Sometimes we do things & don’t know why we do them… Do you want to go on a Trip or a Vacation?

A TRIP: Is 2-3 days, is decided in a day, usually involves going to see family, driving time is normally 5 hours or less, and you come back more tired than when you left.
A VACATION: Is a week or more, requires planning, someone else takes the initiative in getting you there, & you are pampered and relax.

When I was growing up my family would take a TRIP to my grandmother’s house. It generally lasted a weekend, we normally left on Friday evening or Saturday morning, and we returned on Sunday afternoon. These were wonderful TRIPS. We would see all my mother & father's brothers, sisters, aunts, uncles, cousins, etc. and generally would come back more tired than we were than when we left. We would take 3-4 of these TRIPS a year. I'm sure many if you have done the same thing...

When I got grown, gone, & on my own and began to work my first job, I was given VACATION days (initially 2 weeks a year). I quickly learned to continue the traditions that I was taught, on either the Friday before or the Monday after the weekend I would drive from Atlanta to North Carolina to visit friends, play golf, and come back more tired than I was than when I left. I would take a day here, or a couple of days there until I had exhausted my vacation days. My mentality had not changed...

I was 34 years old before I took my first True VACATION. My wife & I flew to Miami and spent 2 days in South Beach shopping and relaxing. Then we boarded a cruise ship for a 7 night cruise to Puerto Rico, St Thomas, Haiti, & the Bahamas before returning to Miami and spending another night in South Beach prior to returning home. We were gone 10 Days, Now that is a VACATION.

Do most black folk take trips or vacations?

I ask this question as I read a USA Today article entitled “401(k)’s (a) tapped to save homes.” Over my time in the insurance & financial services industry I have fielded my fare share of questions from individuals regarding their use of their 401(k)s to fund their short term desires. The questions range from borrowing from the 401(k) to purchase cars, homes, kids college, etc. People who engage in these self depredating acts normally attempt to justify it with misguided logic.

Normally, I had the hardest time hiding my disgust all the while attempting to convince these black folk to take a VACATION with their money instead of TRIPS. After I explained the benefits of a 401(k), ROTH, SEP or other retirement vehicle, I would receive a cross look from the potential client and the TRIP mentality question would come out, “When can I get my money?”

Preface: Ignorance is having never been taught. Stupidity is having been taught but refusing to implement what you have been taught. Therefore, from this point forward you cannot claim Ignorance… if you take a 401(k) loan you are Stupid.

I then would have to go through the descriptions of “These are the special cases where you are Allowed to Get Your Money…” But in the back of my mind I am screaming “DON’T TAKE A TRIP, TAKE A VACATION!!!” In reality I know they have friends, family, and that one person in the church that took some accounting classes telling them “you got bills, you need your money…” and follow that conversation up with the following Myth:

Myth: If I borrow from my 401(k) it is my money & I am paying myself back…

Fact: This is normally done to satisfy a short term (TRIP) issue or desire.

• I have to pay the IRS… Borrow from the 401k. If you had an emergency fund this would not be an issue.
• I need a down payment for a new car… Borrow from the 401k. Do you really need it? Do you need that level of Auto (why not used)? You knew your car was on its last leg, why didn’t you set money to the side for the future payment?
• I am behind on my Mortgage or Credit Cards… Borrow from the 401k. Collections Agents are putting this misguided logic in people’s heads, and the Ignorant follow, like sheep being led to the slaughterhouse.
• My child is going to college and I can’t afford the tuition… Borrow from the 401k.
  How Dare You, Tell your child to get good grades, and they uphold their end of the bargain. But you chose not to put away the money necessary to uphold your end of the bargain… You Lied, now your retirement suffers or your child suffers… “Thanks Mom & Dad!!!”

(Maybe this is a stupid question… but, Why do I have to Borrow money from my 401k if it is mine??? Sorry, I digress.)
You are Not, paying yourself back. What you have done is halted any future growth on the principal amount that you have taken out. You have created a new bill. You are taking a TRIP,

Ex. You are salaried $50,000 employee. You borrow $5,000 from your plan on a 2 year (24 months) payback schedule. You invest 5% per month ($208.33) into your plan.
If the market grows by 10% over the next 2 years, you will lose approx $537.39 in growth

You have imposed a negative payment stream. In the loan case you are investing 5% per month ($208.33) and you want continue the same investment after you take the loan, you are actually have to increase your payback to $264.56 to truly pay yourself back. That is just to service the loan. You still have not added new investment to stay on track. Therefore, to truly pay yourself back after the loan you have to pay & invest 208.33 + 264.56 = $472.89 to stay even. § That does not take into account the additional loss if your employer matches. § The loan repayment is taken out post-tax not pre-tax

A VACATION requires Planning just as managing your long term investments require Planning. A person with a VACATION mentality knows that if they want to retire and “Not Have To go back to work one day” they have to plan their work & work their plan and let the money produce children & then let money’s children’s children work for them.
Learn What a VACATION is, True Retirement should be similar to a long term Vacation, with reduced stress, and not be a burden to family. I observed that there is a significant difference to how “The other half retires” versus how most Black folk retire.

Do you want Plan A, B, or C?

Plan A: I have personally observed many black folk that have done it right… and they retire to larger homes, better communities, & more money that they had when they were working. There retirement consist of moving to “Active Adult” communities like the following:
http://www.delwebb.com/Default.aspx
http://www.newretirementcommunities.com/?pid=7501


Plan B: In many cases Big Momma moves in with the Sister or Auntee that lives closest and they setup a hospital bed in the formal living room because Big Momma can’t climb the stairs. Is this how you want to retire? I ask this because you may say yes but your children may have another plan…

Plan C: You get to choose from Level A-D based on the amount of money you have…
Level A & B - are run by Hyatt, Hilton, Mariotts
Level C & D - the Social Security Plan… Wait a minute, You are on the Social Security plan (Welfare) “you have to be destitute to get this assistance…” Welcome to level D. Unless you have a family member to take you in which puts you back to Plan B.

What you should do…

• Stop treating this account as “Cross-Town” money. “Cross-Town” money is your checking or savings account at your local bank… because it is going to last you as long as it takes you to get “Cross-Town” and see something that you want. This is for retirement, Period!!! If you never want to retire or plan to live off “Anti-Social Insecurity” take one of the above outlined paths.
• Establish an emergency fund of 3-6 months worth of expenses… this will keep you from considering 401(k) loans as an option.
• Many of us carry blackberry’s, palm-pilots (Treo’s), iPhone’s, etc. and set a reminder on your birthday and your birthday plus 6 months to reallocate your portfolios or at least look at it. In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds, money market investments, or some mix of the above. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time. In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested.
• Invest as much as you can with a goal of 15% and As the market goes down continue to invest, it will come back & your diligence will payoff.
• Never…Ever…Ever… take a 401(k) LOAN. Whether a hardship withdrawal or otherwise.

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Foot note:
(a) The 401(k) plan is a type of employer-sponsored defined contribution retirement plan under section 401(k) of the United States Internal Revenue Code (26 U.S.C. § 401(k)). A 401(k) plan allows a worker to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. The employee elects to have a portion of his or her wage/salary paid directly, or "deferred", into his or her 401(k) account To maintain the tax advantage for income deferred into a 401(k), the law stipulates the restriction that unless an exception applies, money must be kept in the plan or an equivalent tax deferred plan until the employee reaches 59½ years of age.
There are 3 ways money can grow Taxable, Tax-Deferred, or Tax Free. A 401(k) offers Tax-Deferred growth. This means you put the money in pre-tax in many cases and at retirement you have to pay taxes on the growth.

Your Individual situation may vary, Please consult with your financial professional.