Some retirees may have enough cash on hand to weather a market downturn without touching investments. Others may have taken advantage of annuities to provide a guaranteed source of income during their retirement years. ( Learn more: Does an annuity fit your retirement goals? ) Also, knowing that markets do, from time to time, go down many investors try to diversify their investments with an assortment of vehicles somewhat insulated from equity markets, ranging from bonds to real estate to commodities. Still, there are risks. "In a severe bear market like 2008 and 2009, traditional diversification fails because every performing asset becomes correlated and sells off, " said Collins in an email exchange. "Having enough cash value in a whole life policy to weather the storm for just a few years of expenses greatly improves a retiree's financial ability to fund their lifestyle without having to sell into a down market. " Tax advantages There is another benefit in tapping the cash value of a life insurance policy to fund retirement expenses.
This is an old school rule that says that if you have $1, 000, 000, then you can generate $40k a year and not run out of money: $1, 000, 000 at 4% = $40, 000 This rule has been used by many financial advisors to estimate how much assets you should get before you retire. However, this rule was established in an environment with much much higher interest rates. As of the writing of this article, the 10-year treasury note (U. S. Government Bond) is at 2. 7%. This means that if you have $1, 000, 000 on a government bond, then you can only generate $27, 000. So that's a problem. The average American does not have remotely close to $1, 000, 000. Check out this interesting article: Retirement Savings By Age So not only most people don't have enough saved, but they also can't generate as much income as they used to. What Are The Alternatives? There are many alternatives to generate income, but most of them have risks associated with them. Real Estate Rentals Stock Market Higher Risk Bonds Annuities So all of the previous can get you better income than the 4% rule.
I now have a real retirement fund that my work matches, I have actually useable insurance that costs $15 a week, I'm actually getting paid overtime, when it infrequently needs to happen, and I have a strong union presence to support me when one of the upper management wants to act like an ape. Due to my skills and work ethic coming from restaurants, I already have a lead position that pays $19. 20 an hour only 4 months in. I still get to enjoy my greatest passion, and I'm finally being properly compensated for it. I don't have the burning desire to drown myself in alcohol and drugs after a swamp walk of a shift, and I actually get to be home before 9:30pm on a close. I would always roll my eyes whenever I saw one of the "I'm finally out and on to better things" posts on here, but there really are jobs that don't physically and mentally destroy you every week. I couldn't really believe it until I lived it. Take care, there are better days and opportunities ahead. Tl:DR I was able to trade in my line cook drug dependency for benefits at a grocery store.
The stock market can be a great tool to grow assets. However, when you are looking to distribute assets, it can run into problems. The main reason is when you have a terrible year (say 30% down), you start taking money at the bottom of the market, which means it is tough ever to bounce back from it. You can read all about this type of risk here: Sequence Of Returns Risk Bonds Even though people think of bonds as a very safe investment, they still have risks associated with them. If the bond of the company, municipality, or county defaults, then you can be in trouble. Even U. bonds are not safe, with an astronomical $21 trillion debt, the U. could default on its loans in the future. Real Estate Real estate can be a great way to generate income, but it requires significant capital. The good news is that you can fund your real estate with a whole life policy: Whole Life for Real Estate Investors There are many flavors of annuities: Income Annuities Fixed Annuities Variable Annuities Index Annuities Some of these can be a great choice to close the gap in your income.
I know there's some information in the sidebar pages on whole life, but I'm struggling to make a decision and wanted to see what you all thought. I'm 26, make 60000 a year, currently max out a Roth IRA, and contribute 20% of my income to my IRA (not maxing it but close). I've met several times with a Northwestern Mutual rep whole wants to sell me a 200000 whole life policy for the following reasons: It will cover my entire mortgage. It's a (supposedly guaranteed) investment vehicle that's not tied to the market. So when the market is down, it'll still be up. I'm about to become an officer in the Army and then I won't be eligible. Any thoughts? I'm not sure that I trust the guy and it seems like bad advice. I know that I need to invest a little bit more each month, but this all just seems to good to be true. I think I'd be better served either buying bonds, low risk mutual funds, or simply increasing my IRA contributions and making sure to reduce my risk profile as I get closer to retirement.
Was I the A for telling her I'm deciding it was my fun money to start.
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