RP4YA - Retirement Planning for Young Americans: Recent Comments

Comment on Do I need life insurance if I'm single and have no kids?

Judi — Thu, 07 Feb 2008 08:30:21 GMT

Universal Life is a great way to "create your own bank". By over funding you beat any investment and can create tax free income for the rest of your life when you reach your 50's. You can also buy cars, houses etc...using the cash that has built up inside of it and pay yourself--not a financial institution the interest!

Comment on Do I need life insurance if I'm single and have no kids?

Life insurance in Canada — Thu, 07 Feb 2008 08:30:01 GMT

I cannot agree with jc baldwin, In my opinion, there is no need to have a life insurance, if you are single and footloose. There are better options, how you can invest your money until you have family and kids and you really need life insurance to protect your loved ones.

Comment on If You're Working, You Should Be Saving - And Hurry Up!

Chris Miles — Thu, 07 Feb 2008 08:29:38 GMT

This is a pretty difficult one for me to comment on because I didn't have to save for 50 year or even 30 years to retire. I "retired" or in other words, became economically independent when I was 28 years old. I now do the things I always wanted to do in retirement and I didn't even have to use a 401(k) or IRA to do it.
I do not say these things to brag but to make the point that you don't have to take several decades to accomplish what can be done right now. I agree with Kristin that you probably don't want to delay because that will just keep you working and living paycheck to paycheck for more years to come. You can't change the past and you can't really control the future but you can act now. As long as you think in terms of "someday", you might as well say "never." Like Kristin said, get to a professional today.

Even if you are financially independent, you should still take advantage of tax shelters...so talk to a professional!

Comment on Do I need life insurance if I'm single and have no kids?

Chris Miles — Thu, 07 Feb 2008 08:29:16 GMT

No one ever "needs" life insurance. But if you understand how to utilize it properly, it can be a great tool for generating wealth while you're alive. After all, it is called "life" insurance, not "death" insurance. If one understands how it can be utilized TODAY, not 30+ years from now, it can assist in generating wealth long before you enter your 60's.

Comment on Is Tax-Deferral always a good strategy?

Chris Miles — Thu, 07 Feb 2008 08:28:50 GMT

My answer to any investment strategy is "it depends." I agree that it is not possible to know the future, and therefore IRA's can be extremely risky.
A few points to take into consideration:
1. You have no control over IRA tax laws. Laws can change and there is no grandfathering. For example, the age at which you can take out an IRA without penalty is currently 59 1/2 but that could easily change before we get to "retirement." Would you ever want to enter a contract with someone if in the contract it states that the other party can change the contract whenever they want?
2. Income taxes are lower than now than most years in history. Since the federal income tax was approved in 1913, most years' average income tax brackets have been higher.
3. Even if taxes don't increase, your tax bracket will increase. For the sole reason of inflation, you will be in a higher tax bracket if the tax brackets stay the same. Ask baby boomers if they are spending less or more money than they were 20 years ago even for basic essentials. You will pull out more income than you are currently making. Also, many of us have write-offs with our mortgages and children. If someone wants to pay off their home before retirement and children are empty nesting, then we lose the write-offs when we begin pulling money out of our IRA. Furthermore, when Clinton was in office, there were additional taxes, like the excise tax, on top of income taxes for having a certain amount of money in qualified plans.
4. Why defer use of that money now? I know I can produce a greater rate of return having utilization of my money now than keeping it in a government controlled vehicle. What is the lost opportunity cost of locking away money for a very long time?

Each person's situation is different and these are only a few of the points that can be considered.

Comment on Is Tax-Deferral always a good strategy?

Johnathan Aelmore — Thu, 07 Feb 2008 08:27:56 GMT

Whether or not the Democrats or Republicans take office it is more than likely that we will see a tax increase in the future. With that said it is important to be well diversified, I say this meaning that you have tax deferred assets, taxable assets (currently taxed), and tax free assets. But, how do I get tax fee assets? There are several ways to ensure you have some tax free investments when you retire. For example Roth IRA's and Roth 401k's and along with life insurance. The issue with Roth IRA's is that there are income limitations to them, and unfotunately only some companies are offering the Roth 401k's at this point in time. Thats all great but you said life insurance. Thats right, a permanent life insurance policy builds a cash value, this cash value can be withdrawn tax free, also there are ways to use loans against the death benefit but that can become quite complicated. Either way it is important to establish a well diversified retirement portfolio, not just in investments but in investment vehicles as well.

Comment on Do I need life insurance if I'm single and have no kids?

Johnathan Aelmore — Thu, 07 Feb 2008 08:26:54 GMT

As Mr. Baldwin wrote, Life Insurance is a tool. But importantly life insurance is for people who love someone or owe someone money typically. It is important to have life insurance even if you are young and single. Eventually you may find someone you love or have children, or even find an organization that you wish to leave money to. All this can be done with life insurance along with the savings tool. Also it is important to implement some form of permanent insurance when you are young to lock in the premium. So that when you are 50 years old without life insurance and the premium is the cost of a small home you dont have to worry about it.

Comment on Do I need life insurance if I'm single and have no kids?

Charles B Milligan III — Thu, 07 Feb 2008 08:27:10 GMT

I must disagree with the prior statement in that life insurance can be used as a savings tool or as an investment. Life insurance carries significant penalties/surrender charges for early withdrawals as well as high operating (M&E) costs. The point that JC points out is one that I do agree with and that is if later in life, you do decide to have a family and you have cancer, stroke, etc. you might be uninsurable and by having insurance earlier in life, you may be able to purchase additional protection at a reduced charge or with no underwriting requirements.

Be sure to read the documents that your insurance professional requests you to sign. Also, NEVER sign forms that are blank! This occurs very often and is a major concern. Only sign completed documents and request copies of signed originals for your records.

For additional information, please reference the following:
http://www.finra.org/InvestorInformation/InvestorAlerts/AnnuitiesandInsurance/ShouldYouExchangeYourLifeInsurancePolicy/index.htm
http://naic.org/

Comment on Is Tax-Deferral always a good strategy?

Kristin — Mon, 21 Jan 2008 14:38:05 GMT

Thank you for your post...it might be helpful to readers if you clarify how much can be used for a home and only for a first home. IRAs can be used to purchase real estate, but only for investment purposes, not to live in.

Comment on Is Tax-Deferral always a good strategy?

Aaron Liu — Sun, 20 Jan 2008 06:15:33 GMT

The income tax rates when we are older aren't known yet, so I think it's not possible to make an informed decision about it unless we can know more about what will happen. So far I have put money in IRA's also because of the deduction I get now. Because interest, it seems that more invested now grows more quickly. Also, I do it because the money in my IRA accounts can be used for a home purchase without a withdrawal penalty.