Investing for Retirement

[lukethedrifter]

Don’t mind me. Definitely not sneaking off to plan a murder with a certain poster’s wife.

[Arthur Dent]

Consequently she now has about $180k in student loan debt, the repayments of which eat up most of her monthly take home pay (good job America).

Ack. That's awful. What a massive anchor to hang around someone's neck.

My colleague's wife had a large student loan debt and enrolled in some kind of federal program where you get debt forgiveness in exchange for working in some kind of undeserved job -- in her case rural nursing -- for a number of years. No idea if that something like that exists for her field but might be worth checking.

[Michael]

It always amazes me how much easier it is for the rich to get richer and the poor to get poorer. There's so many different ways I've lost count. Needing life insurance due to significant student debt is a new one to put on the list.

[Swirls]

The benefit to "whole life" policies that accrue interest are that you have flexibility with the money.

With a regular life insurance policy you pay $X monthly for the term of the policy, and if you die, the beneficiary receives the amount on the policy. If the term ends and you're still around, welp, so sorry so sad.

With a whole life policy, it will accrue interest that you can use a myriad of ways. For one, you can use the interest to actually pay for the premiums, so in the end you never actually pay on the policy. Granted, it won't really make much extra in interest if you do this. State Farm offered this out the wazoo back in the 80s - they were called "kiddy policies." My parents took one out on my sister and me right after we were born. Nothing major, just a $20k policy; essentially enough for a funeral and whatnot if we died young. Once I graduated college, my dad transferred the policy to my name. At that time, the policy was worth like $20,500 because the dividends were used to pay the annual premiums. But no money was ever needed to pay for the policy. That $500 was money I could withdraw penalty free for anything that I wanted. Likewise, you could draw on that $20k if you wanted.

Now you wouldn't want to do a $500k whole life policy, as your premiums would be stupid expensive. But a small one wouldn't be a terrible idea. My wife and I both have them now and can use it as an emergency source of money (similar to what people may do with a HELOC). We use Northwestern Mutual for ours, and it consistently gets a 5-8% return. We aren't using it to pay the premiums like my parents did, so it's just slowly accruing more and more interest.

We have term life policies (mine at a million, hers at 500k but will bump it up to a million once we have kids - since I'm older it was cheaper/easier in terms of underwriting for me to get the higher dollar policy now rather than in a few years like her). We both have long-term disability policies - both of our jobs give us long-term disability insurance, but it's usually capped at like 50% of your current salary, so our long-term disability policy is used to supplement that and essentially give us our current income level in the event something catastrophic happened.

So we have everything. Cheap term life (I think to age 75 or 80), whole life (like $100k maybe?), and long-term disability. For everything, our premiums run about $375/month through Northwestern Mutual. It's definitely way more than we need, but at the same time I'm glad we have what we have.

[G. Keenan]

Don’t mind me. Definitely not sneaking off to plan a murder with a certain poster’s wife.

Luke, please redirect any/all murder plots coming my way towards Swirls now. I am no longer the most valuable dead man in this thread.

[AWvsCBsteeeerike3]

Man, that's a tough spot, G.

Term life insurance policies are obviously rip offs even if they are less of a hit to cash flow.

Whole life make more sense because at least the money will be returned to someone at some point (though, obviously not you). There's like a million different ways they are structured. Swirls points out one of them. Some are fixed premiums for X years and after X years, the premiums stop but the coverage continues. For example, my wife has a $250k policy that runs $3300ish a year but after 20 years the premiums don't have to be paid anymore. When it's time to collect, that money goes to the kids. We took out the policy on her because, well, she had a lot of student loan debt and didn't want to burden the family with it.

Personally, I have a couple policies through work both of which are term because I can get cheaper rates than going through the open market due to having a chronic illness. For me to get the same policy my wife has would have been around double the premiums, so F that. I pay about $40/month for $200k in coverage which pisses me off to no end, but, well, at least I'm somewhat covered.

I hate insurance companies.

[AWvsCBsteeeerike3]

So, just to illustrate what a [expletive] rip off insurance is, let's take a look at my wifes policy and just use average life expectancy:
Initiated at age 30, pay $3300/year for 20 years, average life expectancy of women is like 78 years old.
According to engineeringtoolbox which has awesome time value of money calculators

https://www.engineeringtoolbox.com/disc ... _1234.html

F/A (20,5,330) = $109,118

So in 20 years at 5%, the annual premiums have a value of $109,118. In other words, if you took the same payments and made 5% on them, at the end of 20 years my wife would be 50 years old and have an account value of $109,118.

But, she still has 28 years, on average, of life left.

Then, F/P(28, 5, 109,118) = $427,757

So, by the time of death at age 78, that $109,118 would have grown to $427,757 at 5% over the last 28 years. The insurance company will pay out $250,000 for a profit of $177,757.

This is all assuming 5% growth, assuming 10% returns, that $427K jumps to $2.7M


[expletive] them.

[MAGA]

Consequently she now has about $180k in student loan debt, the repayments of which eat up most of her monthly take home pay (good job America).

Ack. That's awful. What a massive anchor to hang around someone's neck.

My colleague's wife had a large student loan debt and enrolled in some kind of federal program where you get debt forgiveness in exchange for working in some kind of undeserved job -- in her case rural nursing -- for a number of years. No idea if that something like that exists for her field but might be worth checking.

I had to give an older buddy some bad news recently. He was depending on the 10 year loan forgiveness for government workers. He accrued 50k in additional debt in his 50s because he wanted to be a social worker and work with addicts.

Student Loan Forgiveness Program Rejects 99% Of Applicants

https://www.forbes.com/sites/zackfriedm ... 2a0c918247

Website is garbage. sorry in advance.

[Arthur Dent]

Pretty sure your calculation here is showing that whole life insurance is a worse deal than term. Using GK’s numbers for 30 year term and your 5% assumption the cost is $32,000 in lost savings at policy end which is way less than your $178,000.

Isn’t that the whole game of these complicated investment oriented insurance policies? The cost is opaque because it’s buried in the opportunity cost of lost returns on savings. They’re manipulating your loss aversion with this combo product where you think it’s a good deal because you don’t “lose” all your premium dollars but actually end up losing far more through a poor return.

Edit: Bringing this back with more properly comparable present values, term is 2.3x cheaper assuming no one dies early.

[Michael]

P
Isn’t that the whole game of these complicated investment oriented insurance policies? The cost is opaque because it’s buried in the opportunity cost of lost returns on savings. They’re manipulating your loss aversion with this combo product where you think it’s a good deal because you don’t “lose” all your premium dollars but actually end up losing far more through a poor return.

This is exactly my take on these complicated insurance policies. You said it way better than I did.

The type of insurance I struggle with deciding on is if I need long term care insurance. Basically it's nursing home insurance.