The Efficiency of Money

Americans are trying to save money for retirement. People are trying to find the best way to do that but many are confused as to where their money should go. People are concerned about:

• Risk
• Inflation
• Low interest rates, or deflation
• Rising taxes
• Market volatility

And people are concerned about the effect that all of this will have on their ability to sustain income throughout retirement.

Add to that the risk of longevity. People are living longer and longer, putting additional strain on their money, and exposing their assets to the risks of health care costs. Our healthcare system is not designed to provide protection for long-term care. And we are not just talking about nursing homes, but about the fact that you might need help over a long period of time, whether that be in an assisted living facility, a continuous care community, or even in your home.

Suffice it to say, people are faced with the big challenge of developing a strategic and secure retirement, and taking into consideration all of the factors above, need to be very efficient with their money.

What I’m going to share next is a little counterintuitive to the way most people approach retirement. We have to set aside money in life for savings, but we also need to set aside money for other purposes than retirement, such as protecting a spouse or family from:

• Taxes
• Premature death
• Disability
• Long-term care

There are some interesting ways that people can go about saving money. One idea is a participating whole life insurance policy that includes features allowing people to first and foremost have a premium that in essence is a forced savings account. These products grow slowly at the beginning, but historically, over time, they show a reasonable 3.5%-5% rate of return without taxation. So, you get:

1. Forced savings
2. Tax favored growth
3. Guaranteed death benefit that can be used in many different ways throughout retirement while still protecting spouses and children, and potentially, a vehicle to provide liquidity in the estate

On top of that, unlike just about any savings plan in the world, in the event of a disability, the savings, the premiums, the contributions into the plan, will continue if the policy has a feature called “Waiver of Premium.”

Lastly, many whole life insurance products now include a rider for long term care. This enables you to have money available through the life insurance death benefit that can be payable in the event of a long-term care claim. Many people think about buying long-term care insurance, but those products have a disadvantage in that the premiums paid may never result in a claim, and might end up being a cost that never has any utility or return on investment.

What we are really talking about here is the efficiency of one dollar. For every dollar going into a whole life insurance contract, you have:

• Savings
• Retirement
• Tax benefits
• Disability benefits
• Estate planning benefits
• Death benefits
• Long-term care benefits

all wrapped inside a single savings plan.

Now THAT is money used efficiently.