ConstruxBoy
Kate's Daddy
Yes, there are some examples. Just for me and us, it doesn't make as much sense. Her family has quite a bit of money so she would be fine without me, at least financially.
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Personal Finance Advice and Education! (3 Viewers)
- Thread starter No. 16
- Start date
ConstruxBoy
Kate's Daddy
matttyl
Footballguy
Ok, so you were ~34 when you bought the first 20 year term policy? Just to put some numbers out there, lets say it was $500k. Fair?
At "select preferred" (one step down from the best health classification) a 34 year old could buy a $500k 20 year term policy for $370/yr. I just monkeyed around a built a whole life policy with a $5k a year premium and the same $500k of coverage (you can do that with some more flexible policies). I get it, it's much, much more. 13 years in, which is where you are now, the term could be continued for another 7 if you wanted for the same 370 a year, or a new 20 year term could be purchased for $930/yr assuming the same health classification.
But if you had purchased the whole life you'd have ~$71k of cash, for a net additional premium (5,000-370) 4,630 for 13 years. I get it, that ROR of 2.71 net after tax sucks (mainly because of how low interest rates are today). But if you were to now go out and buy another term policy for 930 a year, your additional net cost to just continue with the whole life policy would be 4,070, and because of how I built the whole life policy the premium drops from $5k to 2,883 after 20 years (so the additional net cost would be only 1,953). 20 years from now, though, at your "retirement age" of 67 you'd have just a shade over $313k of cash value, and $632k of life insurance. I ran the ROR of your additional premiums in the WL over that entire 33 years - 4.53%.
And I also understand that's not amazing either (with interest rates where they are, and thus dividends from insurance companies also being so low), when you compare it to equities over 20-30 years. But I haven't seen a CD paying that (maybe a better comparison, when factoring in liquidity) since 9/11.
If you make it to 67 - "term you" walks away with zero cash and zero death benefit. "WL you" walks away with $313 in cash value if you wanted/needed it, and $632k of a death benefit, which could really open up some other assets for you.
-OZ-
Footballguy
I'll take the complete loss on the money I paid for term, along with the investments I made by not buying whole life. If I outlive my term, I'll be past 70. We'll be self insured long before 70.
matttyl
Footballguy
So long as your investments do that, it will work out. But if you'd planned to retire right at the start of 2009 when all of your equities dropped ~40% in the past year, you might not be as self insured as you think. Are you going to wait 3+ years to let your 401k and IRAs rebound, while you continue to work for income? Look at the WL as the money market / bond part of your total portfolio.
Everyone's situation is different. I'd like to have life insurance in force when I die, which could be today, 20 years from now, or 60 years from now. I'd also like to have a bucket of money I can access at retirement that's tax free to me (unlike my 401k or IRAs). I'd like to be able to leverage other assets because of the knowledge that I have a few hundred grand in paid up life insurance in retirement. Maybe some people don't value those things like I do, and that's fine.
matttyl
Footballguy
Just read an interesting article that got me thinking...the topic was really to never take money out of your HSA (unless it's a last resort). As it's pretty much the only account that you get a tax break on when you put money in, it grows tax free and you can take money out tax free - you should leave as much money in the account as possible. So if you have medical claims, pay those out of pocket if you can, maybe with a rewards CC.
Keep your records, though, of what you spent out of pocket, as you can reimburse yourself at any point in the future, even years down the road. So if you do ever get into a cash flow bind, reimburse yourself at that time for medical expenses you had years ago.
Keep your records, though, of what you spent out of pocket, as you can reimburse yourself at any point in the future, even years down the road. So if you do ever get into a cash flow bind, reimburse yourself at that time for medical expenses you had years ago.
-OZ-
Footballguy
honest question - why would someone need life insurance in their 70s, with ~$3 million (assuming 5% average returns for the next 20, and no gain after retirement), over half in Roth accounts, with paid off houses? (Unless all parts of your portfolio crash - in which case you made a huge mistake by keeping it all in equities). (I don't intend to be argumentative, I've just never heard a satisfactory answer)
matttyl
Footballguy
All depends on their situation. Curious, why did you say "no gain after retirement" - are you saying you're going to be so safe in retirement that you won't take any risk, and you're $3M is just cash in hand that you'll live off of as you want to?
I can set up a WL policy to be completely "paid up" (no more premiums needed) at age 65, or 70 if you want - and growing, cash on cash, tax free at between 5-6%. And it's contractually obligated to do so as cash value must equal death benefit at age ~100. As an example, I just ran a quote for a 45 year old male buying a $500k WL policy that's guaranteed to be "paid up" at 65 - so 20 years of premium. It's a monster premium of 13,790/yr, I get that. After 20 years it's got ~375k of cash value. Bad ROR on that (before taking out what a term premium would have been) of only 3.12%, I get it. But from year 20 to 21 it grew by over $20 up to 395k - that's 5.4% cash on cash, tax free.
So to go back to your example, you have a married couple, both age 70 with $3M and no longer invested (so as not to lose money). So as to not run out of money too soon, they say they'll need it for 25 years, and if either lives past 95, F it. That's an income of $120k a year (120k x 25 years = 3m). Good so far?
Now lets say the couple only has $2.4M instead of $3, but also has $485 in cash value in the WL policy I illustrated above at their age 70. I'm using $2.4M as I want the total (now $2.885M) to be less than your $3M as we're assuming the WL didn't grow by as much as the equity portfolio would have. Cool? I'm going to let you take $125k a year from the $2.4M and have a ever so slightly better retirement, and you're still not investing/gaining on the $2.4M as was your example. You run out in 19.2 years, we'll round down to 19. The couple is now 89 - but that life policy that they haven't paid a dime into in 24 years is now worth $1.156M in cash value ($1.36M in death benefit - both are growing as it's a mutual policy that pays dividends). I then asked my illustration system if they could start an income stream of the same $125k a year at that time, and you could till age 99. So with the use of the life policy the couple was actually able to have a slight bump in income from their portfolio for the first 19 years of retirement, and then continue that same higher income stream for longer than they would have been able to (age 99 rather than 95).
Now consider this - what would have happened to the wife if the husband had passed away at age 85? She's still have over half a million in her equity portfolio (they spent it down from $2.4M to $525k in those 15 years).....AND she'd have the death benefit from his policy of $1.23M, putting her at over $1.75M, at age 85.
My wife and I are doing something similar. We both have whole life policies that we'll likely stop funding at our retirement. I understand this means we'll have less in our 401ks or IRAs than we otherwise would have had (assuming we had invested that money and so forth). We'll live off of our investments from ~65 to lets say age 85. The cash value amounts in our whole life policies at that time will be massive - and we can just live off of that for the rest of our lives. And if one of us doesn't make it to 85, the other (as beneficiary of the policy) will have more than enough for the rest of their lives with the remainder of the investments that were earmarked for both of us, and the tax free death benefit, AND the cash value from their own policy which is no longer really needed. Think about that - THREE different buckets to get income from, two of which are very heavily tax favored.
BeTheMatch
Footballguy
Please stop. I sure hope no one is listening to this guy.
If anyone is somehow buying any of this, please do yourself a favor and google things like, "Is a whole life policy a good idea?" and "Are whole life policies a scam?" And "Does it make sense to get a whole life policy?"
If anyone is somehow buying any of this, please do yourself a favor and google things like, "Is a whole life policy a good idea?" and "Are whole life policies a scam?" And "Does it make sense to get a whole life policy?"
Make sure to scan and save receipts, ink fades over time. Some HSA providers will allow you to upload them and store them without redeeming/reimbursement.
matttyl
Footballguy
Googling anything will find you results if you look. I'm providing actual numbers above - go ahead and dig into them if you want. If you're going to compare it to getting 10%+ in the market for 20-30 years, it won't compete and I won't pretend it does.
ETA - I just googled "why whole life make sense" and got these hits. Like I said, you can find anything you want if you look on google hard enough.
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BeTheMatch
Footballguy
This has been pinned to the top of the Bogleheads message board for 10 years:
BE WARY OF WHOLE LIFE THREADS
The moderators have discovered that three recent threads devoted to Whole Life Insurance were posted by sock puppets (people claiming to be something they are not to push a product or service).
This is not the first time this has happened here. It appears that the popularity of this forum in terms of google search results for those researching whole life has made us a target of insurance agents who wish to muddy the waters of the general advice posted here on whole life - i.e., it is only appropriate for unusual and specific specific situations, such as estate planning for those whose assets are tied up in a family business. Otherwise, the preferred solution is to use term life for your insurance needs and invest the difference.
matttyl
Footballguy
Not sure what bogleheads is. I've been here for years posting in various things my man, mainly actually in the health insurance threads (as that's more of my typical day to day). People above asked questions, so I answered them - isn't that what this forum is for?
-OZ-
Footballguy
I used "no gains" just to keep it easy. We'll maintain a 60/40 portfolio as Paul Merriman recommends.
The 60/40 portfolio should last at least 30 years with a 4% withdrawal rate. (I'll ignore my pensions for now but those help). Firecalc has the funds lasting much longer.
-OZ-
Footballguy
BeTheMatch
Footballguy
This thread is to help educate and inform people on all things personal finance. You're in here trying to sell snake oil. Just stop.
fred_1_15301
Footballguy
I agree with your take but confused why you think he’s trying to “sell” anything in here.
matttyl
Footballguy
Ok, and sure if you're still getting a return on that $3M, and only a 4% withdrawal rate you'll likely never outlive the money. The "no gains" thing kinda threw me, but I thought I'd go with it for the example.
If you have a pension, a permanent life policy can really help there, too. I do some work with Virginia employees, who have a pension. When they get to retirement they have to decide if they want their full monthly amount for their lifetime (which could be one month, or could be 30 years) - or take a reduced amount and leave a percentage of that income for their spouse (which many do, especially couples where the second one doesn't have a pension). So for instance if you have a $3k a month full pension at 65, and want to leave as much as you can (called a 100% survivorship) to your 62 year old spouse - you'll only get 75.5% of the $3k - $2,265 a month. What you're doing is spending $735 a month on a life insurance policy, in retirement, to give your spouse 2,265 a month for as long as they outlive you, which could be 30 years, and could be nothing if they pass before you. You can also leave lesser percentages of the pension, for lesser amounts, but you get the idea.
matttyl
Footballguy
I'm in the insurance business, not the investment business. Looking over it now.
ETA - came across an article that talks about the basics of what Bogle preaches. Minimize risk, diversify, minimize taxes....
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-OZ-
Footballguy
Sand
Footballguy
You're aiming a torpedo the wrong way here. Mattyl is showing numbers behind what he's doing. He's giving up some upside for a backstop of sorts. Different perspectives are valuable and his is purely intellectual considering the audience in here (i.e. way above average acumen in finance). There is no selling.
Wait until you see my next crazy idea...
ConstruxBoy
Kate's Daddy
It’s not execute all FAs, is it?Sand said:
-OZ-
Footballguy
Yep. "Dammit, that policy was a waste of money" probably isn't something I'll say when I'm 70.5I'm other words, it works like insurance is supposed to work?
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Sand
Footballguy
Ummm... Are you writing in from the Hoover Building?It’s not execute all FAs, is it?
matttyl
Footballguy
You’d be surprised how often I hear that when someone is buying their second or third term policy.
of course the worst is when someone buys a policy they don’t want, but a bank (or ex spouse) is forcing them to buy.
-OZ-
Footballguy
Frankly, if someone needs to buy a LI policy in their 70s, they failed somewhere along the line.
How does a bank force someone to buy a policy? At least the spouse one I understand, even if that's mostly fear and failure.
Sand
Footballguy
Tom Hagen
Footballguy
I have run into situations where lenders require a life insurance policy to secure a business loan. Typically equipment loans or lines of credit where there is no real estate collateral.
It's also common for partner/shareholder agreements to require life insurance.
matttyl
Footballguy
-OZ-
Footballguy
Lol. Maybe.
In the business sense, I get it.
But I'm assuming that's not the most common reason for LI even at that point.
Chadstroma
Footballguy
A Concise 7 Step Guide to Buying Your Dream Home 
Know your credit score and work on it if need be:
Your credit score is one of the most basic factors used in qualifying for a mortgage. The higher the score the better rates you have access to and you increase your options to different loan types. You are entitled to a free credit report once a year at annualcreditreport.com, this is good to check for any errors, however, you will not get a credit score. Many credit cards now offer a score that can be helpful, as well as creditkarma.com and creditsesame.com offer free credit scores. Please be aware that they do use different credit formulas so the score you see there will not be the same on a mortgage application- however, it can be useful to get an idea of where you stand credit-wise and monitor your progress. Also, be aware that the way that they make money is to spam you with product offers and that you need to take their 'advice' with a large amount of salt as it is hard to tell if it really is advice or a sales pitch to make them money. I am always willing to help with coaching on how to improve your scores.
Save up money:
The more money you have saved up the more options you have available to you. You want money for a down payment, closing costs and don't forget other costs after you buy the home like moving or decorations. There are loan programs out there that can help with no or low down payment options. To help pay closing costs you can ask for seller credits from the seller as well. It is important to know that just because a loan may have no down payment does not make it the best choice. I help navigate the different options for my customers to find the best one for them but again the more money you have saved the more options you have available to you.
Get your documents together:
You will need some documentation when you apply for your mortgage. Not all lenders are the same. As a Broker, I try to limit it as much as possible. For most W-2 employees, we will need two years of your tax returns and W-2's, two months of your bank statements and pay stubs and a copy (front and back) of your ID. Other docs may be needed if applicable like a divorce decree and bankruptcy discharge papers among others. Other lenders often ask for more.
Determine your budget:
It is important for you to work out your monthly income and your monthly expenses. See how much you can earmark for your housing payment. You want to know you can comfortably make for your mortgage payment. Keep in mind whether your escrow or not taxes and insurance need to be a part of your calculation. Some places may have extra expenses like a homeowners association fee. Of course, also keep in mind other household expenses like electric and gas. Finally, understand as a homeowner you are responsible for the maintenance and upkeep of your new home and that will cost money. All of these can vary depending on the area and individual property. Your real estate agent would be a great resource to give you better ideas particular to the homes you are interested in.
Research:
You will absolutely want to and need to work with professionals like myself, a realtor and others that have a wealth of information to help you along the process of buying a home. However, would you go to buy a car without doing any research? How many of us spend a few minutes pondering which ketchup to buy at the grocery store? As any good consumer would prepare yourself. Have an idea of where you would like to buy and what you must have in that home versus things you would like to have. How much do those types of properties tend to go for in that area? Also, get familiar with the different types of mortgages. There are so many options it is impossible to list but the most common are Conventional, FHA, and VA.
Find a Broker to help you get pre-approved:
Yes, a broker and not just any lender. This is the biggest financial purchase for most of everyone's life. Why would you go to pay retail rates from your bank or large online lender that are trying to sell you their loan? The job of a broker is to match you with the best lender with the best solution at the best price for you. On top of that, you don't pay a broker, the lender does. Have experienced broker access multiple lenders who offer many more options than any bank can and then can get you wholesale rates. If you are suspicious about this advice (coming from a broker after all) then go to your bank and then compare against a broker. The vast majority of the time there is no comparison. Of course, I am happy to help as your friendly neighborhood broker.
Connect with a good realtor:
You have done all the hard work and now it is time for the fun of searching for your home. There is still more work down the road but a good realtor that you are comfortable with can help guide you. Not only do you look at houses with them but they are a great resource for information about the neighborhood, city, schools, and more. Plus, they can help you negotiate your offers and any counteroffers you get. They are crucial to a successful buying experience and that is why I make it a point to have good relationships with several. I can always provide their contact info upon request.
Know your credit score and work on it if need be:Your credit score is one of the most basic factors used in qualifying for a mortgage. The higher the score the better rates you have access to and you increase your options to different loan types. You are entitled to a free credit report once a year at annualcreditreport.com, this is good to check for any errors, however, you will not get a credit score. Many credit cards now offer a score that can be helpful, as well as creditkarma.com and creditsesame.com offer free credit scores. Please be aware that they do use different credit formulas so the score you see there will not be the same on a mortgage application- however, it can be useful to get an idea of where you stand credit-wise and monitor your progress. Also, be aware that the way that they make money is to spam you with product offers and that you need to take their 'advice' with a large amount of salt as it is hard to tell if it really is advice or a sales pitch to make them money. I am always willing to help with coaching on how to improve your scores.
Save up money:The more money you have saved up the more options you have available to you. You want money for a down payment, closing costs and don't forget other costs after you buy the home like moving or decorations. There are loan programs out there that can help with no or low down payment options. To help pay closing costs you can ask for seller credits from the seller as well. It is important to know that just because a loan may have no down payment does not make it the best choice. I help navigate the different options for my customers to find the best one for them but again the more money you have saved the more options you have available to you.
Get your documents together:You will need some documentation when you apply for your mortgage. Not all lenders are the same. As a Broker, I try to limit it as much as possible. For most W-2 employees, we will need two years of your tax returns and W-2's, two months of your bank statements and pay stubs and a copy (front and back) of your ID. Other docs may be needed if applicable like a divorce decree and bankruptcy discharge papers among others. Other lenders often ask for more.
Determine your budget:It is important for you to work out your monthly income and your monthly expenses. See how much you can earmark for your housing payment. You want to know you can comfortably make for your mortgage payment. Keep in mind whether your escrow or not taxes and insurance need to be a part of your calculation. Some places may have extra expenses like a homeowners association fee. Of course, also keep in mind other household expenses like electric and gas. Finally, understand as a homeowner you are responsible for the maintenance and upkeep of your new home and that will cost money. All of these can vary depending on the area and individual property. Your real estate agent would be a great resource to give you better ideas particular to the homes you are interested in.
Research:You will absolutely want to and need to work with professionals like myself, a realtor and others that have a wealth of information to help you along the process of buying a home. However, would you go to buy a car without doing any research? How many of us spend a few minutes pondering which ketchup to buy at the grocery store? As any good consumer would prepare yourself. Have an idea of where you would like to buy and what you must have in that home versus things you would like to have. How much do those types of properties tend to go for in that area? Also, get familiar with the different types of mortgages. There are so many options it is impossible to list but the most common are Conventional, FHA, and VA.
Find a Broker to help you get pre-approved:Yes, a broker and not just any lender. This is the biggest financial purchase for most of everyone's life. Why would you go to pay retail rates from your bank or large online lender that are trying to sell you their loan? The job of a broker is to match you with the best lender with the best solution at the best price for you. On top of that, you don't pay a broker, the lender does. Have experienced broker access multiple lenders who offer many more options than any bank can and then can get you wholesale rates. If you are suspicious about this advice (coming from a broker after all) then go to your bank and then compare against a broker. The vast majority of the time there is no comparison. Of course, I am happy to help as your friendly neighborhood broker.
Connect with a good realtor:You have done all the hard work and now it is time for the fun of searching for your home. There is still more work down the road but a good realtor that you are comfortable with can help guide you. Not only do you look at houses with them but they are a great resource for information about the neighborhood, city, schools, and more. Plus, they can help you negotiate your offers and any counteroffers you get. They are crucial to a successful buying experience and that is why I make it a point to have good relationships with several. I can always provide their contact info upon request.
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-OZ-
Footballguy
The degree of the bold surprised me. According to all of the credit cards I have which show the score, I'm in the 800s. When my score was pulled for the refi it was 769. The agent explained this was simply a matter of timing and it didn't matter in the end, but it was an unpleasant surprise.
The reason it was significantly lower - back in November we bought bedroom furniture. Now, we could have paid cash for what we got and we weren't planning to finance, but the offer of zero percent over 5 years convinced us to go ahead and do that, keeping our cash reserve in place for the HVAC we plan to buy in March.
It just so happens that we finally received the furniture in January and haven't began payments yet. So apparently that one transaction, the new debt and the stage it's in, significantly lowered our score. Also probably not helping here is I opened a bank account to get a cash bonus, and closed 2 cards in the last few months. Of course while we were doing this we haven't been concerned at all with our FICO score as we had no intention of seeking a loan or refi. Until the rates got really attractive.
It has worked out so far, it looks like we'll close Thursday with a rate I didn't think possible. But the churning and taking the deal for the furniture could have cost us big time.
Chadstroma
Footballguy
So... yea.... to dive into that more....
There are two major formulas. FICO and Vantagescore. FICO is used by pretty much all lenders for all loam products. Vantagescore is pretty much used for free services providing credit scores like Credit Karma etc (because it is cheaper). They are very different formulas.
To complicate things further there are 56+ different variations of FICO with more on the way. Each variation basically has different weightings on variables.
When you get a CC score they give you one bureau. Credit Karma gives two. Mortgage apps pull all three, top and bottom are thrown out snd middle is used.
Then all of what you brought up sure does impact credit except the bank account being opened unless they do sn inquiry on opening a new account but that is extremely rare these days. I generally advise against closing credit cards.
In the end, for you, once you hit 750 you are on the top of credit. No difference in that vs a 820 score. So, it is just bragging rights.
Psychopav
Help us, Joebi-Wan Brynobi, you're our only ho
What do you use for your cash / low risk fund?
I just opened my HSA with Fidelity. We should have a thread just about HSA investing. I do need to use my money to pay some healthcare costs, so I'm struggling with how to invest it.
D-Day
Footballguy
You know who wants that 70 year old to have life insurance? The kids inheriting the money. It is amazing how quickly the kids see the potential inheritance as their money, and they don't want to use it on stupid things like a funeral or paying it all out for a nursing home.
SFBayDuck
Footballguy
I just started an HSA last year for the first time, so by no means an expert. But I let it build up to a point where I felt comfortable with the amount of cash there for unexpected medical costs, then started investing the rest. And I've just invested that like the rest of my retirement portfolio - low cost index funds.
In my case, I'm in sales and switched jobs last year (so no commissions for a few months) so I burned through some of my savings. Once my savings is built back up enough I'll probably invest the rest in the HSA with no plans to touch it, or I may leave that $1,500-$2,000 (I forget the exact amount) in cash just in case.
I'd also be curious what others are doing.
SFBayDuck
Footballguy
Thanks @Chadstroma, that's good stuff. I'm planning to buy a house in the next couple of years, so I'm at the point where I've gotten my credit score where it needs to be and now on to step 2 and focus on saving money for a down payment. Curious on people's thoughts on what to do with that cash with rates so low and knowing that my time frame is (hopefully) relatively short.
Chadstroma
Footballguy
In San Fran?
Obviously home prices are so crazy in that area that even 3% can be a bit of change to come up with. Depending on how long that may take, you can look at some DPA options. I am not a fan of them and try to encourage away from them but if it takes so long to put money together the costs of rent in the meantime might end up costing more.
SFBayDuck
Footballguy
Nope, planning on moving back to Oregon in the next few years and buying up there. I've been renting most of my adult life because I haven't been able to save up for a down payment in this market.
Chadstroma
Footballguy
Can you get 3% together for roughly what Oregon homes are going for that you would be interested i ?
Psychopav
Help us, Joebi-Wan Brynobi, you're our only ho
I'm with Fidelity as well. What cash fund are you in? I did the one time lifetime transfer in, too find the account, and they just dumped it into FDRXX, which had less than 2% yield last year. There should be better cash funds available, no?
-OZ-
Footballguy
I've heard this, but my thought was simply that I wasn't going to be taking any loans so who really cares.
That said, after the refi closes I was planning to close a few more cards. Unless interest rates get really crazy, like 2% or lower, we won't be taking another loan for 12-15 years. Are you suggesting we keep them all open into perpetuity?
Lion to myself
Footballguy
In regards to saving for the down payment, you will just have to deal with the low rates that are offered on bank accounts (savings accounts, money markets and/or short term CDs). Online banks usually have higher rates than brick and mortar banks and are easy to shop for on the web. The rate isn’t really that important though, rather getting your money when you need it (liquidity) and making sure it hasn’t lost value should be your main objectives.
Chadstroma
Footballguy
If no annual fee there really is no reason to close them.-OZ- said:
Chadstroma
Footballguy
Yea, a savings account at a Credit Union or online bank, but honestly it wont be much noticeable regards as is with rates.Lion to myself said:
SFBayDuck
Footballguy
Yeah, for sure. Is that really all I need? Figured I probably don't need a full 20%, but didn't think it'd be as low as 3%. Again, just starting this part of the financial journey so haven't really done any research yet other than knowing I've got to put some money away.Chadstroma said:
