Retirement vehicles? Whole Life Products?

[detlef]

OK, so with 2010 officially in the books once we scratch our tax checks this week, my wife and I are looking towards the next step. That being, ramping up our retirement funding.

 

Neither of us is part of a 401K but we both obviously max out our Roths. My wife has an old 401K but we're both currently self-employed.

 

None the less, we want to be putting far more than 10K aside each year and would prefer tax-efficient vehicles. We've ramped up payments on our house and particularly the cars (both of whom we should be able to pay off within a year or so, the cars that is).

 

A while ago, I spent some time talking with a woman about whole life products and they seemed pretty cool. Any of you guys sell these or have them?

 

As I understand it, you're basically over-funding a life insurance policy and the balance (which is the vast majority of what you're paying each month) goes into a reasonably good paying savings account. Of course, if you die at some point along the way, your spouse gets whatever the life insurance benefit is and, I would assume, whatever had built up in the savings account portion of it. And that all of this is tax deferred?

 

What I guess seems cool about this is that, if you were to save that money in some other way, you'd be paying taxes on it. In this case, the part you're paying for is 1) less than what would be getting taken out for taxes and 2) going to pay for a life insurance policy that, you never know, you might need.

 

Am I missing something here?

 

I'm sorry because I know this has been gone over before. I honestly don't know how some of you guys efficiently search the forums. Regardless of how specific I make my criteria, a million and one topics always come up.

[detlef]

Monday morning bump

[Big Country]

From most advisors that I have spoken with and trust, whole life policies are rarely a suggested option, except from those peddling the products.

 

As a self employed-individual, examine the options out there such as SEP-IRAs and solo 401Ks.

 

Kiplinger Link

 

Forbes Link

 

Do your research and I think you will most likely find that these are much more in line with your goal of retirement planning.

[geeteebee]

Haven't looked at 'em in years but they used to carry extremely high fees compared to other investments. I would not buy insurance as a retirement vehicle.

[Clubfoothead]

I swear we had this discussion 8 years ago and the conclusion was that life insurance is one vehicle, investement/retirements are another and the two shoud be separate. I believe the argument was that there are safer ways to invest your money at a better rate of return. Of course that was before everyone's 401k's lost half their value a few years ago.

[detlef]

Hmm. This sort of jibes with what kept me from biting despite the allure some time ago.

[Beaumont]

Seems to me the most popular retirement vehicle is the Lincoln Towncar. Or maybe a Chrysler 300 if you are sporty.

[Chavez]

Hmm. This sort of jibes with what kept me from biting despite the allure some time ago.

 

 

About the only value I've ever been able to figure out in whole life insurance is it's useful if you're trying to get a ludicrous amount of money to your heirs tax-free.

 

For the middle class, it's worthless.

 

As far as how a whole-life policy works, they tell you it's "two things for one price" - yeah, how many times, in reality, does that "two-things-in-one" work? PBJ in a bottle or pre-combined ketchup and mustard are foul, to name two examples.

 

Also, what goes on is your investment supports the life insurance policy. They will sell you a policy of $y of coverage for $x premium. The thing is that life insurance costs MORE to purchase every year, because you're more likely to die every year. But the premium usually stays the same. So if you're paying enough to build up a cash value early on, that's great. But if you don't die, the cost of insurance eventually starts to outstrip what you're paying in premiums, so then the ins co will helpfully start deducting the amount your short out of the investment portion of the policy. And at some point, the policy will generally "implode" - there's no cash value left, so you have to start paying large premiums to keep the insurance policy in force.

 

It's pretty pointless to buy cash value in your situation. Life insurance should generally be for people with children.

[detlef]

Seems to me the most popular retirement vehicle is the Lincoln Towncar. Or maybe a Chrysler 300 if you are sporty.

 

About the only value I've ever been able to figure out in whole life insurance is it's useful if you're trying to get a ludicrous amount of money to your heirs tax-free.

 

For the middle class, it's worthless.

 

As far as how a whole-life policy works, they tell you it's "two things for one price" - yeah, how many times, in reality, does that "two-things-in-one" work? PBJ in a bottle or pre-combined ketchup and mustard are foul, to name two examples.

 

Also, what goes on is your investment supports the life insurance policy. They will sell you a policy of $y of coverage for $x premium. The thing is that life insurance costs MORE to purchase every year, because you're more likely to die every year. But the premium usually stays the same. So if you're paying enough to build up a cash value early on, that's great. But if you don't die, the cost of insurance eventually starts to outstrip what you're paying in premiums, so then the ins co will helpfully start deducting the amount your short out of the investment portion of the policy. And at some point, the policy will generally "implode" - there's no cash value left, so you have to start paying large premiums to keep the insurance policy in force.

 

It's pretty pointless to buy cash value in your situation. Life insurance should generally be for people with children.

Actually, I spent a little time looking into it and it seemed like maybe what I was talking about was Universal Life, a product sold by NY Life.

 

Again, at least as it was explained to me by the person peddling it (so, yes, a grain of salt is surely required), the money grew at a pretty competitive and tax-free rate. And if I remember correctly, it was tax free in and tax free out (very fuzzy on that part actually). At any rate, the down side was the chunk that went to service the life insurance benefit, but I recall that was less than what you would be paying in taxes, so it was basically like getting the insurance for free. Now, considering we have no kids and both of us work, life insurance is not a huge deal but it certainly wouldn't hurt if either of us was given a fat check if the unspeakable happened. And if we'd be paying that money in taxes anyway...

 

Then, at some point, you flip the switch and start getting paid back out of the account as retirement income. So it's not about having a bunch of money for heirs, but rather for yourself and your wife. I think the life insurance benefit starts to go to zero, but that doesn't matter any more. Fiscally speaking, once we reach retirement, either one of us dying is not a hardship to the other because neither of us is earning. It's just one less mouth to feed, so there's really no need to have life insurance.

 

Again, that's how I remember it and why I was intrigued. I forget what ultimately turned me off and that's why I'm revisting the issue and going back for more facts.

[Perchoutofwater]

About the only value I've ever been able to figure out in whole life insurance is it's useful if you're trying to get a ludicrous amount of money to your heirs tax-free.

 

This. It's a decent way (there are few others) to try to avoid your heirs getting slaughtered by the death tax if your estate is going to qualify for the death tax. I remember at one point my father took out a whole life policy so that if he were to die the death tax would not affect our bonding capacity and kill our company. If you don't have any heirs, or an estate that would be affected by the death tax, I can not think of a single reason to go with whole life, unless you are just piss poor at managing your money.

[detlef]

This. It's a decent way (there are few others) to try to avoid your heirs getting slaughtered by the death tax if your estate is going to qualify for the death tax. I remember at one point my father took out a whole life policy so that if he were to die the death tax would not affect our bonding capacity and kill our company. If you don't have any heirs, or an estate that would be affected by the death tax, I can not think of a single reason to go with whole life, unless you are just piss poor at managing your money.

Like I said in my last post, I realized what I'm talking about is universal life. Not whole life.

[millerx]

I thought you meant one of

.

[Chavez]

Like I said in my last post, I realized what I'm talking about is universal life. Not whole life.

 

 

Universal life is whole life, just with different (theoretically better) investments.