Expert Interview with Pamela Yellen on Saving for Retirement for Mint

When we asked Pamela Yellen what she thought Americans could be doing better when it comes to saving for their retirement, her response was blunt.

"Americans have been seduced by Wall Street into believing they must risk their money in order to grow a sizeable nest egg. It's simply not true," she says. "The only thing Wall Street guarantees is that they get paid whether we win or lose."

To address her frustrations with traditional retirement investing, Pamela created Bank On Yourself, a program that instructs individuals how to use whole life insurance policies to manage their finances.

Here, the financial investigator and the author of two New York Times best-selling books, including her latest, The Bank On Yourself Revolution: Fire Your Banker, Bypass Wall Street, and Take Control of Your Own Financial Future, shares more about her program and offers her thoughts on how Americans can start taking control of their financial futures.

What is Bank On Yourself? How does it work?

Bank On Yourself is a time-tested way for people to bypass banks and Wall Street to grow wealth safely and take control of their financial future. The strategy lets people bank on themselves - their own effort, resources and good sense - for their financial security, rather than the government or an employer.

The Bank On Yourself wealth-building method relies on a little-known twist on a financial asset that's increased in value every single year for more than 160 years - including during every recession and even during the Great Depression: dividend-paying whole life insurance.

But it's important to note that this type of policy is nothing like the whole life policies Suze Orman, Dave Ramsey and other finance experts love to hate. The policies used for the Bank On Yourself method have riders or options added on to them that grow your cash value significantly faster and pay the insurance agent 50-70 percent less commission. And you can use them as a powerful financial management tool right from the start to fire your banker, bypass Wall Street, and enjoy financial security for life.

How does Bank On Yourself's philosophy on money management differ from that of conventional financial planners?

Conventional money management is based on the "hope and pray" method of financial planning. You have no clue how much money you'll have in your retirement account when you're ready to tap into it. There are no guarantees you'll have a specific amount at any point in time, which leads to a lifetime of financial insecurity and stress.

Market crashes have wiped out 49 percent or more of the typical investor's life savings - twice - just since the year 2000. Then you need a 100 percent increase just to get back to where you were. And that doesn't even account for inflation.

When a major crash happens within 10-15 years of your retirement, it's virtually impossible to fully recover, which is why the statistics are so dismal. The National Retirement Risk Index shows that half of today's working families are at risk of not being able to maintain their standard of living once they retire.

Really, what more proof do we need to know that conventional retirement and financial planning doesn't work?

How can people put Bank On Yourself practices to use in different areas of their financial life?

One advantage of the Bank On Yourself method that people really love is using their plan to become their own source of financing for cars, vacations, a college education, business expenses and other major purchases.

As Mark Twain wryly noted, "A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain."

If you make your major purchases the traditional way (financing, leasing or directly paying cash), your money is gone forever,other than the potential asset value of something like your car. However, when you save up in a Bank On Yourself policy, your money is safe, liquid, tax-advantaged and growing by a guaranteed and predictable amount every year. And it can continue growing, even while you're using it to make purchases.

Let me repeat that: A dollar you spend is gone forever. But a dollar you save in our Bank On Yourself policy first, then use for major purchases, continues compounding and growing exponentially for as long as you have your policy. And that happens whether you use your dollars one time or a hundred times. It solves the problem of having to constantly interrupt the growth of your money when you spend it or invest it elsewhere.

It should be noted that only a handful of life insurance companies offer policies that have the feature of paying you the exact same guaranteed growth and dividends on the money you've borrowed as though you had never touched the money.

Another popular way people use Bank On Yourself is as a safe and predictable alternative to conventional retirement plans, such as 401(k)s, IRAs, etc. It provides you with an unbeatable combination of predictability, control, liquidity and tax advantages.

Most people don't realize how restrictive government-approved retirement plans are until they want access to their money. They then discover those plans have more strings attached to them than Pinocchio before he became a real boy.

What are the biggest frustrations or concerns your clients come to you with?

Certainly the biggest frustration people come to us with is that when they actually go back and dig out their investment account statements and subtract the contributions they made and any employer match (something surprisingly few people do!), they realize that they worked really, really hard for decades to wind up with...not very much at all, other than a lot of sleepless nights.

They may be within 10-20 years of their hoped-for retirement date and realize that they can't continue to follow the conventional wisdom. They're searching for a more predictable way, and that leads them to us.

Another big challenge is financial stress caused by a lack of safe and liquid savings that can help you weather whatever challenges life throws at you.

The conventional wisdom is that you should have a rainy-day fund equal to three to six months of your household income, but that's not nearly enough, as people discovered during the last Recession.

We advise having a liquid emergency fund equal to two years of your income. One great thing about using a Bank On Yourself-type policy for that is that the growth has historically beaten savings and money market accounts and CDs, but without the risk or volatility of traditional investments.

What do you think are some of the biggest misconceptions about saving for retirement?

Many people do not understand or think about the difference between saving and investing. To save means to place money you can't afford to lose in a vehicle that is safe and has guaranteed growth. You are certain your money will be there when you need it. In contrast, to invest means to place money in a financial vehicle or an asset that has a certain amount of risk. You hopeto make a gain, but it's not guaranteed. In fact, you might even lose your original investment money.

The only money you should invest is money you can afford to lose - or money that you're able to let languish in the market for at least 20 years, if necessary, until it recovers.

What sorts of questions do you think we should be asking ourselves when investing money or enlisting the help of someone else to invest it?

The most important question to ask yourself is: Do you know what your nest egg will be worth (not what you hope it will be worth) on the day you plan to tap into it? If you don't, you don't have a plan.

The most important questions to ask an advisor or money manager are: Can you tell me what my nest egg will be worth when I'm ready to tap into it? And will you give me a money-back guarantee if you don't hit that number?

In what ways can and should we be taking more ownership of how we put our money to work?

It's helpful to keep in mind that we are ultimately responsible for ensuring the financial security of our family. Not the banks. Not Wall Street. Not the government. And not an employer. We just have to look beyond the conventional wisdom to do that.

How do you think the way Americans save for retirement will change in the next 10 years? What will stay the same?

Unfortunately, I think a lot will stay the same. Many people will be lulled into a false sense of security, due to rising stock and real estate markets. And then they will wonder how they could have allowed themselves to be fooled again when the next market crash comes.

But others will have truly learned the difference between saving and investing...paper profits and real wealth...and the value of having a substantial rainy-day fund.

It's my mission to continue to fight the good fight and educate Americans about the ways they can take back control of their financial future and enjoy true financial security and independence for life.

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