'Absolutely horrible': Here are the 3 big reasons Dave Ramsey hates whole life insurance — do this with your hard-earned retirement savings instead – Yahoo Finance
When it comes to whole life insurance, “It’s not a mild dislike,” said Dave Ramsey in a recent episode of “The Ramsey Show,” where he’s offered financial advice since 1992. “I hate it.”
Why the disdain for whole life when so many Americans invest in it? Half have some form of life insurance, according to Annuity.org.
‘Hold onto your money’: Jeff Bezos issued a financial warning, says you might want to rethink buying a ‘new automobile, refrigerator, or whatever’ — here are 3 better recession-proof buys
Rich young Americans have lost confidence in the stock market — and are betting on these 3 assets instead. Get in now for strong long-term tailwinds
Here’s the average salary each generation says they need to feel ‘financially healthy.’ Gen Z requires a whopping $171K/year — but how do your own expectations compare?
The idea is two-fold: First, having life insurance allows people to live with a sense of financial security. And second, when a policyholder passes away, the beneficiary (or beneficiaries) receive the funds from whole life insurance investments.
Yet when counting the reasons for his hate, Ramsey has three. And just like an overzealous insurance salesman, they’re pretty hard to ignore.
For every $100 you invest in whole life insurance, the first $5 goes to purchase the insurance itself; the other $95 goes to the cash value buildup from your investment. Yes, but … for about the first three years, your money goes to fees alone.
Someone is making out, and it’s not your beneficiary.
“It’s front-loaded as an investment,” Ramsey said. “That isn’t necessarily evil in and of itself but is frowned upon in the financial investment world by and large.”
Ok, but you have it your whole life, right? Well, it doesn’t get much better after the first three years. The average rate of return after those “three years of zeroes” will be about 1.2% on that $95.
“Let’s be generous and say it’s double that,” Ramsey said. “It’s still not a good long-term investment. If I could get 2.4% on my money market I’d be dancing a jig, but not on my long-term investments.” Those, he noted, need to be north of 10% to beat inflation and taxes.
“That makes it absolutely horrendous,” Ramsey contended. “Decades ago the financial community moved by and large towards investing in term life for the $5 from the $100, and doing almost anything else with the other $95 — but over in the investment world instead of the insurance world.”
What’s more, whole life fee structures rob you of money power because the sacrificed cash denies you the compound interest you’d see through traditional investing. What’s more, insurance companies could refuse to refund any of your money if you can no longer keep up with the payments.
The stake in the heart for whole life is that when you die, the insurer keeps your money. That’s right: They absorb the cash value of your policy while survivors receive the leftovers in what’s called a “death benefit.” The policyholder can only use the cash value while they’re alive.
It’s enough to make you wish you had insurance on your whole life insurance. Here are some better ways to put your retirement allocations to work.
Read more: Here’s how much the average American 60-year-old holds in retirement savings — how does your nest egg compare?
As Ramsey mentions, term life insurance makes for a far better option. Term life refers to a purchase that lasts for a period of time — maybe 10, 15 or 20 years — and guarantees payment if a person dies within that term.
With its restricted period of time, term is much cheaper than whole. Note that it only provides a death benefit and premiums depend on your age and health status. Know also that you can’t invest the money elsewhere — and don’t get it back if the term expires and you’re still alive. Consider coupling term payments with investments that will grow alongside them.
The 401(k) offers another financial buffer in the event of death. Yet here’s the problem: Many Americans don’t even have a 401(k), including those who freelance.
The good news for those with full-time jobs is that your employer may match your 401(k) investment, usually up to 6% of your paycheck. That’s free money towards your retirement. Let’s repeat that: free money.
Financial advisers can then help you invest that retirement cash. Further, you get a tax break for investing in the 401(k), as you won’t be levied on those contributions until you make withdrawals. This could be when you retire or want to hand it down to a beneficiary.
The beauty of any individual retirement account (IRA) is that you can start one even if you already have a 401(k). With a Roth IRA, you’re taxed up front. This benefits you when you withdraw cash, as you’ve already paid the tax: What you take is what you keep (unless, of course, you use it to buy some whole life).
As with a 401(k), you can invest in any stock or index fund tied to the market to grow your funds. You can open one any time you want and hold it for as long as you want. Withdrawals must be taken after age 59½ and/or after a five-year holding period.
With so many options to save for the future and your loved ones, there’s no reason to sink your whole nest egg in whole life insurance. It’s what big insurers are betting you’ll do — but as Ramsey might put it, you’d be better off washing out an orange marmalade jar instead.
“Put the money in a freaking fruit jar,” Ramsey quipped. “At least it’s there when you die!”
Chances are good you’re overpaying for home insurance. Here’s how to spend less on peace of mind
You could be the landlord of Walmart, Whole Foods and CVS (and collect fat grocery store-anchored income on a quarterly basis)
Goldman Sachs says bitcoin is not investable — this is where they think you should put 33% of your wealth instead
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
This year will look very different from the prepandemic buying frenzy. What buyers, sellers, and investors need to know.
Michael Burry’s fame spread far and wide after his exploits were documented in the Big Short – the book – and later the movie – that told the story of Burry’s success in betting against the housing market during the financial crisis of 2008. That was a move that turned out to be a hugely profitable one. Burry went short then and hasn’t been shy in issuing repeated warnings on the current state of the market, either. In addition to some recent enigmatic tweets that hint at looming disaster, Burry
Once you have $1 million in assets, you can look seriously at living entirely off the returns of a portfolio. After all, the S&P 500 alone averages 10% returns per year. Setting aside taxes and down-year investment portfolio management, a … Continue reading → The post How Much Interest Can You Earn on $1 million? appeared first on SmartAsset Blog.
‘My worry is that if my debit card ever gets stolen and there are fraudulent charges, that money comes directly out of my checking account.’
Inflation, interest rates, and recession – these are the bogeymen of investing, and they’ve been watching over our shoulders for the past year. We all know the story by now, the rate of inflation, at 6.4%, is still high, the Federal Reserve is hiking rates in an attempt to push back against high prices, and that could tip the economy into recession. At a time like this, investors are showing a growing interest in finding strong defensive portfolio moves. It’s a mindset that naturally turns us to
(Bloomberg) — Shares of Domino’s Pizza Enterprises Ltd. plummeted the most on record in Sydney after the pizza chain operator said its first-half earnings fell as customers spurned price increases meant to offset inflationary pressures.Most Read from BloombergHow Much Do Investors Say They Need to Retire? At Least $3 MillionMcKinsey Plans to Eliminate About 2,000 Jobs in One of Its Biggest Rounds of CutsRussia’s War on Ukraine, China’s Rise Expose US Military FailingsWorld’s Largest Four-Day Wo
The largest electric-vehicle battery maker in the world, CATL, will offer a unique pricing structure for its product. The deal spooked lithium investors.
It's a tech-astrophe out there. But you have options.
Transocean (RIG) delivered earnings and revenue surprises of -157.89% and 0.56%, respectively, for the quarter ended December 2022. Do the numbers hold clues to what lies ahead for the stock?
Stocks fell hard again with the S&P 500 tumbling toward its 50-day line as Treasury yields keep rising. Palo Alto Networks and Coinbase reported after hours. Nvidia earnings loom.
Stocks moving in after hours: Coinbase, Palo Alto Networks, Caesars, Toll Brothers
We are entering into what could be a prolonged battle over the future of Social Security and Medicare.
“With consumption and inflation reheating, risks of a hard landing resembling a boom/bust are growing,” Lisa Shalett, Morgan Stanley Wealth Management’s CIO, warns.
Hideo Tanimoto, president of Kyocera, said tensions between Washington and Beijing will make it difficult to export goods made in China.
The Euro has dropped a bit during the trading session on Tuesday, as we continue to see weakness in the common currency.
Deciding between a traditional individual retirement account (IRA) and a Roth IRA can be difficult. Choosing when or if you should convert your IRA funds to a Roth account can be even more daunting. Experts commonly recommend that investors compare … Continue reading → The post When Should You Consider a Roth Conversion? Vanguard Has an Answer appeared first on SmartAsset Blog.
Morningstar says two factors can indicate stocks with safe dividends: economic moats and distance-to-default scores.
It’s crunch time.
Virgin Galactic (SPCE) possesses the right combination of the two key ingredients for a likely earnings beat in its upcoming report. Get prepared with the key expectations.
(Bloomberg) — Baidu Inc. announced a $5 billion share buyback after reporting better-than-expected revenue, reflecting how its cloud computing service is offsetting an advertising lull during China’s economic downturn.Most Read from BloombergHow Much Do Investors Say They Need to Retire? At Least $3 MillionMcKinsey Plans to Eliminate About 2,000 Jobs in One of Its Biggest Rounds of CutsRussia’s War on Ukraine, China’s Rise Expose US Military FailingsWorld’s Largest Four-Day Work Week Trial Find
