation. All of the all of the above. Everybody's situation is different. So the strategy here, as you say, not for everybody. So let's explain then to our listeners why that is and what you mean by that.

Greg Castle:
Well, you know, term life insurance has got its place. It provides coverage for a specific period and pays benefits to beneficiaries only if the policyholder dies within the term. It's typically less expensive than permanent life insurance, which offers long, lifelong coverage and accumulates cash value over time. However, the buy term Invest a different strategy has got a number of downsides. Let's talk about, first of all, really what term does just real quick. Term insurance. There's appropriate place for it. For example, if you if you purchase an item like a house and you have young kids that are going to school and you know, it's your early earning years, then term insurance, you're not likely to die during the course of your mortgage if you buy it when you're, you know, 25, 30 years old. And you could. But if you do, you're covered. And the term insurance would be very, very inexpensive for you. But it's designed for a specific term. Uh, to help you pay off things. Used to go to the bank and they ask you, you want credit life on your car or credit life or whatever, You're going to buy that credit. Life is term insurance for a period of time. So if they were to happen that you die before you pay it off, that insurance kicks in and pays it off. So that's another type of term insurance.

Greg Castle:
So anyway. You know, some of the the downsides of the term invest investor different strategy would be policy exploration. If the policy holder survives the term, the policy expires with no financial benefit. In other words, the cost to obtain new coverage increases dramatically as you age and also as health declines. So if you buy a policy whenever you're 25 years old and you get a 30 year term, you're 55 years old, all of a sudden, usually they're going to be guaranteed renewable. However, you're going to renew it at the rate you are at 55 years old. And I guarantee you you're not going to like the premium. All right. We're a whole life policy or something like that. You get a level term for the rest of your life. You even sometimes decide when you want to cut off, cut off the payment, just pay it up at that point. Another downside would be investment risk because remember, by term and quote unquote, invest the difference goes back like the 401. K, And the best of the difference requires knowledge and willingness to take on market risk. Not everyone feels comfortable navigating the investment landscape. And then the third down side is going to be discipline. The buy term and invest the difference strategy requires discipline to regularly invest the savings. And not everyone can maintain this commitment consistently.

Producer:
And I mean, that's very true. You've got to have that discipline there to just be able to to stay on it. And from my own personal experience, life happens. Life gets in the way. And if you've got this this money that you're like, oh, this is extra money that maybe I need it right now, or maybe there's this vacation that I want to go on. And so I'm going to spend it on that instead. Or that, you know, this, that or the other. And because as human beings, we see it now, we want it now a lot of the time. And so it's hard to stay disciplined with your money sometimes if it's all up to to you to make that conscious decision each and every month. So, you know, those are some of the drawbacks here. And talk a little bit more, though, about some of the other strategies that might be available. I know the first one that popped into my mind you'll go into here, that's universal life insurance in just a second index. Universal life was the the very first thing that popped into my head because I'm like, okay, if you want it in something that's going to be an investment that has protection and offers you life insurance benefits, then that is a is a great option for a lot of people. But talk about that. That's just one of them. But talk about some of the the alternatives here to this, you know, buy term and invest the difference kind of strategy.

Greg Castle:
Well, you know, whole life would be one that probably that most people are familiar with. It's the type insurance that your parents or grandparents probably had at some point. It's more expensive than term life, but it provides coverage for the holder's entire life and includes a cash value component that that grows over time. But it's heavily weighted on the insurance side. So the cash value doesn't grow all that quickly, but it's considered an asset as opposed to a liability. Universal life is basically the the the the. The precursor to index, universal life and universal life, basically a type of permanent insurance offering more flexibility. You can change your premium and death benefit. It also has cash value component that earns interest and then index universal life. You talked about basically where your cash value is tied to an index but not invested in the index. Index Universal life. If you're under a certain age, it's not I mean, it gets pretty expensive whenever that it's not really a great product for most people when they reach their mid 50s. But prior to if you're around, if you're in your 40s or younger or 50, mid 50s and younger, it's an option you ought to take a look at because basically you can do it with your bank if you do it right because it's got so many benefits.

Greg Castle:
I'm happy to talk to you about it. Give us a call. Anyway, The other ones, annuities, we talk a lot about annuities on here. It's one of our favorite products. And you know, annuities offer life long income and retirement. They serve as both an investment and an insurance product. The beauty of an annuity is you can participate in the market gains and get market like gains, but you're not going to be affected by market losses. You can't lose a penny of your principal or credited interest, and many of them have no fees at all. So some of the key takeaways of this particular segment would be, you know, buying a difference can be can be a useful strategy, but it requires discipline, comfort with investment, risk and acceptance that term policies and may ultimately pay no benefits to you at all or could become so expensive that you're not going to have any coverage because you can't afford it. Or another takeaway would be policy exploration, investment risk and the need for discipline. Saving or potential downsides to the bottom and invest difference approach. Then alternatives such as whole life insurance, universal life insurance, fixed indexed annuities, indexed, universal life could be more suitable for those that want lifelong coverage and cash value accumulation, or those folks that are risk averse to investments.

Producer:
It all depends on your individual particular situation, as we say, as to which one of those alternatives might be the best solution for you. And if you want to explore those options regarding life insurance and getting some potential growth on the the cash value of those accounts and things like that, like Greg talked about, give Greg and his team of professionals a Castle Financial Solutions group a call today 813430 7100. Is that number you can let them help you develop a personalized, inflation adjusted, safe money retirement roadmap that ensures all of your needs will be covered. And of course, SafeMoneyMasters.com is the website as well.

Greg Castle:
We've talked several times on this show over the past several weeks about having someone come on and talk about estate planning and trust and those type things. So next week we have a special guest coming on tentatively. His name is Chris Hall. He's going to come in and talk to us about estate planning and how you can go about it, the importance of it, what can go in and what can't go in. And we'll have an interview with him and look forward to that a lot. So just wanted to throw that in before we before we lose time today.

Producer:
Yeah, no.

Producer:
Worries at all. That's a great, great plug there and look forward to having him on the show to talk about all of the above. And in the last segment here, Greg, that we just got done with, we mentioned a couple of those big financial gurus, right? The the Dave Ramsey's and Suze Orman's of the World and and others. But there are some some perils and some pitfalls to potentially, you know, just taking their advice that they will give on their shows or blogs or or, you know, YouTube channels and what however, in books and whatever else, you know, they they put out there and following that advice unconditionally because it's just presented as blanket advice that is good for everybody. Right? So there's a lot of that that's out there, you know, not just those names, but others who will present advice. That is, you know, some and some things are universal. You know, some things are, you know, don't don't spend more than you take in. And you need to have a budget and, you know, develop an emergency fund and that kind of thing that are just very basic. But then there are some more specific items that you need to be aware of that you know, maybe not right for you if you follow them. So so here's the thing. When we talk about financial gurus, let's let's have a little a little definition time here. What is the actual definition of a guru, first of all?

Greg Castle:
All right. A guru. Simply put, is a person who some people regard as an expert or leader in a given subject or field. You know, the lure of gaining insight or knowledge, obtaining foolproof strategies, achieving quick financial success makes following financial gurus advice really, really appealing to a lot of folks. And while these individuals often provide valuable insight and guidance on several money matters and overreliance on their advice without your own critical analysis can be a recipe for disaster. Now, financial gurus typically have large followings and testimonials that make their advice seem ironclad. You know, for example, with Dave Ramsey, who preaches, you know, by telling me the difference, he can't change that. He can't say something different. He says, Oh, no, no, for you you need to buy a whole life or you need to buy you know, you need to buy an index universal life or you need to buy an annuity. He's never going to say that because if he did, it violates everything he said before. Guru is not going to change what they said because they would lose a big part of their audience. They get confused. So it's always the same thing over and over and over again. However, you know, many tend to overlook the fact many gurus tend to overlook the fact that, you know, financial advice is not a one size fits all proposition. Different people have different financial circumstances, different goals and risk appetites.

Producer:
Yeah. I mean, and that's what we, you know, really want to push home here and what we do each and every week on the show. You know, we emphasize that fact. And there are a number of reasons why, given that that it may be kind of a dangerous thing to just religiously follow financial guru's advice. I mean, one of those that that comes top of mind here is the importance of understanding those individual differences.

Greg Castle:
You're right. Each individual's financial landscape is unique. No two persons share the exact same income, the exact same expenses or savings liabilities and future plans. You know, taking a financial gurus advice as gospel may sidestep your specific needs and circumstances and potentially could lead to ineffective or even harmful outcomes.

Producer:
Yeah.

Producer:
Another reason here that, you know, might be that the guru's advice doesn't really take into account your personal risk factors. You know, there we go with that, the personalization, again, it's so, so important. And each person has different, you know, personal risk factors as well.

Greg Castle:
Yeah. You know, as diversified as individuals, financial landscapes are so are their risk appetites. You know, a part of financial planning involves understanding one's tolerance towards risk. Tailoring your investment strategy according to risk tolerance is crucial for financial health. By blindly following Guru's advice, any guru, for that matter, you may end up investing in high risk securities exceeding your risk capacity, or you may end up investments in investments that are that are not age or situation appropriate.

Producer:
Yeah. I mean, everybody's situation is different. Everybody's age is different. Unless you have a twin or, you know, something like that. So it's very, very personal here. And so one thing that I really think about when it comes to these sorts of financial gurus, Greg, is accountability. You know, what about that?

Greg Castle:
That is a great question and most people aren't aware of it. But you know, most gurus, they come from diverse backgrounds and might actually lack the required credentials to give sound financial advice. You know, their popularity may stem more from their marketing prowess or charisma than their actual financial expertise, which is an aspect that's often overlooked or completely overlooked by most followers out there. Now, while financial gurus enjoy spreading their wisdom, they're usually not accountable when their advice results in financial loss. It's crucial to understand that your financial decisions remain solely your responsibility. You know, every guru markets to an avatar. An avatar is made up of the characteristics of their ideal prospect. This might include things like age, gender, income, geographical location and things like that. Unfortunately, the message that is given to the folks that fit that avatar is very generic and it's intended for the large group as a whole. It isn't personalized, and if you follow that advice blindly, you can find that your personal results are disastrous.

Producer:
You very well can be that situation that you find yourself in. And it's not a situation that you want to find yourself in. So definitely get your personalized plan in place. You can go to save money. Masters.com For more on that and reach out to Greg Castle as well. You know, Greg, a couple of weeks ago, we'll go through this quickly as we approach kind of the end of the show here. But I wanted to touch on this. Baby boomers, you know, a couple of weeks on the show, we talked about Gen X, right? We talked about Generation X and how that generation is not prepared for retirement by a large well, they're not alone. Baby boomers are also not prepared. The so-called late boomers who are nearing retirement have less wealth than their earlier boomer cohorts. That's according to a new brief published by the Center for Retirement Research at Boston College.

Greg Castle:
Yeah, late bloomers are basically those that were born from 1960 to 1965. Basically, they have low levels of wealth, regardless of how it's defined total wealth, retirement wealth and 401. K wealth. The average amount in a direct contribution plan such as a 401 K, four, three or IRA for this particular cadre of boomers was only $32,700 on an average, compared to 52,300 for mid boomers, which were people born from 54 to 59. And total retirement wealth for late boomers was less than $300,000 versus over $350,000 for those just a few years older, according to the findings. Now, the experts say this difference is unprecedented. So why do they fall behind? Very simply, one of the biggies is the Great Recession, which happened from December of 2007 to June of 2009. That hit late boomers, you know, during their peak earning years between the ages of 42 and 49, and that this was meant to be the age when late boomers earned the most and saved more for retirement. But because many lost their jobs or had to accept lower paying jobs, they were less likely to participate in their 401. So they couldn't accumulate enough setting a lot of them back. A lot of them also had to pull from their plans to cover living expenses. And when they did that, that included IRS penalties. So they never really recovered. So they're way behind.

Producer:
Yeah. And that's the thing is, you know, just because you're behind doesn't mean you can't get caught up like we talked about with Gen X as we, you know, approach kind of doing this week in history, maybe just hit a couple of high points here, Greg, about how people can go about catching up.

Greg Castle:
As we talked about before, Just make sure that, you know, you put money into your 401. K, it's automatic from every paycheck. Make sure that you split your bonuses, put some of your bonuses into savings. Part of it, you know, you can spend consult with a financial advisor, a financial planner to make sure that you're on the right track. So, you know, details matter a lot in financial planning to retirement. So, you know, it's the wrong time to make a mistake. Getting professional objective advice is critical, but be careful who you get advice from. Remember, no gurus. There are no do overs of mulligans when you when you're this close to retirement. So, you know, give my team a call at (813) 430-7100 and let us help you develop a plan that will guide you to and through retirement.

Producer:
It's this week in history.

Producer:
In the month of August, the 22nd day on this date, 1902, US President Theodore Roosevelt became the first US chief executive to ride in a car. My, how times have changed and technology evolved.

Greg Castle:
That's true. And going up on the timeline. 1927 Yankees slugger Babe Ruth hit his. 40th home run during his major. Major League Baseball record. 60 home run season in New York's nine four loss to the Cleveland Indians at Dunfield and 50 1956. Elvis Presley begins filming that very, very endearing film, Love Me Tender. And then birthdays this week, actually today, August 22nd, include late night talk show host and comedian like this guy, James Corden, age 44 Today, then actress, writer, director, comedian and Saturday Night Live alum Kristen Wiig, who's 49. And today is National Eat a Peach Day. National Take your Cat to the Vet Day. National Be an Angel Day. National Pecan Pie Day. So I think I'm going to be an angel. Take my cat to the vet, pick a peach up along the way and then go home and make a pecan pie.

Producer:
Because that.

Producer:
Sounds good. As a Georgia boy, all those things sound good to me.

Producer:
Except.

Producer:
The cat never likes going to the vet, so don't know about that one.

Greg Castle:
Really? Really. Hey, just a real quick one more reminders. Next week we're going to have someone come in and talk about estate plans. His name is Chris Hall. We look forward to having him. Matt That sort of wraps things up for us. So I will see you next week on the same bat time.

Producer:
Same bat channel.

Greg Castle:
Have a great week everybody.

Producer:
Thanks for listening to Safe Money Masters with Greg Castle. You deserve to work with a financial expert who has a track record of helping clients exceed their financial goals by implementing safe and proven strategies to schedule your free No obligation consultation with Greg. Visit SafeMoneyMasters.com.

Producer:
Not affiliated with the United States government. Greg Castle does not offer tax, legal or investment advice. Consult with your tax advisor or attorney regarding specific situations. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. This information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. A life assumes no responsibility or liability for the content of this message. The information contained herein is provided on an as is basis with no guarantees of completeness, accuracy, usefulness, timeliness or the results obtained from the use of this information.

Producer:
Fixed annuities, including multiyear guaranteed rate annuities, are not designed for short term investments and may be subject to restrictions, fees and surrender charges as described in the annuity contract. Guarantees are backed by the financial strength and claims paying ability of the issuer.

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