Whole Life... Why Not to Love It?

[Mr_Ed]

25 Year old male $500 month premium paid up @ age 65. 240,000 paid into policy, can withdraw 37,000/yr TAX FREE for 20 years.

On top of that leave a TAX FREE inheritance to his family of 343,000.

That is a total payout of 1,083,000 or a 451% return on premiums paid.

Par Whole Life insurance not only is a no brainer but should be the FOUNDATION of any plan.

Unless they:

1) have zero credit card debt and
2) are already maxing out their contributions to a Roth IRA and
3) are already maxing out their contributions to their 401(k),

no 25 year old should buy a WL policy (especially not for "retirement income").

 

[BNTRS]

Unless they:

1) have zero credit card debt and
2) are already maxing out their contributions to a Roth IRA and
3) are already maxing out their contributions to their 401(k),

no 25 year old should buy a WL policy (especially not for "retirement income").

And I thought the thumbs down button was going to be a waste of time...

All of the complaining that is going on about affordability and such (i.e. bought a policy, lost a job, couldn't afford) can all easily be avoided if designed correctly.

 

[Mr_Ed]

And I thought the thumbs down button was going to be a waste of time...

All of the complaining that is going on about affordability and such (i.e. bought a policy, lost a job, couldn't afford) can all easily be avoided if designed correctly.

are you suggesting that a 25 year old should buy WL insurance even if they have credit card debt OR they don't max out a Roth IRA OR they don't max out their 401k?


If you are suggesting that, then that suggestion is absurd.

 

[blue_wynd]

are you suggesting that a 25 year old should buy WL insurance even if they have credit card debt OR they don't max out a Roth IRA OR they don't max out their 401k?


If you are suggesting that, then that suggestion is absurd.

I would put up to the 401k company match. Get some personal Roth, invest in some mid-aggressive funds, get some whole life/term blend as the conservative vehicle and family protection and open a self directed account to play the market just for the fun. I have children. This is my own plan. I am in my 20s to 40s. . I think this plan would work for anyone in my age bracket with children. Now I just need to go and make the money to follow the plan.

 

[BNTRS]

are you suggesting that a 25 year old should buy WL insurance even if they have credit card debt OR they don't max out a Roth IRA OR they don't max out their 401k?


If you are suggesting that, then that suggestion is absurd.

Why is maxing out an IRA or 401k a necessary step to being allowed to own whole life insurance? Why do 401k's et. al. need to be the method to save for retirement?

There are plenty of people with lots of money on hand who do not have a 401k or IRA, and they are doing just fine. I'd suggest better than the fools who follow traditional advice.

As for the credit card debt, depends on the size of the debt.

 

[Larry Tew]

are you suggesting that a 25 year old should buy WL insurance even if they have credit card debt OR they don't max out a Roth IRA OR they don't max out their 401k?


If you are suggesting that, then that suggestion is absurd.

When you label a post or poster "absurd", you open yourself up to being made to look foolish. To say one should "max out" a Roth tells me you don't fully understand a Roth or permanent life insurance. For all practical purposes, a Roth is similar to permanent life insurance MINUS the death benefit, but with all the IRS rules and regs. There is nothing superior with a Roth when compared to the cash value of PLI.

To suggest maxing out a traditional 401(k) also shows a less than complete understanding of the tax trap you lock into with a 401(k). A 401(k) does 2 things: it POSTPONES the tax and the TAX CALCULATION.

Why would you have a 25-year old postpone taxes on both the contribution AND the gain in the lowest bracket this person is likely ever to be in in order to pay the taxes in an unknown bracket after 40 years of hopefully wise saving and investing - not to mention a $17 Trillion national debt that has to be dealt with somehow. ANY contribution to a 401(k) above a decent match is a ticking tax time bomb.

I can kinda sorta agree with you concerning saving in PLI when there is higher net-cost interest being paid on debt. However, there is the issue of human behavior. People have been snowballing debt as a strategy long before Dave Scamsey made people think he invented the concept.

There are two problems with taking every cent of disposable income to pay down debt without at the same time building a degree of collateral capacity in some product (PLI, savings account, etc)

The first is that without access to money / savings, the next time the person needs money he has none because he's been putting EVERYTHING towards debt reduction. When this happens, what do they do when something comes up? They take on more debt (assuming they can) because they have no other option.

The 2nd problem is emotional. Experience has shown that people feel MUCH better about reducing their lifestyle to pay down debt when they are simultaneously building access to cash, and they are more likely to stick with the plan even if it takes longer to get the debt paid.

The takeaway on all this is that math is not money and money is not math.

 

[Mr_Ed]

25 Year old male $500 month premium paid up @ age 65. 240,000 paid into policy, can withdraw 37,000/yr TAX FREE for 20 years.

On top of that leave a TAX FREE inheritance to his family of 343,000.

That is a total payout of 1,083,000 or a 451% return on premiums paid.

Par Whole Life insurance not only is a no brainer but should be the FOUNDATION of any plan.

The 25 year old could put $458.33 per month into a Roth IRA.
He could buy a large 30 year term life policy with the extra $41 per month.

He'd only have to earn 5.5% to have over $800,000 in it by age 65, giving him $44,000 of tax free income FOR LIFE and an $800,000 tax-free death benefit to his heirs when he dies.

Assuming he dies at age 85, that's a "total payout" of $1,680,000 or, using your formula, a 763% return.




...


Comparing to a 401k, an "after tax" $500 per month premium payment is equivalent to a 401k contribution of $670 per month for someone in a 25% tax bracket.

That $670 per month, invested in the 401k, earning 5.5% per year, grows to $1.17 million dollars in 40 years. That generates $58,592 per year "before tax" income. Assuming a 25% tax rate that's $44,000 of "after tax" income.

The kids get the $1.17 million dollars upon death (minus the taxes....even a 50% tax rate on that $1.17 million still leaves a higher death benefit to the kids than the WL policy you've used as your example.)

Using this 401k example, the "total payout" is about $1.5 million after taxes.


Roth beats 401k which beats WL.

If you've got somebody who can invest $1,500 per month, then have them put $500 in ROTH, then $500 in 401k, then $500 in WL.



Every deal sounds good until you compare it to a better deal.

 

[Mr_Ed]

When you label a post or poster "absurd", you open yourself up to being made to look foolish. To say one should "max out" a Roth tells me you don't fully understand a Roth or permanent life insurance. For all practical purposes, a Roth is similar to permanent life insurance MINUS the death benefit, but with all the IRS rules and regs. There is nothing superior with a Roth when compared to the cash value of PLI.

To suggest maxing out a traditional 401(k) also shows a less than complete understanding of the tax trap you lock into with a 401(k). A 401(k) does 2 things: it POSTPONES the tax and the TAX CALCULATION.

Why would you have a 25-year old postpone taxes on both the contribution AND the gain in the lowest bracket this person is likely ever to be in in order to pay the taxes in an unknown bracket after 40 years of hopefully wise saving and investing - not to mention a $17 Trillion national debt that has to be dealt with somehow. ANY contribution to a 401(k) above a decent match is a ticking tax time bomb.

I can kinda sorta agree with you concerning saving in PLI when there is higher net-cost interest being paid on debt. However, there is the issue of human behavior. People have been snowballing debt as a strategy long before Dave Scamsey made people think he invented the concept.

There are two problems with taking every cent of disposable income to pay down debt without at the same time building a degree of collateral capacity in some product (PLI, savings account, etc)

The first is that without access to money / savings, the next time the person needs money he has none because he's been putting EVERYTHING towards debt reduction. When this happens, what do they do when something comes up? They take on more debt (assuming they can) because they have no other option.

The 2nd problem is emotional. Experience has shown that people feel MUCH better about reducing their lifestyle to pay down debt when they are simultaneously building access to cash, and they are more likely to stick with the plan even if it takes longer to get the debt paid.

The takeaway on all this is that math is not money and money is not math.

What a bunch of gobbledeegoop.

Of course money is math. That's why insurers have actuaries.
The actuaries use MATH and that's why the insurers have all the MONEY.

Insurers make a lot of money from people who don't understand the math.

If tax rates are going to be as high as you think they are in the future then all the more reason for this 25 year old to max out a Roth IRA contribution.

DUH!

 

[DHK]

lol. You don't know what you don't know.
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Show me ANYONE'S 401k that has earned 5.5% consistently year over year.

Compounding within risk-based accounts also compounds your risk year over year.

 

[Mr_Ed]

lol. You don't know what you don't know.
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Show me ANYONE'S 401k that has earned 5.5% consistently year over year.

Compounding within risk-based accounts also compounds your risk year over year.

Invest it in blue chip dividend paying stocks, like P&G, etc...you've got a 3+% return each year just from the dividends--regardless of what the market does.

You only need to average another 2% in capital appreciation per year to blow the roof off his WL example.

In reality, you'll average much more than 2% in capital appreciation per year.

All with very little risk.
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Invest it in blue chip dividend paying stocks, like P&G, etc...you've got a 3+% return each year just from the dividends--regardless of what the market does.

You only need to average another 2% in capital appreciation per year to blow the roof off his WL example.

In reality, you'll average much more than 2% in capital appreciation per year.

All with very little risk.

P&G only had a 2,000% growth over the last 40 years.