By: Cory Carlton, CEO & Co-Founder
I have seen a number of articles lately all saying the same thing when it comes to insurance and retirement planning and they have all be sharing a common thread. Hope.
Don’t get me wrong. Hope is a good thing. I have tons of hope. But when it comes to financial planning hope is about as valuable as a Schrute Buck [learn what a Schurte Buck is here: https://www.youtube.com/watch?v=3IYQXUfezxY].
One financial advisor recently wrote in a Business Insider article wrote this about insurance and retirement. “Term life insurance can replace your income during your working years. Once you’ve reached retirement [and your term ends] hopefully you’ll have savings and Social Security to rely on.”
You may be able to feel me roll my eyes at that statement and if you were sitting in the room with me when I read the entire article you could hear me roll my eyes.
Let me clarify one thing: Term life insurance can be a very good tool to protect a family and is the most cost-effective way to do so. However, you should be aware of agents that say they only ever recommend term life insurance.
Let me explain my intense eye rolling. Hopefully is the first main issue with this statement. You should be working with a financial advisor who helps you establish a plan for your retirement goals. Hoping you find $1,000,000 under your pillow when you go to bed is not a strategy. Saving money from your income and putting that toward your retirement savings using tools that can help you achieve your goals is a plan.
Most people don’t plan to fail. They fail to plan. You may have heard that before.
Here is how hope and term life insurance work. Term life insurance is for if you die to soon. You hope you don’t need it. That is a good thing to hope for. The reality is that you will die. That is what permanent life insurance is for. It is for when you die.
When you stop working you don’t suddenly have no need for life insurance. You still do. I’m not going to go into all the reasons but here are a couple reasons people should consider permanent life insurance…
- Death is 100% certainty. It will happen.
- Permanent life insurance can grow your cash value without any risk. You read that right. Zero risk.
- It can generate an income for you in retirement that is tax free. With taxes going back up this is a good thing. Generally, around 60% more income than 401[k]s and IRAs.
- It can reduce your taxes in retirement substantially.
- It can be used if you have a long-term care need.
Permanent life insurance has its place just like term insurance. You don’t want to work with an advisor that always recommends the same product to nearly every client. You want to work with an advisor that takes time to understand your situation and goals and comes up with a plan to help you achieve those goals.
These advisors that almost always recommend term and nothing else really just want your money invested in the market because that is where they make the most money. The fees.
You should find an advisor that looks at you first. What you want. What you need. What your goals are. Then looks at the best way to achieve your goals.
We do insurance and investments and we know how they can work together so sometimes we recommend a blend of both. Somethings we are heavy on one and light on the other and vice versa.
Getting back to the statement that lead to the intense eye rolling. It finished with, “… and Social Security to rely on."
We all know that Social Security is not properly funded and in the near future is only expected to be able to pay out 75% of what it says it will.
If you are near retirement, you can factor in Social Security easier than someone in their 30s, 40s, and 50s. These people should really take Social Security out of their income factor and focus on generating the retirement income they need themselves.
Relying on Social Security used to work when it was well funded and lots of workers had pensions, and matching plans at work and were earning 18% at the bank.
Those four things are long gone. Sure, my 85-year-old grandfather’s generation had those things and could count on others contributing to their retirement. But I can’t. You can’t either.
These days you are most likely the only one contributing to your retirement so hoping that Social Security is going to be around is not a good strategy.
Your financial plan should not have a factor of hope. You should have confidence in your financial plan and retirement goals.
There are plenty of things to hope for. Hope for your family, loved ones, friends, good weather, the Tennessee Titans to win a Super Bowl. Hope in your faith is wonderful.
Hope is like trying and like the great theologian Yoda said, “Do. Or do not. There is no try.”
If you hope for money to appear in your retirement account, you will be disappointed. If you put a plan together and save like you need to, you won’t need to hope your retirement will be what you want. You will have confidence that your plan will succeed.