Need advise from the more experienced...

[acmcclellan]

Hi! My name is Rachel and I am 26 years old. I am married and have 2 kids and hope to have many more. I know this may be impossible but I want to retire when I am 40 in hopes to be a full time mom.

I own a business and make much more than my husband. Between both our incomes, if we budget wisely, we can invest between $3000 - $4000 each month. When I hit age 40, I would like to drop this figure to $1000 per month.

Here's where I need advise. I need life insurance and have been told that a Variable Life insurance plan is the way to go for both an investment plan and life insurance. The biggest advantage I see to Variable Life Insurance is I can withdraw from it tax fee.

The other option is go with term insurance and invest the rest into a diversified portfolio. How would this effect me (taxes) if I want to start withdrawing when I am 40?

I would love to know real life people's opinions and not an agents/brokers.

Thanks in advance,
Rachel

 

[Telly]

Hi Rachel,

I have kept investing, and life insurance, totally separate.  I view most insurance "investing" schemes as just that, schemes.  They are a big benefit for the insurance companies, $$$.  I think it was Scott Burns that once remarked that the biggest buildings in many cities are insurance companies...

I have term life through a professional organization.  The rates have been low for the coverage, and dividends large, so my actual yearly premiums have been quite low.  That is now starting to change since I passed the 50 mark, but I figure I'll drop it in a few years anyway.  I see the purpose of life insurance as allowing the surviving spouse/children if at home the ability to keep on for a while.  Not to build a legacy to pass on to heirs when I'm real old and die.

I should add that insurance schemes that include "investing" are also profitable for the agents selling them! There are financial advisors of all stripes that try to sell these things too. The commissions are good on those plans!

 

[wabmester]

If you can save $3500 a month for 14 years, you should end up with $1M at 40.

Go with a term policy. At your age, it should cost very little. Once you FIRE, dump your insurance and just self-insure from that point forward. Virtually all insurance products are a rip-off.

Don't worry about taxes. The tax system takes much more away from salaried workers than it does from those living off investment returns.

As ESRBob can tell you, you can make up to something like $70K a year and still be in the 15% tax bracket and have your cap gains taxed at 5%.

If you have your own business, you can shelter a lot of your income with a Keogh. Ask a CPA.

 

[justaguest]

Just curious..sounds like you are making plenty of dough now...and have a goal of "retiring" in 14 years to be a full-time mom..quick math tells me that since you have 2 kids already, they must be at least 1 month and 2 years old at least(maybe older), so in 14 years those two kids are going to be 14 and 16..almost time for them to leave the house....

If your goal was to retire at 40 and go cruising around the world with just your spouse...I'd say you were on track...but to retire at 40 to be a full-time mom to kids that have almost become fully grown seems to be doing things in the wrong order? Why not be a FT mom now, and make the dough later? If in fact that is your goal to be a FT mom? You could achieve your "goal" a lot sooner.

 

[John Galt]

Rachel, you have it backwards. Be a full time mom now.
Planning these things 14 years in the future is futile.
My way, you make the most of your time right now
(with your kids). If you are still alive when you are 40
then the world is your oyster.

John Galt

 

[acmcclellan]

That is a very good point. I have a 2 1/2 year old and 3 month old and hope to have at least 3 more. If I stop working now we will not have near the income to live on now or to invest later.

My husband is home with the kids most of the time. I know we have things backwards but this is what life has thrown at us so I am trying to do the best I can both short term and long term for my family.

If I decide to go term and invest the rest, would any of you recommend using a broker or learn to do it myself?

 

[mickeyd]

Hey Rachel,

If I could agree more than 100% with the previous responders I would. Run, don't walk, from the person or persons that suggented that VLI would be good life insurance for you. VLI is good for the insurance company, great for the agent and lousy for the insured. You're the insured. Do not waste your money on Whole Life, Universal Life, or Variable Life. Term is by far the most efficient use of your money. I was in the life insurance business for 30+ years and have seen many dollars wasted.

Most insurance agents hate term. Why? They get paid as a % of the first annual premium. Commission rates range from 80%- 120% (yes more than 100%). If you were an agent what would you sell in order to provide for your family, a term policy that costs $250 and you receive 25% commission or a variable life policy with a $1800 annual premium that you receive say 80% commission on?

Consider establishing a Roth IRA for you and your husband. You can establish a plan many places. You may wish to visit www.vanguard.com or other mutual fund site to get some ideas.

If you can save at the rate that you suggest, you may still not have enough time to save enough to retire at age 40. Remember at age 40 you may have another 50 years or so of living to do and, with inflation thrown in, you need to start out with a huge account if you plan on living off of it starting in 14 years and hoping it will last 50 more.

The power of long-term investing is the accumulation power of money as time goes on. Take your time and read, talk, listen, think, and rethink about how your plan will work. What plan? The one that you have come up with so that YOUR dreams are realized.

 

[John Galt]

You know, insurance generally is a major pain in the
posterior. Between my troubles with health insurance,
house insurance, insurance for 2 cars and the motorcycle and now the condo we bought, you are talking a pile of money. I rented a car recently
(rarely do that) and I declined any coverage even though my personal policy only covers liability. Thus,
any physical damage would have come out of my pocket.
It was only about $50.00 extra, but I am so tired of paying premiums that I took my chances. I was nervous as a whore in church until I turned the car
back in.

John Galt

 

[Cut-Throat]

John,

My Credit Card covers the collision and liability when the Car is charged on it. Most premium cards offer this today

. Since it's almost impossible to rent a car without a credit card, I'm guessing that your rental was probably covered.

 

[John Galt]

Thanks Cut-throat! I'll check that out. I am looking at renting again at the end of May and I have a pile of
"premium cards" I could use.

John Galt