Over the past few weeks, I've come across several instances of people being sold down the river for high commissions by the salesmen that they were relying upon for expert advice. In one case, a senior had everything she owned at risk of loss. In another, a retiring executive was flushing $20,000 a year down the drain. The last situation is one that I've come across again and again, where people have paid hundreds of thousands of dollars into life insurance policies that disappear when they retire.
Are you being sold down the river for 7% commission? Far too many people are these days.
"Safe" Income Producing Investments
A senior who recently attended my Investor Educational Retreat shared that she had been sold into "real estate" because it was safe and would provide her with $1100/month "income." What she was not told was that the investments were high risk and that the salesman was making $17,500 by putting all of the money she had ($250,000) into stocks of individual companies that aren't even publicly traded.
The salesman received his commission. The senior was at risk of losing everything. Many of the companies she had been sold into had been cash negative for the years. When a company loses money consistently over the years, you have to question who is running it and where the money is going (into the pockets of the executives?). You are also at risk of your income (dividends) being slashed once the company's ability to borrow more (from Peter to pay Paul) dries up. In the worst case scenario, when a company declares bankruptcy, you lose all of your investment.
REITs are stocks and stocks are risky investments. You don't directly own the real estate. You own stock in the company that owns the real estate. A person in retirement cannot afford to take on this kind of risk. That "income" you are being promised does not come with any guarantee. If she just keeps what she has, she can self-fund her own income, at a higher level than the REITs income, with almost no risk at all. Of course, no one makes a commission on this, so it's not something that you are going to be "sold."
Capital preservation is key for retirees. There are safer, yielding investments available for retirees who get educated. Relying upon salesmen as your source of financial advice means that you could be sold down the river for a 7% commission.
Health Insurance
Recently, I was having a meeting with a member of my volunteer team. A few years ago, he stopped spending $2,000/month on health insurance and opted for a high deductible plan with a health savings account. His new plan costs $400/month.
That means instead of giving the insurance company $24,000 a year, he saves $19,200 a year, for a total savings of $57,600 over three years. (He learned this, and other budgeting and investing strategies at my Investor Edu Retreat. For an investment in wisdom that costs him under $2000, he will save $19,200 or more for the rest of his life.)
After three years, his health savings account has over $20,000 in it. These contributions can be claimed as a tax deduction, lowering his tax bill.
At the rate he is going, he will easily have over half a million in his HSA before he needs long term health care, all without one dime of insurance costs. Also, unlike insurance plans, this money doesn't disappear if he misses a payment.
Savings of $19,200 a year add up to a lot of bucket list vacations. Fun and adventure create happy hormones that actually make you healthier.
Ultimately, health is the best insurance. Reduced health insurance costs and $20,000 more in your budget promote your mental, physical and emotional health. If you are not on this plan, you are making the insurance company rich, at your own expense, and are at risk of losing coverage altogether if there comes a day when you cannot pay your monthly premium. If you can't afford your health insurance premiums and are taking on extra debt for basic bills, the stress of that is probably making you sick.
So, if you are healthy, use natural cures, and are spending an arm and a leg on health insurance, it is time to stop making the health insurance company rich and start living a richer life.
FYI. The insurance salesman, who stands to lose a lot of dough when you opt for a lower-cost plan, is not going to be an advocate for this.
Life Insurance
Life insurance is like being a renter. Once you stop paying, you get kicked out. People are retiring early and living longer today, meaning that in their 60s they are faced with a dramatically reduced income. For most people, there comes a day when they must choose between keeping their home, keeping their insurance and buying food.
Everyone I know, with this exception of one person who lost her husband at the age of 57 from a sudden heart attack, has lost their life insurance after giving the insurance company hundreds of thousands, or even millions, of dollars.
A retired couple is spending more trying to keep their insurance policy alive than they are on rent. Their policy has already been slashed from a million dollars to $250,000. The premiums are over $20,000/year, meaning that if the husband lives another decade, they have given everything they have to a policy that is worth less than they would have by simply saving and investing that money. If you add up the years, they've flushed over a million dollars down the drain. Though no one admits it out loud, everyone is acting as if the life of the policy is more valuable than the life of the policyholder.
Another retired couple in their 80s had been sold a life insurance policy as a way to keep their kids from paying taxes on their estate when they inherit it. The policy costs $40,000/year. It is very likely that the kids would prefer to have $10,000 year from their parents than to watch the insurance company getting rich. And there are far better ways to will your estate to your kids. In fact, on this plan, the liquid assets of the couple will be reduced by half in less than a decade. This is far more than the taxes would have been!
Getting Money Smart is More Important Than Getting a Better Job
So many of us are working harder to try and make ends meet. Meanwhile, money is leaking out of our wallet faster than we can put more in. This is why Americans owe almost $12 trillion in debt. Rather than trying to bail faster, it is worth it to stop up the leaks in our budget. Keeping more of your dough is one of the best tickets to financial freedom. When you take a closer look, you could find tens or hundreds of thousands of dollars in your budget and nest egg that were formerly flowing freely out the back door. Keep it for yourself and live a richer, less stressful life.