There seems to be a movement going on that believes cash is king.  How many times have you heard that exclaimed lately?  Well I’m here to say it’s not and cash will definitely never be my king.  In fact, I believe in democracy so there really is no king to me but that’s a whole other story.  To me cash is fruit.  Think about it…

What’s your favorite fruit?

People love clementines.  There sweet, juicy and easy to peel.  The great thing about clementines is you buy them by the crate.  You get your little wooden crate of clementines.  I usually can’t wait to get home to eat some.  They’re pretty small and I’ll tend to eat two or three at a time.  Clementines give you a sweet, sugary, juicy flavor that makes your taste buds go nuts.

This is how cash is for people.  Their sense go nuts having cash on them.  It’s a lot like a sugar high.  They feel good with the cash in hand.  The switch gets flipped to money to spend when you have cash in hand.  I feel like a steak and cheese sub today.  Oh look I have cash, let’s go.  I want some clementines.  Cash in hand, clementines in the bag.

The funny thing about clementines is you get a bunch of them in that little crate.  My problem is I never finish them all.  There is always a few left in the crate when it happens.  You know what it is.  You go to grab one and it doesn’t quite feel right.  Maybe it’s just one spot at first, then before you know it the whole clementine is feeling a bit squishy.  Then the discoloration sets in.  Your clementines are rotting.

Cash does the same thing.  Maybe you don’t have all your cash in your hand but instead you are stock piling it in your bank account.  Well you know what’s going to happen to that cash over time.  It’s going to start to rot.  Money is a commodity. Cash today will not be worth as much as cash tomorrow.  Prices will rise, purchasing power will decrease.

The first principle of the Evolution Of Wealth is the power of LUC (liquidity, use and control).  This might be the closest thing I have to a king.  Cash is important.  Just as it is important to have cash it is just as important to not have too much cash.  By using the power of LUC, you will be able to get the features of cash without the downside.

• Yes, you need cash on hand and readily available to you for an emergency.  This amount is different for everyone depending on their situation.
• Cash is great for liquidity and control but it doesn’t have very much use.  It just sits there and rots.
• If you have liquidity elsewhere you can meet quick emergencies and then get your hands on a lot more money in a short period of time (a day or two).
• By focusing on LUC, you will be able to get a whole lot more use out of your money.  Whether it be to combat inflation, provide protection or just get a rate of return.
• Without use, your opportunity costs will begin to pile up.  In fact, you might create compounding opportunity costs.

I understand that people are not responsible.  I get that.  To me, that is the driving force behind the likes of Suze Orman changing her tone.  She talks to the masses, to the average people.  To them, the bigger problem than cash is debt.  If your problem is debt then by all means go to cash, if that’s what it takes to fix your problem.  However, if you are responsible with your debt, then cash is NOT your king.  In fact, at a certain point it is just drag or friction that is slowing you down.

No related posts.

During a conversation I had the other day I remember a great way to explain the inter-workings of a Universal Life insurance policy.  I had sort of forgot about this explanation but it’s a good one.  I figured I’d share it with all of you.

One of the biggest downfalls of Universal Life insurance is the complexity of the product.  I have previously written about the historical and structural overview of a Universal Life policy.  From here I am going to give you a different explanation of the way in which a Universal Life insurance policy works and the problems with it.

Your Universal Life insurance policy is a bucket.  The life insurance company is going to hold your bucket for you.  In fact, they are going to hold it under to spigots.  One spigot will represent your premium and the other spigot will represent the interest rate credited by the insurance company.  As long as there is water in the bucket, even just a drop, you have your Universal Life insurance policy.  If the water runs out so does your life insurance policy.  So you are probably wondering how your water could run out with two spigots?

The life insurance company is also going to drill a few holes in your bucket.  Three to be exact.  The first hole will be the biggest it is a result of mortality charges.  Think of the bucket made out of iron.  If you know anything about iron and water is that it causes rust.  What does rust do?  It eats away the iron, the hole gets bigger.  The life insurance company is also going to put a couple of smaller holes in the bucket as a result of administrative charges and then another hole for miscellaneous fees and costs (i.e. commissions).

The first step is to pay the premium and turn on one of the spigots.  Depending on when and how often you pay your premium determines when and how strong the water flows into the bucket.  Just don’t forget about the three holes that cause water to drip out of the bucket every month.  Drip, drip, drip.  Then at the end of the month the life insurance company will turn on that other spigot to splash in some water.  Of course, if it’s a Variable Universal Life insurance policy, it will be more of a two way spigot (is that possible?) some months you might get water and other months they might take water.  Then the whole process starts all over again.

Here’s the thing.  The life insurance company and the agent selling you the Universal Life insurance policy tell you that there’s flexibility in how much and how often you put water in the bucket (through paying premiums).  What they don’t always tell you is that the holes don’t go away.  In fact, the biggest hole keeps getting bigger little by little and month by month.

Then you are told that you can access your money through surrenders and loans.  When you take a loan from one of these Universal Life insurance polices you basically reach in and take a scoop full of water out of the bucket.  Then the life insurance company drills another hole, but don’t worry they plug this hole.  As long as you put some of that scoop of water back in, they keep the plug in the hole.  However, if you don’t add the extra water they remove that plug every month to let some water drip out.

In the end it becomes a balancing act to make sure there is water in the bucket today, tomorrow and x amount of years from now.  The problem is that the only thing you control is one spigot (premium).  Everything else can and probably will change at any time.  The other spigot might put more or less water than you thought into the bucket.  The holes could drip out more or or less water.  The rust might speed up the dripping.  This creates a lot of unknowns and the life insurance industry sells it to you as “flexibility”.  Make sense?

Related posts:

1. Universal Life Failure Part II
2. Universal Life Failure Part I
3. What Every Life Insurance Policy Shouldn’t Be Without

I am a contributor at FiLife.com.  For anyone who has never been there, I highly suggest you check out the site.  There is a lot of great information there.  It also has the best Question & Answer section I’ve seen in regards to financial information.  Here’s where my experiment comes in, I asked the following question:

What is the single, most devastating thing that can completely destroy your retirement and all the planning you’ve put into it?

This question received 14 comments by 9 different people.  I first want to thank everyone for their contributions.  I will do so by doing my best to link to their sites in the following list.  Without further ado…

The Top 10 Most Devastating Things that Destroy Your Retirement

10.  Liability Exposure from Mark Kantrowitz – I feel like this is something that is easy to protect yet most people don’t understand it so they do nothing, until it’s too late.

9.  Divorce from Kevin Brosious – I’ve been through this so it wasn’t going to be too high on my list.  Definitely recoverable.

8.  Company Stock from Kees DeWit – To me you are investing in something you know more about or might be more comfortable with.  This isn’t a horrible thing but you do need to be diversified in other investments as well.

7.  Lack of Diversification from Mark Kantrovitz – Going hand-in-hand with #8.  Overexposure to one area can cause a lot of pain.

6.  Unemployment from Morris Armstrong – Being out of work for an extended period of time can cause you to eat into or eliminate everything you have worked for and everything you were hoping for in regards to retirement.

5.  Inability to Live Within Your Means from Elanor Blayney – It does matter how much money you make or what your investments look like.  If you keep building debt then you are either destroying your retirement or you just might never have one.

4.  Chronic Medical Issue from Fern Alix LaRocca – With the rising cost of health treatments and how increasingly difficult it is to have adequate (not even good) insurance coverage, this not only affects you during the illness but long after as well.

3.  Total Disability from Fischer Financial – Unfortunately, you don’t recover from this.  Once you stop working you can’t even contribute to your retirement plan so no need to worry some earlier numbers.

2.  Death from Morris Armstrong – No one can ever truly prepare for this.  Nothing is worse for your retirement then never even getting there.  Hopefully those that depend on you are protected.

1.  Lack of [Proper] Preparation from Elanor Blayney – As I look back at this list, there are a lot of things that can be negated to some extend.  The only way to do that is to plan and prepare.

So there’s my list, what do you think?  I struggled with a few of these and there are definitely arguments to move a few things around.  I’ve love to hear your responses…that’s what the comments are for.  In the end I had to add in the word ‘proper’ to really finish the list off.  Unfortunately, so many people hire a so-called financial planner but they don’t get proper planner.  I see planners all the time gloss over a lot of the things I just listed.  Maybe this will work as a guideline to help you make sure you are working with a good planner.  Did he/she cover everyone of these areas?

Related posts:

1. 401k, God or Devil?
2. Your 403b Could Be Detrimental To Your Pension
3. Retirement Denial?

I have a dilemma and I need your advice.

I’ve talked to two people in the past week that called me because they want life insurance.  That’s always a good thing right?  Well my first question is always, why?  Then I sit back and listen.  Nobody buys insurance for no reason.  Almost always there is some social psychology change that took place.  The other few times it’s because someone important to them told them to.

I usually follow the why question with, are you sure you need life insurance?  To be honest, I do this to differentiate myself.  What other insurance guy ever asks if they really need it?  You might think that this might cost me money or a sale.  Well it has, but it also saved me a lot of time.  I figure if someone can’t convince me that they need and want life insurance then they definitely aren’t convinced.  If they’re not convinced then they are never actually going to make the effort or spend the money.

Sorry I got sidetracked.  The reason I’m telling you about these two people is because neither one of them has any insurance at all.  Couple A is in their early thirties with a young kid and another on the way.  Couple B is in their early forties with one kid in their freshman year in college.

When I come across someone with no insurance I handle things a little differently.  If they have the want and need then I look to get them some coverage as soon as possible.  The way I do this is to start the underwriting process as soon as possible.  You might not know this but if you put down one month’s premium you are covered through the underwriting process as long as you haven’t had a major health problem (heart attack, cancer, stroke, etc). 

What I do is let them know that we are in no way locking into anything we are instead getting coverage quickly since they don’t have any.  What we are doing is gathering all their medical information under one company.  As we go through our own process of determining the best coverage, the insurance company will be doing their work of gathering the information into one bundle.  Once we have the bundle of information it becomes easy to forward it to the best company for what you want to accomplish.  The company is the last thing to determine and is usually pretty much determined for us as we figure out the best insurance for your situation.

I had this conversation with both couple A and couple B.  I’ll tell you one of them just sort of passed.  The other couple said that is a great idea, let’s get started right away.  Guess which is which?  That’s my dilemma.  Usually when I suggest this people will go along with it for whatever reason.  I just feel more comfortable because I don’ t want something to happen and have it be too late.  You know what I mean.

It was couple A that passed.  They had life insurance in the past, when they moved they let it lapse.  I was amazed that they passed on being covered as quickly as possible.  Worse is I don’t know if I really want to work with them anymore.  We have very different values.  They gave me an idea of their full financial situation and they know they need the insurance.  From a professional standpoint, they need a lot more than just life insurance but it’s a great start.  A step in the right direction.

My Question To You

What do I do?  How should I handle this?  I will usually pass on working with someone if I feel that we have different values.  I don’t need the commission check or anything like that.  However, these people need my help.  I could always introduce them to another insurance agent I do some work with that will handle the policy for them?  What do you think?

No related posts.

Have you read Seth Godin‘s What you buy when you buy a lottery ticket?  You should.  Actually, go read it so that my post makes more sense to you.

As I read it it made me think about investing.  Is it similar to the lottery for people?  Do you think people invest to get rich or just for the thrill?  The biggest differentiator may be that with the lottery you expect to lose and with investing people expect gains.  You don’t really expect to get rich in either event but that is the ultimate hope and dream right?

The lottery is just a random drawing of numbers.  No one wins those things.  So you throw a few dollars at it in hopes of a miracle but expecting nothing.  You could even argue that the best thing for the lottery are the smaller prizes.  How many times have you won $2, $5 or $10 on a scratch off ticket and just used it to buy more tickets.  You want to continue the journey and feel that thrill again.  The small prizes make you play more.  They show you the possibilities.  It’s a taste of the thrill.  It keeps you playing.  And the best part is this time it doesn’t feel like you’re spending money because it’s winnings going back in.

Investing might be more corrosive.  You play with larger amounts of money.  You have more of a feeling of control.  Especially since you are picking which companies or people to invest in.  You do your research and there is no reason you won’t make money, hell, with a little luck you might get rich.  Are people disciplined enough for this?  How is it that the average investor continues to trail the market badly?  Is it the “thrill of possibility”?

Unfortunately, most people don’t have a full understanding of the market.  Even the money managers aren’t right all the time.  The Bogleheads tell us that you can’t beat the market in the long run.  So do you try just for the thrill?  Is it the short-term wins that keep you investing?

Maybe this conversation should be reserved for penny stocks or small caps.  Isn’t that more similar to the lottery?  A lot less expectations, a better chance of losing it all.  What if they aren’t doing it for the money but for the chance that it will pay off bigtime?

Related posts:

1. Seth Godin Right Again.
2. Ahead of Chris Brogan, Seth Godin and Mark Cuban?

Well if you hadn’t heard about Baker and Man Vs Debt then you probably aren’t involved in social media.  He is probably one of the most popular topics right now in regards to personal finance in social media.  He is doing a great job with his blog, that I believe he said is just over six months old.  The reason I’m telling you this is not only because, from the comments I’ve been reading, he’s been affecting a lot of people’s lives but also because he is the inspiration behind this post.  Before I continue, go read Would You Rather Be Fat or In Debt? It is a great post and there is a lot to learn from all the comments he’s collected.

Financial Independence

So as I read his post I couldn’t help but think about financial independence.  For me financial independence means maximizing choices and minimizing risk and loss.  What most people might consider the biggest factor (I don’t) in your financial independence is how much money you have for retirement.  The three main factors for this are the amount you invest, time and rate of return.

What about your health independence?

Is there such a think?  There is now.  So your health independence would be maximizing choices and minimizing risk and loss.  You want to be able to choose to do what you want to do.  Unfortunately, there seems to be a lot of people out there that don’t get around well.  I don’t just mean old people but younger ones as well that have difficulty with mobility.  Their choices are limited by their health.  You also need to minimize risk and loss.  This is a little more self explanatory and is about controlling the bad things that being unhealthy can lead to such as health issues and costs, illness, disease and death, to name a few.  I’m sure you can think of or might have experienced more.

The main way people determine how healthy they are seems to be based on three factors: diet, exercise and weight.  Now something might jump out at you right away as it did me.  You only really control two of these factors, diet and exercise.  The third, weight,  is determined by an outside force.  This relates to the factors for money.  Two of which you can control (amount invested and time) and then a third that is determined by an outside force (rate of return).

Why do people seem to fixate on the two things they can’t control the most?

Weight and rate of return are just numbers.  By themselves they mean nothing but are most commonly used as a frame of reference.  Think about it.  Just because two people weigh 200 lbs doesn’t determine how healthy they are.  One could be grossly obese while the other could be extremely thin and malnutritioned.  The number by itself means absolutely nothing, just as rate of return does.  Just because someone is getting a 10% rate of return doesn’t determine their wealth.  You might work hard to try and figure out how to have some control over these numbers but in the end it’s probably more of an illusion.

At any time it seems as though the stock market can go up down or any which way.  I think we’ve all experienced that.  How many people have experienced this with their weight?  I actually have experienced that recently as well.  Over the last few months I’ve lost 20 lbs or so and I wasn’t even trying.  I have exercised about the same and didn’t consciously change my eating habits.  I think I just decided that I wanted to weigh closer to 200 lbs.  At first I was started to worry a bit but since my weight has leveled out.  I’ll just keep an eye on it.

To give you some background, my highest weight was around 245 lbs give or take.  This was when I played football in college and was during the winter.  I didn’t once consider myself fat.  I was putting on muscle at the time, that was my goal.  The opposite might have been my senior year of college when I was trying to keep my weight down during the football season in an attempt to be faster.  Since college, I’ve consistently weighed around 220 lbs give or take, until now.

Do these numbers mean anything to you?

What if I told you I got a 10% rate or return?  In 2008 you would have thought I was God but in 2009 you would feel bad for me.  I just gave you a bunch of numbers about my weight but you get no real context without knowing me and my situation.  You can’t determine how healthy I am from my weight alone.  Just like you can’t determine someone’s wealth from the rate of return they get.  Stop chasing a number.

The numbers will come.

It’s Field of Dreams all over, “if you build it they will come”.  Think of the movie.  He went against what people said, the popular way of doing things and even went against his family’s wishes a bit but I think it was worth it for him in the end.  It’s hard to change but once you do things get easier.  Make it a habit to just eat a bit healthier.  Start by cutting out excess eating or spending and fatty foods or luxury items.  Then start exercising.  Maybe you go for a walk or open a savings account.  When the time is right talk with a personal trainer or a financial planner.  The best part is if you start exercising NOW and your start saving NOW you really don’t have to be quite as picky with your eating or save quite as much.  It will definitely help if you do but it’s not as detrimental.  What are you going to change today?

Don’t forget to follow my feed and me on twitter.

No related posts.

Yesterday I asked the question, Bob or Jim?

Make sure you read that post so you can be up to speed on where we are.  I’ll give you a short synopsis.  So Bob and Jim are neighbors that moved in together in 1997.  They both paid the same amount for their house($250,000) and both had 10% down so ended up with the same mortgage($225,000, 30-year fixed rate at 8%).  The difference is that Bob wants to pay down his house and Jim wants to build his savings.  They each have an extra $350 per month to do something with.  Jim starts saving all of it.

So fast forward to 2008.  To continue where we left off Bob and Jim were both victims of the economy.  Both out of work for an extended period of time.  Things were getting worse.  Tightening budgets and they couldn’t pay their mortgages.  If you want to make it even worse you can say they are both in a car accident while driving back from the unemployment office.  Just as their unemployment ran out, they where broadsided at a light.  Back injuries and their laid up for a long while.  Neither had disability because they lost their insurance when they lost their job.  (Most people don’t realize a proper individual disability policy will pay out even if you lose your job)

So what are they to do?  Bob thinks how he is good friends with Paul down at the bank who he got his original mortgage with and his refinance.  He’s built up all this equity.  He can tap that in the meantime and it will help him until the economy recovers or his back gets better.  So he goes to see Paul.  Paul can’t help though.  The bank has tightened lending and Bob had no income.  He can’t prove to the bank that he can pay that loan back.  The bank says no.  All Bob’s money is in the house.

Jim, however, had been saving money outside of his house.  Yes he owed more on his mortgage but he had built up some money that he could access.  It turns out that he had about $100,500 saved in his side account.  He could access this money until he could get back on his feet.  Or maybe the bank would at least talk with him to work something out since he had some assets to offset his liabilities.

In fact, Jim wasn’t too bad off.  He had a mortgage for $193,000 but a savings of $100,500 so his balance sheet would show him $92,500 in debt.  If your remember Bob still owed $80,000 on his mortgage with no savings.  Who would you rather be?  Which is in a better situation? 

How about scenario B…Jim takes out an extra $100,000 when he does his refi in 2003.  The he would have a mortgage of $284,000 but savings of about $200,000.  Does this change your decision in the first part?  Why does it change things?

To Be Continued…

I bet you can’t wait for Bob or Jim? The Final Chapter

Related posts:

1. Bob or Jim? The Final Chapter
2. Bob or Jim?
3. Your Mortgage: When 30 beats 15

It was 12 years ago that Bob met Jim, they were both 35 at the time.  See back in 1997 they just happened to be moving into their new houses on the same day.  It turns out they were moving in right next door to each other.  They had each just bought a brand new house in a fairly new neighborhood.  To tell you the truth it was one of those neighborhoods where all the houses kind of looked a like; same design, same amenities.

They both had recently been married and were raising their families in their new house.  As they got to know each other and their families became friends it turned out that they both paid $250,000 for their houses.  They both put 10% down and then started paying away.  The difference is that Bob wanted to pay his house off as soon as possible and Jim wanted to save money, inside and outside of retirement.

Well when they had moved in they were both sales people.  They were both making $65,000 a year which was good money at that time and things were good.  They were both contributing 6% to their 401ks respectively.  Another difference arose.  Since Jim wanted to build his savings he was saving $350 a month outside of his 401k.  Bob on the other hand, wanted to pay his house off.  So he paid an extra $350 per month on his mortgage.

In 2003, mortgage rates dropped.  Both Bob and Jim headed to the bank.  They were paying 8% interest on their original 30-year loans so this could save them a lot of money.  Jim, who had not been paying extra on his mortgage, still owed $212,000 but by cutting his interest rate to 5.5% he was able to cut his payment from $1,651 per month to $1,204 freeing up an extra $450 per month for him to save.  Bob had been paying extra to his mortgage and only owed $180,000.  He went with a 15 year mortgage at 5%.  This cut his payment from $1,651 to $1,425 and then put the $230 savings and put that towards the mortgage as well.

Now it’s 2008.  Both Bob and Jim advanced in their careers and are now sales managers making six figures per year.  Unfortunately, they both got laid off and they couldn’t make their mortgage payments.  At this point Bob only owes $80,000 on his mortgage while Jim owes $193,000.  The bank is knocking on their door.  Bob says ‘I have all this equity’ and goes to refinance.  The bank says you don’t have a job so the bank says no.

Let’s imagine they are the same exact financial situation.  No job, horrible economy, lending is tightening.  Things are going bad fast and getting worse.  Remember last year?  Which house will the bank foreclose on first?  Bob’s owing $80,000 on a $400,000 house or Jim’s owing $193,000 on a $400,000 house?  Banks are businesses remember out to make money.  Which can they make money off of the quickest?  What if we went one step further and said Jim took $100,000 out of the home when he did the refi in 2003.  Now he owes $290,000.  Does that change things? 

To Be Continued…

Continuing your reading with Bob or Jim? Part II

Or skip ahead to Bob or Jim? The Final Chapter

Related posts:

1. Bob or Jim? Part II
2. Bob or Jim? The Final Chapter
3. Saving $71,000 in mortgage interest continued…

Apple might be the leader in this department.  Maybe it’s their iPhone or iPod or iMac, you get the picture.  Apple seems to be all the rage now.  They’re cutting edge right?  They make me think of a huge question.  How much are you going to spend in the next year to keep up with the pace at which technology is changing?

It costs money to keep up with technology.  Earlier this year they got rid of analog television.  What that meant was that if you had an old TV you needed to either get a special converter box or get a new TV, more money to spend.

The fact of the matter is that if you don’t spend money on new technologies just to look good, you’ll probably end up doing it to increase functionality.  Life gets easier, faster, better with these new technologies.  Faster internet allows you to search, find and access information faster than ever before.  Faster computers allow you to multitask and get things done.  Anyone in social media today is probably running at least 3 programs at any one time and one of them is a web browser that might have another 4 plus tabs open.  Right now I’m running TweetDeck, Outlook, Word and IE.  Then in Internet Explorer I have 3 tabs open and that’s on the low side for me.  I need a computer that can handle this, you probably do to.

Then your spouse needs one too.  Oh yeah, and don’t forget the kids.  Maybe it’s the newest cell phone.  There’s a reason that the iPhone does so well with their apps.  It makes life easier.  “There’s an app for that” It’s the slogan for a reason.  It isn’t even about luxuries anymore for a lot of people.  Do you need a Smartphone for work?  Maybe a Blackberry?  More and more jobs are requiring this of people.  They want to be able to move information as fast as possible.  Truth be told, you need to keep up or get left behind.

So how do you account for the new TV, computer, cell phone or netbook?  You need to budget for it.  Does this money come out of your emergency fund?  I don’t know, do you?  How do you calculate your emergency fund?  Based on expenses or spending?  If it’s expenses is it fixed or fluctuating or some combinations of the two?  You might just need to boost your emergency fund to account for technological change or maybe you need a new fund.  Did your financial planner mention it?  Is he accounting for it?  Better make sure someone is.

Related posts:

1. Social Psychological Change

Have you been following along?  In our attempt to dispel myths surrounding retirement savings and how it affects your taxes, I think we’ve learned a lot.  Have you learned some new things?  What has been your favorite so far?

Let’s look more closely.  We have learned how the Traditional 401k and Roth 401k work.  We have also taken a look at what it says in your enrollment booklet.  A lot of those booklets mention tax savings that we have been looking for all along.  We just can’t seem to find it yet. 

In episode I: Tax Savings, Where’s That?, we saw that even if we save the money we don’t have to pay in taxes it probably won’t be enough to offset the taxes we will have to pay later.

Then in episode II: Tax Savings, It’s In The Paycheck?, we saw that saving money pre-tax versus after-tax doesn’t mean you have more spendable income.

In the last reading, episode III: Tax Savings, Advantage Over The Roth?, we saw that, all things being equal, the Traditional 401k equals the Roth 401k in the long run.

With all these things what questions are left?  One question you might have is that in episode I we demonstrated what happens if you save the supposed tax savings.  Well where is that accounted for in episode III?  You might even argue that your better off with the scenario in episode I because you’d have the extra $17,000.  The problem is that all things aren’t equal between the two.  See in episode II we established equal spendable incomes.  Between I and III we have two different spendable incomes so these aren’t apples to apples.

What we are left with is that everything being equal, apples to apples, all things are the same.  So it’s the almighty question, if you change the variables how does it affect the scenarios?  Let’s look at it.

Taxes are probably the easiest one.  If you think that taxes will go up in the future then it is more beneficial to contribute to a Roth.  It’s taxed at today’s rates.  Does anyone believe that taxes will be more favorable in the future?

The other main thing to look at is distribution regulations.  The Roth has the definite advantage here.  The biggest thing is not having to take withdrawals after the age of 70½.  This allows your money to continue to benefit from tax-deferred growth.  There can also be more flexibility with early access of a Roth account, definitely an IRA and depending on plan documents, a Roth 401k, as you may have access to the contributions at anytime.

Now that we’ve looked at some fallacies surrounding your Traditional 401k, has it changed your opinions at all?  Is it going to change your behavior?  You need to ask yourself where do you want to be in retirement.  Is your goal to live off less money?  Chances are you will have a lot less tax deductions, if any.  There seems to be a trend of taking those away from taxpayers, don’t you think?  Maybe you’ll have less expenses, pay off the mortgage?  Or maybe you’ll have higher expenses trying to keep up with health care or your hobbies?  I mean you need something to pass the time that you previously spent working and if it’s not making money then it just might be spending it, right?

Related posts:

1. Tax Savings, Advantage Over The Roth?
2. Tax Savings, It's In The Paycheck?
3. Tax Savings, Where's That?