Whole Life is not a great “Investment Alternative” – use the death benefit when age becomes a factor

Whole Life is a poor “investment alternative.” Consider what an insurance company may say, annotated with our comments:

1) Tax Deferred
Does not make up for fees and poorer returns. The mortality fees alone can bring the total fees up over 2%, which compares poorly to a stock index bought via an ETF, were the fees are below .1%
2) Attractive returns compared to bank alternatives
Yes, to a bank, but NOT to your own portfolio of stocks or funds
3) More than initial deposit guaranteed in early years
Only at first and at some cost
4) Strong dividend history
Dividends are only a part of the return on investments – whole life is far worse than a good variable life policy let alone stocks purchased directly or via mutual funds, over time
5) Death benefit (DB) income tax free
Always true of life insurance because it is subject to estate taxes
6) Returns very high if DB paid in early years
“so what?” This is intended to be a long-term purchase
7) Beneficiary can be changed easily without having to redo wills and trusts
Meaning that proper estate planning is not being done
8) Annuitization of other assets easier to do, which can lead to higher retirement income
“Easier” means you pay them to do it instead of doing it yourself, which means shifting the allocation of your own portfolio depending on cash needs

Finance Health Day (you own financial planning focus)

Taking a financial health day (like a mental health day, but for your finances)

A recent New York Times article spoke of taking a day that used to be “a mental health day” to work on financial planning matters, or a “financial health day”

With work and other matters demanding attention, many financial matters get put off. One that the author singled out was estate planning – one I often see people put off.

The list he created, as paraphrased and augmented by me, included:

1. Cash back credit cards – switching to or using mileage on existing cards

2. Insurance riders – updating or adding new items for coverage, which may entail appraisals

3. Phone service review – seeing if you have the best phone set up at home (bundling phone, internet and cable to save for example or even dropping the phone for your cell phone)

4. Cell phone service review – seeing if you have the best plan for your usage

5. Nanny tax service setup – setting up payroll for any household employees. The services are inexpensive and save you time.

6. Establishing an estate plan – putting in place a will

7. Insurance benefits – applying for reimbursements

8. In case of emergencies lists – this list tells people were all crucial papers and other items are stored (I have a list on my computer as well as in my safe deposit box)

9. Auto pilot charitable giving – setting up an automatic deduction from a checking account (or doing United Way via payroll)

10. Shopping spree – using the balances on gift cards or, as noted above, using your mileage. The balances do not earn you interest so might as well buy something, as a reward for all the work done on the other items.

These are obviously all worthwhile endeavors. Some take more than one day, such as getting appraisals or executing and estate plan.

I would add to the list the following items:

11. Updating the estate plan you have for changes you want to make in selected fiduciaries or changes in tax laws

12. Checking asset ownership and beneficiary designations for your estate plan so that the plan works as you intend

13. Putting assets in your revocable trusts to avoid probate (this is more important in sates other than Massachusetts)

14. Making sure you have proper liability insurance and an umbrella policy and replacement cost on your home

15. Using your flex plan before year end

16. Tax planning – one we always check with our clients – so that changes during the year are covered by changes in estimates or AMT strategies

17. Cash planning to be sure you have funds for the big purchases….. like cars, with now being possibly a good time to buy

18. Education funding – using 529 plans and any available tax strategies

19. Homestead filing, to protect the equity in your home

20. Reviewing your disability insurance to see if you can add to it

As you know from our work, we can help with many of these items so let me know if you or any of your friends and associates want to improve your Financial Health ….

Let us know if you have questions or comments. Thanks,

Steven