If there was a strategy out there that actually made sure you never retire, would you care to know what it is?
Maybe you wouldn’t care so much, unless of course you were one of the thousands that follow it, and didn’t know it.
That being said, there is a such a strategy, and it has been a mass failure.
What The Financial Guru’s Don’t Tell You
The financial gurus are full of advice. They may differ on small items, but the overall theme is resounding.
Cash value life insurance is one of the worst financial products available – Dave Ramsey
Whole Life insurance. That’s probably on the top of Ms. Orman here’s top hate list – Suze Orman
Buy term and invest the difference. – Dave Ramsey
Get term insurance. Invest in investments like mutual funds ands stocks. – Suze Orman
It makes you feel good inside that the people on TV and on the radio are telling you what to do. How would you feel if Suze Orman invested less than 4% of her money in mutual funds and stocks? According to an interview with the New York Times she does. In fact, while she tells you to take risk, she hardly takes any at all.
They also don’t tell you that there theory works based on 2 things. Mutual funds produce and whole life insurance doesn’t.
The Mutual Fund Myth Exposed
There’s no reason to rely on theory here. The facts say enough. Ever heard of Dalbar? They are a leading financial services market research firm, and they’ve got all the numbers you can handle. Look at the returns for mutual funds in the last 20 years (which is the best case scenario)
In the last 20 years the returns are less than 2%. Oh… and that doesn’t account for the taxes either. Then add the cost of insurance. How’s this strategy looking so far?
Whole Life Insurance Gets Even Better
So how does the product that tops Suze Orman’s all time hate list compare? A case study by Mass Mutual, a life insurance company, about life insurance returns, shows that over a 28 year period, the returns were between 4.49% to 6.52%.
Now don’t take into account taxes (because its tax free), and don’t add the cost of insurance (because its already included in the returns).
How To Never Retire
So if you want to ensure that you never retire, the best thing you can do is invest in mutual funds, and buy term insurance. The risk, poor returns, fees, and added costs will certainly be enough to keep you handcuffed to a day job for the rest of your life.
Now what do you think? Do you agree or do you think I couldn’t be any more wrong? Make your comments below. And tweet your opinion.
“Whole Life insurance is better than buying term and investing the difference” – Click to Tweet
“Buying term and investing the difference is better than buying whole life insurance” – Click to Tweet
*Photo credit: http://www.flickr.com/photos/76657755@N04/7214600922/sizes/n/in/photostream/
joanne October 2, 2012 at 4:25 pm
This is a ridiculous article, how can you assume that you’ll be better off investing in whole life insurance? Its expensive, and you have to pay for it your whole life. You should really take Dave Ramsey’s financial peace university. It’s one of the best things i’ve done.
Mary Jo December 6, 2012 at 7:43 pm
Joanne,
Dave Ramsey is amazing at showing people how to control their debt to income ratio. However being well versed in everything and open minded is key. One must be willing to learn and read before they condone. I believe Jake has done just that. The two questions you posted in regards to life insurance costs and length of time to pay was addressed in the blogs before this one. I just got done reading them myself. You may want to go through and educate yourself before you condone.
I tend to agree with Jake. After losing lots of my money in 2008 with NO guarantee I was frustrated and had enough. Have you ever asked why you give someone money without having them guarantee that you will at least have your capital back? If not I would like to go into business with you. You put up all the money and I will make all the decisions. If I lose your money and the business goes south don’t be upset with me.
Good luck to you and I wish you the best. I am going to relax with my guaranteed account as the market drops.
Mary Jo
Gerry J October 2, 2012 at 4:30 pm
I’ve had my whole life policy for over 30 years and its done really well actualy. I have also lost lots of money in the market much like many other I would assume. I think you need to analyze your finances, and see which works best for you.
Just my 2 cents !!
Nick D. October 2, 2012 at 4:33 pm
Joanne, the problem I have with your suggestion is that before I cut my credit cards up i have to swipe em one last time and pay to the order of mr. dave ramsey himself – and it’s not cheap!
Dave ramsey (and all the other radio gurus for that matter) provide good motivational content for people swimming in debt but once you’ve got some dough to spare, why would you ever trust the market? As noted in the suze orman interview referenced above – she only risks what she can afford to lose. Why is the average person being advised to risk everything?
mnelson October 2, 2012 at 4:35 pm
I’m with Gerry! Bought a whole life policy from my brother cause i felt obligated….now 22 years later I wish I would have bought 2 or 3 from him! Hindsight is always 20/20. good read by the way.
Michael October 2, 2012 at 5:42 pm
For Joanne, actually you don’t have to pay for it your whole life. Just find a mutual insurance company that pays dividends back to its policyholders and over time, those dividends can even be used to pay your premiums. Also, as far as it being ‘expensive’, after the first year or two, every penny you put into your policy is yours and comes back to you anyhow, and compounding in growth, and since your premium is guaranteed not to increase, the ‘cost’ of the policy even decreases over time (as inflation inevitably occurs), until of course that dividend payment catches up and can pay for you. Brilliant really (for those that ‘get it’.)
Michael Kwong October 2, 2012 at 11:57 pm
Food for thought, great article too.
Mary Jo December 6, 2012 at 7:48 pm
This is a great article and Jake is dead on. (no pun intended)