Hello,
This is the 2nd shark attack and the repellant in this series.
Exception: Fee-only financial advisors who charge an out-of-pocket hourly fee and sign a fiduciary oath are NOT sharks.
I have tons of insurance.
Just like everybody, I insure my house, two autos, have umbrella and earthquake insurance, and happy to pay premiums. That’s what insurance is for. When the insurance industry entered the retirement business, the only mission is to keep your money safe from stock and bond market declines, that’s all! But what they do is to exploit people’s fear of stocks. What you and I should be afraid of is our homes catching fire, getting into a car accident, as well as theft, earthquake, and personal liability, but not the stock market.
The fear of stocks and bonds has always been way overblown and that fear costs big time. The price is so high, that you don’t know how costly because the statements the insurance company provides are always a hideously tiny increase in your money, never a decline. Insurance products have pathetic returns for a very good reason.
They must be pathetic because when the stock market declines, the insurance company must have the money to keep your account above water. However, eventually, the insurance company makes a ton of money off your money. Over the course of a working career, the annuitant never realizes the total stock returns which average about 9.5% since the 1920s. The 1%, 2% or 3% is ridiculously low returns which will not keep pace with the inflation. That’s the devastating price of insurance products. In the meantime, the insurance agent makes a commission and takes a tiny piece of your money for years (according to the contract you sign). The “shark” keeps eating away at your money for years.
The debate between insurance contracts (aka annuities) versus investing directly in the stock and bond markets have been around for years.
It boils down to a very simple analogy. Which is the better long-term investment, renting or owning a house? An insurance annuity is like renting. You don’t own anything. All you have is a contract, but the insurance company has your money, and they call all the shots. They can “adjust” the credit given to you every year at their will, according to their complicated contract. Speaking of contracts, there are thousands of distinct types of annuity contracts, and they are all overly complicated, if impossible to comprehend.
When purchasing a house or stocks, you own real estate and part of a corporation, respectively.
When you purchase a share of a broadly diverse index fund, you own hundreds of companies. Only insurance company agents come to your business or workplace to sell you a contract. Fiduciary fee-only financial advisors who charge by the hour will not approach you to sell you something. When you find a genuine fiduciary, fee-only, financial adviser, they have taken an oath by signing a fiduciary oath to look after your best interests. What that means is that they will not sell you an insurance product or commission-based stock mutual funds which will give them a commission.
But all you have to remember is the difference between a shark attack and its repellent in the following table. Just remember what insurance is for, but most important, what it’s not for.
[table id=5 /]
Steve’s Late Bloomer Wealth Bio
Stephen A. Schullo, Ph.D. (UCLA ’96) taught in the Los Angeles Unified School District (LAUSD) for 24 years and UCLA Extension teaching educational technology to student teachers. Steve wrote investment articles for the United Teacher-Los Angeles (UTLA) union newspaper for 13 years. He has been featured and quoted in many mainstream media articles about 403(b) plans, including the Los Angeles Times, NY Times, and U.S. News and World Report. He co-founded an investor self-help group 403bAware for teacher colleagues and wrote 7,500 posts in three investment forums since 1997. He testified at California State legislative hearings and honored with the “Unsung Hero” award by his teacher’s union for his retirement planning advocacy.
For the last 14 years, he serves as a volunteer on LAUSD’s Investment Advisory Committee as a “Member-at-Large” and former co-chair. The committee contains collective bargaining reps from the unions and monitors the district’s tax-deferred retirement plans, 457b/403b, of 55,000 former and current LAUSD employees, worth $2.8 billion in total assets.
He started this blog in 2012 to help all PreK-12 public school educators nationwide, especially his Los Angeles Unified School District colleagues. He belongs to a small national group of 403(b) advocates (mostly teachers) who want to bring closer attention to the 403(b). During the last 25 years, 38 newspaper articles have been published and each one says the same thing, TSAs (Tax Sheltered Annuities) are terrible 403(b) plans and the salesperson gets the benefit from lucrative commissions and high costs. Nobody in educational leadership reads these articles NOR talk about the proper place for annuity products publically. We come together at 403bwise.com and 403bwise Facebook page https://www.facebook.com/groups/349968819000560/ Come on over if you want to join us so we can help our colleagues avoid these shark-infested, self-conflicted and high-cost Tax-sheltered Annuities (TSAs).
Steve is the author of two books, Late Bloomer Millionaires and Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN!, a story of how a handful of LAUSD educators struggled for years to improve the 403(b) to no avail. But we never quit! We were instrumental in LAUSD’s implementation of the new 457(b) plan and earned a very rare, but very precious “Plan Design” award.
For a copy of both books, email Steve at steve.schullo@latebloomerwealth.com and he will happily email you both books, FREE with no obligation except to read them and get informed, in a pdf file format.