Today’s Prep:

Join us for a game of Agree or Disagree. Discover whether Eric agrees with popular statements about finances and retirement planning.

(Click the featured times below to jump forward in the episode)

Equipping Points:

[1:08] – Agree Or Disagree: You Should Always Pay Off Your House ASAP.

• You could really go either way with that argument. If you’re sacrificing your savings just to pay off your mortgage, we would disagree with that. We do agree that having no debt is the best policy, but if you’re going to have debt, mortgage debt is better debt to have. Furthermore, if your house is paid off, then your money is tied up in your house. You want be able to get it unless you sell your house. Therefore, if you’re paying yourself first and saving, then by all means, pay the house off ASAP. However, don’t sacrifice your retirement along the way.

[4:45] – Agree Or Disagree: Individual Bonds Are Better Than Bond Funds. 

• We absolutely agree with that statement. Bonds are a diversification tool because you tend to use them as you approach retirement in order to wean off your risk in the stock market. However, there’s a huge difference between owning a bond and a bond fund. When you own a bond, you’re not particularly concerned with changes in interest rates as you’re going to hold that bond until maturity, get back your initial investment, and collect the interest along the way. However, bond funds contain hundreds if not thousands of bonds. Every time interests rates change, the prices change inside that fund. Especially if interest rates are rising, you could lose value in that bond fund.

[8:25] – Agree Or Disagree: You Don’t Need Life Insurance Once You Retire. 

• We’ll put this one somewhere in between agree and disagree. You probably don’t need life insurance for the reasons you bought it while you were working. While you’re working, you buy life insurance in order to pay your bills and your mortgage if something happens to you. However, by the time you retire, you’ve hopefully accumulated some money. You should be prepared to enter permanent unemployment and replace your income with your savings. In that situation, you would no longer need life insurance as an income replacement. However, you could continue to use life insurance as a tax-free asset. While you won’t need it as an income replacement, it could become a useful tool for tax arbitrage.

Other Preparation:

• [7:43] – Agree Or Disagree: Rates Are Low, Bonds Grow. Rates Are High, Bonds Die.
• [11:23] – Agree Or Disagree: Are Annuities A Ripoff?
• [14:55] – Agree Or Disagree: Differ Taxes Now, And Pay Them Later.

Today’s Takeaway: