RETIREMENT SAVINGS OPPORTUNITIES
At Schlappi Financial, we’ve been participating in and observing the financial market for more than three decades.
Human nature tempts us to try and get rich quick, but that desire is almost never fulfilled.
Going broke, however, is quite easy to do.
Instead, we help our clients to become wise money managers. This allows them to take an informed, thoughtful approach to savings. It’s like contrasting the tortoise (in it for the long haul) with the hare (get-rich quick).
We root for the tortoise every time.
Whole Life INSURANCE
When it comes to life insurance, all types are not created equal. We advocate whole life. It’s not merely a policy that is payable upon death. It doubles as a reliable and flexible source of supplemental retirement funds. Even the name itself gives credence to its value – it’s meant to last for your whole life.
Term life insurance, on the other hand, has a finite life and no cash value. It’s not a retirement savings tool. Unless the death benefit is collected, none of the premiums are repaid to the policy owner. Rates are not guaranteed upon renewal and can increase dramatically. A helpful analogy is home ownership (whole life insurance) versus home rental (term life insurance).
Benefits of whole life insurance
Income you can count on
- Your policy has a guaranteed cash value.
- It builds and maintains value, similar to owning a home.
- You will never lose your principal. What you pay in will ultimately be paid out.
- Because whole life never expires, the beneficiary is guaranteed to receive its full value when the policy owner passes away.
- Dividends are paid annually, based on portfolio performance (our companies have paid dividends every year for the last 100 years – in good times and bad).
- Dividends are taxed only if a policy is cashed out; there are no taxes when the policy pays out a death benefit.
Simple and straightforward
- The policy never expires.
- Your premium payment never changes.
- Policies are not “one-size-fits-all” but are customized for each individual.
- Whole life insurance can be structured to pay a supplemental income at any time.
- It can be cashed in early based on the account's value on that date.
- You can borrow against the current value of your policy. When you repay the loan, your policy and dividends are fully restored.
- Whole life insurance payouts are usually tax free unless they are part of a large estate.
Author and annuities expert Barry James Dyke, writing in the Medical Economics blog, points out that whole life policies have long been a stronghold in difficult economic times:
"In 1980, Doris Christopher used a life insurance loan to launch her struggling kitchen gadget company. In 2002, she sold that company—the Pampered Chef—to Warren Buffett for a reported $900 million. Even in the midst of the Great Depression, J.C. Penney used a loan against his $3 million life insurance policy to resuscitate his retail stores after the 1929 crash."
An annuity is a savings plan that pays out a fixed amount of money each year with a guaranteed interest rate. Annuities have a term of 7 to 10 years. At the end of the term, they can:
- Be continued at their current rate
- Begin a new term at a new rate
- Be cashed out.
Taxes are paid on the annuity when income is taken from it.
Benefits of annuities
- Your principal is guaranteed.
- The rate of annual return is guaranteed.
- No surprises.
- There are no age requirements to surrender (cash out) the annuity.
- An optional income stream can be guaranteed.
- You can customize the payout: 10 years, 20 years or lifetime.
- If you pass away before the annuity is fully paid out, the beneficiary receives the remainder.
- Taxes are deferred until the annuity is cashed out.
- Unlike a CD, an annuity is a long-term retirement savings option.
Using annuities to create your own pension
For most people, retirement pensions are a thing of the past. However, annuities can be used to create a do-it-yourself pension plan.
Disability and Long-Term Care Insurance
Disability insurance provides income when workers’ injuries prevent them from doing their jobs. It is private insurance and separate from government disability programs.
Long-term care insurance provides coverage for health care and home health services generally not covered by government programs. These policies are not limited to senior adults and can cover people of any age who experience health challenges that keep them from basic, daily living activities.