What to do when your 401k is cut in half.

I was at the baseball game last Saturday when I ran into John and even though our team was winning, he looked a little distraught. I said John you look a little down, here have a Bon-Bon, and he said I would buy my own if they weren't $9.85 for a small box. I said yeah I know either things cost more these days or I'm not making enough. I asked how the family was, he said great and that his sister Samantha (Jones) suggested that he give me a call. I asked him was everything ok and he said well it was up until about five years ago and that he will call me on Monday to discuss further.

John called that following Monday to set an appointment and boy I was in for a big surprise when he showed up the next day. You did what John! I cannot believe you did such a thing I said. He said yep I did it. My assistant came running in and asked was everything ok, I said everything is under control. I had just learned that John had committed the biggest mistake that one could make when it comes to a 401k plan. He had literally turned his 401k into a 201k by selling the holdings and cutting the amount in half. <book excerpt> Chapter 7 Retirement Can Still Happen "The New American Dream" when I was a kid I never knew why my mom would only go to the store when things were on sale. She would tell me all the time that you always look for bargains son. You buy winter clothes in the summer and summer clothes in the winter she would say. When I became an Investment Advisor, I followed the same rule as an adult. First, when you invest, you do what no one else is doing. If you have a 401k and it is not doing well, you do not really lose until you actually sale the underlining investments. If you have good investments in good times, then those same underlining investments will reinvest into your good investment at a bargain price in bad times.(same goes for real estate, but that's a blog for another day) Once the market returns (and history have shown us that it will eventually, another blog story for another day) then you my friend have just paid half price for an investment that is worth twice as much. <end of book excerpt> The statement that always trips people up in this chapter is Good Investments, not Crappy Investments. Even in a bad economy, people will still need toilet paper, soap, and deodorant so naturally sales are still being made. The last statement I made too John before he left is one that I will share with you. NEVER, EVER DO WHAT YOUR FRIEND OR CO-WORKER IS DOING WHEN IT COMES TO YOUR OWN 401K INVESTMENTS. They are not living your life and you are not living theirs. They will not retire when you retire, so stop playing Russian roulette with your retirement nest egg.

So what happened to John you might ask? He is on his way to living The New American Dream, with a few adjustments to his retirement plan of course. I have to go now because my assistant just informed me that Samantha (Jones) is on the phone and she wants to know everything there is to know about Universal Life Insurance.

Why does life insurance need to be so complicated? Part 1 of 3

(2-3 min read) "painless, but informative we promise"

Happy holidays this July. The summer is in full swing with the climate in some areas of the states unbearable. Most of the people that I know still travel out of town or the next city over. With the economy being what it is these days most people are driving or in most cases flying. We here at the Keeping Up offices are not one to put a damper on holiday travels, but let's face it some topics still must be addressed.

 

Life Insurance, yes life insurance of all topics will be this month's feature. No one likes to talk about it, but it's just as important as planning that trip to Disneyland ® in the next few weeks. I will however do you a big favor and make it as painless as possible. Ok first things first if you think you don't need life insurance well that's just foolish. Even wealthy people have insurance, because they would rather keep the money that they have currently accumulated and let someone else write a check to cover estate taxes. Now that we got that, out of the way let's start easy then build up. DISCLAIMER HERE: We will never recommend one type of insurance over another. The reason being, we just don't know your particular situation.

 

Basics first:

Life insurance is based on two major factors and everything else revolves around them. i.e. features, bells, whistles, and so on. The two factors are AGE & HEALTH, that's it. Pretty much the younger you are the cheaper it will be, because when you are younger you are much more healthier. My grandmother reminds me every time I talk to her about all the meds she has to take. If you are a middle aged person then my 85 year old grandmother is a living witness that you will be taking meds somewhere down the line as things break down. The younger you are the cheaper life insurance is, however your occupation may come into play as you could pose a risk to the company that will insure you. Let's say you are 22, but you work on an Oil Rig for a company who's initials start with B and P then you would pay a higher monthly premium then say a 22 year old college student working at a coffee shop. Ok here is your bonus for reading this far and for recommending our newsletter to someone else. If you have a son or daughter on a social network site bragging about their club hopping or jumping from bridges or God forbid moving cars then they will be in for a rude awaking when they go and get insurance as well. These sites are checked for riskiness of clients and their free time activities. Enough said on that. I could go on, but I will pick that topic up in another post later on.

 

Term Life Insurance: (bike)

Is exactly what it is and does what it says it does. It protects you for a term and a term only. If you get a 5 year term policy then the policy will protect you for 5 years. If anything happens to you within this time frame then a check is written to your beneficiary in the amount specified. This is what we like to call temporary insurance, otherwise known as insurance that will cover you in an unexpected death. It is recommended that if you get this type of insurance then you get the biggest amount you can afford at that time. Example here would be for a young family starting out with 1.2 kids (whatever that means) and let's say they have a starter home very small of course. Say the home cost about $150,000 and the husband makes about $37,000. A nice amount to get would be about $500,000 worth of term insurance, Wow that's a lot! Not really, because the monthly cost for a 22 year old would be in the neighborhood of $18-$30 dollars a month for a half a million dollars. It's cheap and it's a lot money which is the good news. The bad news is 98% of term policies never get paid out, because people live past the term and never die unexpectantly in the that term. (but what if you did?) If something unexpectedly were to happen to the husband on the way home from work on the freeway, then the young mother has enough to pay off the house and support herself and buy herself time to figure out how life is going to be without her husband. The same can be said about getting insurance on the wife as she has a job (domestic engineer) all be it nevertheless, a job of taking care of the home. Well what if she goes out to check the mail one day or makes an errand to the local store and something goes wrong. Who would take care of the baby(s) so the widowed dad can go back to work? Not to mention he may need to take a few months off to adjust to the sudden death and change. This is all we will cover on in this post because we wanted to keep it to a 2 min. read. Part 2 will talk about Universal Life Insurance and Part 3 will talk about Whole Life Insurance and we will recap the reason why we call Term Life Insurance the "bike" product of insurance.