Can BNPL Protect Your Retirement Savings This Holiday Season?Nov 28, 2022
Growing up I was always told that debt was bad. Never get into debt. Don’t pay interest. Don’t pay retail, etc… and for a long time these rules have worked to help millions of Americans achieve financial freedom.
Of course, like most things in life, the answer is rarely black and white. Regardless of where you stand on the argument of good debt versus bad debt, when it comes to our retirement, we MUST consider all our options.
We only get one chance at retirement, and we need to make it count. The last thing we want is to be halfway through our journey and start worrying that we’re going to run out of gas.
In this week’s article, we are going to explore an interesting trend that the boom of free money has made possible…and we are going to see if we can leverage it to help us protect our retirement savings and make our money last longer.
This trend is the “buy now, pay later” financing option or “BNPL” for short.
“BNPL” allows folks to make purchases, then pay for them at a future date, many times interest-free. Gen Xers and Baby Boomers might know this concept similar to layaway. As a point-of-sale installment loan, the onus is on the buyer to pony up their dough weeks or months later. It’s common for the individual to also make a form of down payment on the item being purchased.
BNPL plans often feature easier approval terms versus traditional credit cards…and the are usually offered directly through the retailer or venture capital banks.
Is Buy Now – Pay Later a Good Idea?
So, is this new form of short-term financing a good idea?
I am usually against BNPL schemes. For such a time as this, however, it actually might make sense for many retailers and consumers.
Consider that inflation is humming near 40-year highs and the stock market is relatively low. If you are in retirement and the choice is between selling off assets that are in the market and taking out a loan…then we must explore taking out a loan.
In fact, borrowing against ones’ portfolio is the one of the major ways that the rich get richer. And it is one of the reasons why I highly recommend that people build up their brokerage accounts…so they can borrow against it when the times are tough.
Think of it this way.
We know that the market historically always goes up…eventually. It’s simple math. Investors need a return on their money, and inflation erodes that return. In order to attract investors, companies need to grow faster than inflation.
Which Companies will Survive and Which will Thrive?
During times of uncertainty…when people are unsure WHICH companies will survive and which will thrive, they tend to shift their money around, angling for the best bet.
During our working years this is great. It provides a buying opportunity. We get to buy when the market is down.
However, in retirement, when we need to use our money to pay our living expenses – that’s when reality rears its ugly head.
Reality says that for every winner their has to be a loser…and in retirement, if we are not careful that loser will be us…and we will be forced to sell our stocks at a discount in order to make ends meet.
Of course, a good investment strategy will help you avoid selling when the market is down.
A good advisor will ensure that you always have easy access to money to pay for your expenses – so you don’t have to “borrow” against the future and tap in to your beaten up stocks at the wrong time.
…But, if you find yourself in a pickle, a “Buy now, Pay Later” (BNPL) loan can be an option worth exploring. A BNPL program can help avoid tapping into retirement accounts at precisely the wrong time.
BNPL installment loans are usually interest-free. Their credit checks usually don’t impact your credit score…and they have lower credit requirements.
High Inflation Makes BNPLs More Attractive
Additionally, during period of high inflation, low-interest credit can become really attractive. In fact, your loan could act as a discount on your purchase. After all, a dollar today is worth more than a dollar later. So, when you take out your BNPL loan at no cost, you are essentially buying items with money that is “cheaper” than if you had paid with cash.
Of course, this only works if you your nest-egg grows during the loan period or if you are still working, your salary rises faster than inflation. And keep in mind the flip side of all this goodness, if you miss a payment your interest rates could skyrocket, and you could be hit with hefty fees.
So, this holiday season, as you go about shopping – think about how you are going to pay for your gifts. Where you take the money is almost as important as how much you spend. As always, consider all your options, and this year, more than ever don’t assume.
The Rules of Money are Changing
The rules of money are changing. A down market, high inflation, and retirement all mean that the skills we learned over the last 20-years go out the window. What has worked – may not continue to work.
Take the time to think through your decisions and make sure you are making decisions based on facts and login and not emotion. Explore your options, some alternatives to a BNPL, would be something like a Home Equity Line of Credit or HELOC, borrowing against the cash value in a life insurance policy, or almost any other form of low/zero interest credit.
At Yields4U, we help our clients build a personal retirement system that allows them to live the life of their dreams without worry or fear of running out of money in retirement. Click here to learn more about the Yields4U financial planning process.
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