The sooner that a family begins planning for the future which should include life insurance, 401-k’s, 403b’s if eligible, or Fed 457 programs, they will be better prepared for retirement. It is shocking that so many people do not recognize the necessity of Life Insurance. If a person purchases life insurance when they are in their 20’s or even 30’s, the premiums are surprisingly affordable. When I sold life insurance it was very difficult to get people in their 20’s to even discuss life insurance , they considered the salesman totally interested in making money for themselves. Term life insurance policies are very inexpensive. A person can have live insurance with a million dollar benefit for less than $100 a month if they begin before they are thirty years old. If they are in their 30’s when they begin a term life insurance program they can still have a fairly high benefit amount. If a person waits until they are in their forties the premiums are higher and the benefit is lower. Insurance sales people will sometimes try to convince a person to buy whole life policies which means you pay the premiums your whole life and they accumulate cash surrender value. A lessor amount of insurance is affordable if a person buys whole life and even with the cash value it is generally not a good investment. One of the sales pitches is that you can borrow against a whole life policy cash value. If a person borrows on their whole life policy, they pay interest and at some point are supposed to pay the money borrowed back to the insurance company to restore the original cash value accumulation. Most people that borrow from their insurance policies do not attempt to pay back the money they borrowed.
The premium costs saved by purchasing term life insurance could be used to systematically purchase mutual funds that will accumulate through the years and be available for major purchases such as a home or for retirement. Most of the time those funds should be used for retirement because the person may have to pay income taxes at current rate and possibly a penalty for early withdrawal. This applies if the funds come from a 401-k program of they choose to cash some or all of this money in before retirement age. A person may still have to pay income tax in the tax deferred portion and earnings of a retirement program when they retire, but there will not be a penalty charged under current tax law.
By all means a person should participate in 401-K, 403-b or 457 programs to the maximum offered or the maximum they can afford at the time. It is important that a person study the funds offered and discuss with their broker or agent the goals and timeframe that each fund is designed to accomplish. There are times when it is necessary to get out of a particular fund because of diminished performance and go to another fund. Keep informed on what your funds are doing and ask your adviser their opinion concerning needed changes.
Small business owners, like mom and pop operations, that have to set up their own retirement and investment programs should set up a 401-K and may want to select Roth plans so the taxes are paid as you go on the investments made. Likewise they should purchase life insurance on the main income earner and possibly a smaller amount of life insurance on person that is not working or contributing considerbly less to the family income.
Good luck planning as a family what is necessary to provide for your family not only now but for the extended future.