As we all prepare for those neighborhood children to come by our house and ask for candy, let’s take a little time for ourselves and go trick-or-treating around the world of finance.

On this episode of Money Wisdom, Joel Johnson, CFP® is given five different financial products, that you’ve likely considered at some point, and tells us whether he’d label them tricks or treats for your retirement plan. Of course this varies from person to person, but let’s explain why they could be a benefit or a detriment to your overall strategy.

Financial Gain or Loss?

Treat: Home Equity Line of Credit

When used correctly, a home equity line of credit can be a treat for most people. Many people take money out of a retirement account before considering this option but that’s not always the best route. And remember that you don’t have to draw against the line of credit once it’s established.

Possibly a Trick: Variable Annuity

For the most part, a variable annuity can be a trick, but there are different types of annuities to consider. The variable annuity is usually the one that brings hidden fees and lacks liquidity.

A Trick or a Treat: No-load Mutual Fund

This depends on where you buy the mutual fund, such as from a Fidelity or Schwab. Our firm offers institutionally priced funds. The biggest challenge investors face is not fees but rather their behavior in times of stress. Most people can’t handle it when values are going down.

Possibly a Trick: No Closing Cost Mortgages

Be very careful with no closing cost mortgages because many times those costs get rolled into the mortgage and you end up paying a higher interest rate.

Treat: Life Insurance with an Accelerated Death Benefit

A life insurance policy with an accelerated death benefit can be a big treat because many people are using these to pay for long-term care costs.

Mailbag Questions

The first question we have is about emergency funds versus maxing out 401(k) contributions. Depending on your situation, one can be more important than the other as you get close to retirement.

The second question we received asks whether a listener should cancel an expensive whole life insurance policy in exchange for a cheaper term policy. It’s important to take certain steps before canceling the policy, since there’s no guarantee a new one will be approved.

The final question comes from someone who just received a large inheritance from her grandmother and wants guidance on how to use the money wisely. There are several options to consider to help ensure the funds are put to good use.

Here’s what we discuss in this episode:

0:45 – Financial tricks or treats

3:35 – Going trick or treating

12:57 – Why people may need a second opinion  

14:50 – Answering mailbag questions