I was asked to speak about Financial Empowerment for Men at the Infinity Diamond Club’s We are One conference in Durham. While a lot of the discussion focused on different kinds of finances, we also laid out the basics of a good life and estate plan. As we went through different topics, I was struck by the big misconceptions out there regarding finances and what we are “supposed to do” for retirement and, eventually, inheritance.

When it comes to finances for retirement, there is a large misconception that the best way to save for retirement is to max out your 401k and keep other investments in the stock market until the day you retire. Then, to provide more financial security, some or all of the stocks are liquidated and put in bank CDs and the 401k is rolled over into an Individual Retirement Account. This strategy is widespread, and it fails to address numerous financial possibilities. For example:

  • 401ks are for the company you are currently working at. If you have moved to another job, it is wise to roll your 401k into an IRA because you now have control over the investments. While many more employers are giving their employees some degree of control over their 401k investments, the Enron debacle wasn’t THAT long ago. What happened is Enron invested their employee’s funds almost exclusively in Enron stock. Then when the top executives sold off their stock and created a downward spiral for the rest of the stock, the employees lost everything. So while it is generally a good idea to invest in the company 401k to the point it’s matched by the company, it might be a good idea to invest other monies elsewhere or move the 401k when you’re not contributing to it anymore.
  • IRAs are neither in the market or out of it. An IRA is merely an investment account with certain tax advantages. But just because it is no longer in a 401k does not mean it is somehow safer. An IRA can hold just about any legal investment, so the investments inside an IRA should be structured with the proper risk to security ratio you want. For most people, this means the closer they are to retirement the more they want the IRA assets to be secure and certain.
  • Bank CDs are not the only secure investments. A bank CD is nothing more than a contract with a bank. They’ll take your money, provide a certain rate of interest based on how long they get to keep your money, and then they pay you the principal plus interest when the time is up. Unfortunately, many bank CD rates are topped out around 0.3 percent these days. So more and more of my clients are looking at annuity contracts as an alternative. Certain annuities can get interest anywhere from 3% (possibly less) to 8% (possibly more) depending on how long the money is held and some other factors. If you are willing to tie up the money for 5, 7 or even 10 years, you can get a lot more in interest compared to bank CDs. And, depending on the contract with the annuity company, you may be able take out money over time without penalties. There are many ten-year annuities that will let you take out 10% each year and which accumulates. So if in year 9 you want to take money out to put somewhere else, you can take up to 90% out without penalties. There are also different kinds of annuities, but that is probably best left to another article.
  • Having a partner inherit your assets without probate is not best served by “putting your partner’s name on” the deed to your house and your accounts or by just using a Last Will and Testament. In many cases, putting your partner on an asset as “joint with a right of survivorship would lead to unnecessary gift taxes and other issues that could be avoided by using the Partner AB-SECURE Trust designed specifically for domestic partners. As for the probate issue, using a Last Will and Testament means that your assets would have to go through probate before they go to your partner, which could be expensive and time consuming. And a Will does nothing to give your partner control in the event of sickness… only in the event of death. In terms of empowerment for domestic partner couples, a Partner AB-SECURE Trust in combination with a healthcare power of attorney and financial power of attorney can alleviate probate and control problems in the event of death or sickness.

For some, these items are not huge revelations, but to others they may simply have never considered them before. There is a saying that knowledge is power. Actually, applied knowledge is power, so if you need more information on these or other subjects, seek out professionals who can help.