Financial Success Secret

Written by Mary Welch Tuesday, September 07 2010

Pamela Yellen is an author and financial security consultant who believes Americans shouldn't have to put up with risk and volatility to achieve their financial goals. She is founder and president of Bank On Yourself and author of BANK ON YOURSELF The Life-Changing Secret to Growing and Protecting Your Financial Future.

Her recommended path to financial security is a dividend-paying whole life insurance policy.

She graduated from the University of San Francisco with a degree in psychology, and she lives outside of Santa Fe, N.M., with her husband. Yellen donates 10 percent of all royalties from her latest book to charities.

Womenetics: Tell us about your background.
Pamela Yellen: For the past two decades, I've been a consultant to financial advisers.

They were always bringing to my attention financial products and strategies they thought were effective. I was curious about them because my husband and I had been investing in stocks, real estate, and other things since 1987, but had never come close to getting the kind of returns the financial experts kept saying you should be able to get.

I ended up investigating more than 450 different financial products and strategies – and most turned out to be worthless. Only a handful passed my due diligence tests, and even those turned out to be disappointments after we implemented them. We lost every penny and then some in the "best" strategy of the bunch – it was a six-figure loss.
I was fortunate to finally stumble across a proven 100-year-old strategy that I call Bank On Yourself, which has helped hundreds of thousands of people grow a sizable nest egg, safely and predictably – without the risk or volatility of stocks, real estate, and other investments.

Womenetics: What is Bank On Yourself?
Yellen: It's a twist on an asset class that has increased in value during every stock market decline and every period of economic boom and bust for more than a century – dividend-paying whole life insurance. These policies grow by a guaranteed and preset amount every year. In addition, the growth is exponential, meaning it gets more efficient every single year you have the policy – with no luck, skill, or guesswork required.

Furthermore, there are little-known options that can be added to the policy which turbo-charge the growth of your equity. These are known as Bank On Yourself-type policies.

They give you peace of mind for retirement planning because you'll know the minimum guaranteed income you can take in retirement and for how long you can take it. Plus, it's possible to take retirement income from these policies with little or no tax consequences, under current tax law.

Womenetics: How can it help American families achieve financial security?
Yellen: A Bank On Yourself policy statement is the one account statement you'll always look forward to opening because it always has good news and never any ugly surprises.

In addition to providing you with a guaranteed and predictable income in retirement, it gives you a solid financial foundation.

Wall Street and the financial planning industry have led us to believe that saving and investing are the same thing. However, they are not. The money you have in savings is money you don't want (or can't afford) to lose. Money you invest is subject to loss.

Most people today invest to save, and as a result have no idea what their nest egg will be worth when they hope or plan to tap into it.

When you use the Bank On Yourself method, you have the financial security that comes with having an emergency fund you can easily tap into when life throws you a curve ball.
Womenetics: What are the myths and realities about whole life insurance?
Yellen: Most experts who tell you to avoid whole life policies have never even heard of the kind of policy used for Bank On Yourself. They are not talking about dividend-paying policies, and they're definitely not talking about policies that incorporate the riders that significantly accelerate the cash value of your policy.

I have challenged Suze Orman, Dave Ramsey, and other financial experts to a debate – I've even posted copies of my own policy statements that prove that these policies are totally different from the kind they talk about.

Womenetics: Why is Bank On Yourself inflation-proof and immune to stock and real estate market fluctuations?
Yellen: As I mentioned earlier, the growth curve in these policies is exponential – it gets steeper every year, which means it's the most efficient at the time you need it most – retirement. Also, your premium stays level, which means you're paying it with cheaper dollars every year.

Once credited to your policy, both your guaranteed annual increase, plus any dividends you may receive are locked in. They don't vanish due to a market correction.

Life insurance companies are legally required to invest very conservatively and to maintain sufficient reserves to pay future claims. And a five-layer safety net exists to protect policyholders.

Womenetics: You say that businesses can self-finance instead of going to banks. How is that possible?
Yellen: Business and consumers can do that, and it's been a real boon to them as the credit crunch continues. You can borrow the equity or cash value in the policy any time you want, and for whatever you want, by answering just one question: How much do you want? No prying applications to fill out, no begging, and no pledging your first born.

You have the added benefit of being able to set your own repayment schedule, and if you need to reduce or skip some payments, you can do that.

What's interesting is that a few companies offer a policy that lets you borrow your cash value and continue earning the same dividends as though you never touched a dime of it. And while you do pay interest on policy loans, that interest ultimately ends up back in your policy.

Womenetics: Many Americans have used up their savings over the past few years. What should these middle Americans – who are essentially starting from scratch – do to begin building a nest egg?
Yellen: They have to keep in mind the classic definition of insanity when it comes to their financial plan – continuing to do the same thing with an expectation of different results.

They need to understand the difference between saving and investing. Investing is gambling – pure and simple. It's not something you should be doing until you've built up a solid financial foundation.

And they shouldn’t wait to eliminate debt before increasing their savings. A good financial adviser can show them how to do both simultaneously.

Womenetics: Your books have done very well. Why are people so interested in financial self-help books?
Yellen: Studies have consistently shown that 80 percent of all financial advisers, advisory services, money managers, and mutual funds underperform the overall market – and many do so with significantly more risk and volatility.

My husband and I hired three of the country's top and most expensive financial planners because we were frustrated with the results we were getting on our own. All three of them lost us money during the longest-running bull market in history. A blindfolded monkey throwing darts could have done that.

I think people instinctively know this and figure they can do it on their own.

Womenetics: There are so many options – and advisers – out there trying to help people financially. What are the questions to ask in making the decision as to where to put money?
Yellen: I recommend you ask yourself if your savings went nowhere for 20 to 30 or more years, or even went backwards, could you live with that? Historically, there have been periods where the market has gone nowhere for up to 25 years. That doesn't even factor in inflation. And history has a way of repeating itself.

And the question to ask a financial adviser, stockbroker, or retirement plan administrator is: Can you tell me what my retirement account will be worth on the day I plan to tap into it, and if you miss that savings target, will you give me a money-back guarantee?

Womenetics: How do you view the economy now and what do you think is its short-term future?
Yellen: Like many people, I'm nervous about the short-term future. And I believe it's insane to think that what got us into this mess – spending money like a drunken sailor – will get us out of it.

But I am optimistic over the long term that things will work out, because Americans are resilient and our spirit will prevail.

Womenetics: Why don’t you advocate 401(k)s?
Yellen: There are many pitfalls to the 401(k) most people aren't aware of, including:

• Employers are automatically moving workers' money into riskier, complex investments – and they're doing this with the government's encouragement.
• The fees are astronomical, and most of them are hidden.
• You don't control the money in your 401(k) – the government does, and getting access to it in a crunch can cost you a lot in taxes and penalties.
• People love 401(k)s because they let them defer their taxes. But if taxes go up, as many experts are predicting, and you're successful in growing your nest egg, you'll only end up paying higher taxes on a bigger number. In fact, it's estimated that even if tax rates stay the same, you'll end up paying 10 to 20 times more in taxes over 30 years than the initial up-front tax break you got.

It keeps going back to this: Question the wisdom of conventional financial and retirement planning advice. If it were working, why are most Americans today wondering if they'll ever be able to retire and what they'll have to give up in order to do so?

Mary Welch is a freelance writer for the Atlanta Journal Constitution, Dawson Times, Plan Your Meeting magazine, and Atlanta Business magazine. Previously, she held many positions with Leader Publishing, including editor-in-chief of Atlanta Woman, editor of Business to Business magazine, and editor of Catalyst magazine. As editor of Business to Business, she assigned, edited, and conceptualized a series that was awarded Silver in the 2005 GAMMA Awards for Best Series. Welch was a reporter for the Atlanta Business Chronicle for eight years and freelanced for publications including Glamour, Advertising Age, South, Georgia Trend, and Oz. From 2000 to 2003, she served as vice president of media relations for Bank of America, during which time she authored Forever Green: A History and Hope of the American Forest with Rolling Stones keyboardist Chuck Leavell.