Life insurance vs 401k

Hello, I am looking for some advice. What sparked me is this thread https://www.tacomaworld.com/threads/wanting-to-begin-investments.363362/ and hearing about bogleheads.org really got me researching about retirement planning. Even bought the book. Just started reading it though.

So im fairly new to looking into my retirement. I'm 29 years old, no kids, rent, high five figure salary, have 20k in my 401k but have 15k in cc debt that I keep bouncing to 0% CC's(should be paid off within a year). I recently got referred to a Northwestern Mutual agent for life insurance(Don't get me started). Well before I did a lot of reading I opened a term life insurance and whole life policy with the company. This is relatively new so if I can cut my losses I want to do it soon.

My question is if in my situation what would you do? I have a 400k term and 100k whole life policy which costs me $16 and $100 per month respectively. I can afford this currently without really affecting any of my day to day spending however from what I read is that the term premiums will go up each year because NM wants you to convert it to whole life. Many people don't believe in whole life now because you can essentially save the amount of whole life in premiums over the 30 years or so you have it. Plus you can get higher dividends in the stock market. Just have the insurance if you die.

I am thinking just keep the whole life at 100k since premiums are only 100bucks a month and switch my term (or get rid of it, my company doubles my salary for life insurance) to fixed premiums on a 20/30 year term which would make my premiums a bit more.

Thanks I hope to get some advice since although I do believe the bogleheads.org has good advice Id like an unbiased opinion or someone with experience in this.

Thanks,

Grant

PS. Would you max out a traditional 401k or a roth IRA first, I am in the 25% tax bracket and have no company matching on my 401k.

 

IMO life insurance is necessary to provide for dependents in case you drop dead. Then, it makes sense to buy term insurance for the appropriate time it is needed. I had a couple of "whole life" policies. I cashed them out when I realized they did not fit my financial needs. I kept term insurance until my daughter moved out.

I took a brief look into bogleheads. The philosophy makes good sense to me. That is basically what I did and now have a reasonably comfortable retirement. Of course, I built up my retirement funds during the '90s, when the market was hot.

If there is no company match for a 401K, I would consider placing my investments with one of the no-load mutual fund companies. That way you will most likely have a wider choice of options.

I did not consider buying individual stocks, except for a few years when my employer offered a nearly foolproof stock purchase plan. I sold within a year or two. The profits from that started the build of a house, a new truck and a month long family vacation overseas. The small guy cannot diversify enough to justify the risks in individual stocks, IMO.

This is all my own opinion. It worked well for me, but YMMV.

You are on the right track. Lots of folks don't think about investing until it is too late.

 

why not do both? is that a good idea?

 

Unless the company is matching your 401k I would open a Roth IRA your young enough to where you can go aggressive investing for the first 20 years or so.

 

My grandmother is a financial advisor and investor she helps me out with all my questions. The Roth IRA is my set up now and once in matures you roll it over to a traditional IRA and boom you are only taxed once so your golden. Provided you fund it which I believe you can only find $5500 a year so you can still keep your 401k as well as life insurance and have your retirement fund on the side.

 

Wow. Why have life insurance at all?? It's a suckers product. Term life is for young families when you're worried about leaving a spouse with the burden of raising children alone. Whole life is a scam. IMHO.. Buy a house/property. Stop renting anything. If you must invest stick to indexed funds with a 1% or lower fee (fees stifle most growth). Max RRSP contributions ( I'm Canadian). Loose the life insurance you have absolutely no need for it whatsoever. Pay off your cc debt and loose the cards or make sure you pay them off completeley monthly. Don't be screwed by these life insurance guys or brokers of any sort, they work for themselves and will never be your friend or work for you..

Good luck..

 

Bingo I don't have life insurance either I'm married with no kids at 29 I might get some when I have kids. Edit if you have a a mortgage you might want to have life insurance so that can go to paying the house off if you kick the bucket early and leave a wife with a mortgage.

 

No need for life insurance unless you have a family, and even then it's an idea, not a necessity.

I like life insurance, but if you don't have anybody depending on your income then there's really no point IMO.

 

Read the total money makeover. You're getting bad advice.

 

If u buy whole life when your young and healthy its the way to go. Term is the real scam. 3% of term policies pay out. As ling as u pay ur premium or take paid up insurance later on in ur policy, all whole life pays out. And for those that say life insurance is a waste, i ask how many of u have full coverage on ur car and home insurance? Your house or car may get damaged, but everyone will die. Also life insurance is untaxed to the benificiaries, so even if u paid 100% of the face value ( in your case 1000 months) it would be better than saving 100k since inheritance tax is 35%.

 

Don't ever buy whole life insurance. Biggest scam out there. The return on the "investment" is maybe 3% if you're lucky. Stick with a term policy when you actually need life insurance. Life insurance is meant to benefit your spouse or children in case of your death to provide them with the lost income that they would be losing from your loss of income. Term insurance is the way to go. We have a 600k policy on me and 500k on my wife and pay $50 a month between us. Whole life coverage would be about 10 times as much a month. Don't worry about investing until you are debt free. Credit cards will be a drain on your bottom line. Stop playing the game of Russian roulette with the credit card companies. If you have a sudden loss of income and can't make the payments you'll be screwed when the payments sky rocket. Dave Ramsey's teachings have changed my family tree and knowing that my children and grandchildren will not live a life of debt brings a smile to my face. Check out daveramsey.com There is a section for investing that will link you to an endorsed local provider when you are ready. I hope this helps you to be led in the right direction. I wish that I had chosen a smarter financial path when I was your age.

 

Thanks for all the info. I am getting on the right track with getting rid of the ccs.l that is a big priority of mine but along with saving as well.

This is a big debate on the insurance thing and a lot of people have varying opinions. Seems like it's personal choice. I know whole life is terrible on ROI and very high premiums compared to term. It's good to know what others are doing though. I guess the only time you would need either is if your dead which is the who knows game. The biggest thing to me is whole life doesn't really see cash value til after 10 years or so, so most of the premiums are going to fees and the "advisors".

I am opening a Roth and will slowly contribute while saving my 6 months safety net and paying off debt. I've also heard conflicting things about funding a traditional vs Roth. Some people say you would have less income in retirement so you would be taxed less so why not do traditional. Roth you won't be taxed so it's basically free gains!

Ah so many choices!!

 

Roth is the way I have debated that with my grandmother for quite a while before I went the Roth route.

 

Given your income go with a Roth. I would strongly suggest going to an investment broker that will teach you how to and where to invest instead of telling you which funds to invest in. Knowledge is the key. Most brokers will sell you funds within their own portfolio instead of showing funds that would make you substantially more money.

 

1. As it was said before, get your CC's paid off and don't ever carry a balance.
2. Rent vs Own is really a financial decision you have to make.
2. a. Does renting or owning more fit your lifestyle?
2. b. Does owning hurt your income potential because you have to keep up with the Jones'?
3. Should have been #1 but, set a budget and stick to it.
4. 401k unmatched is worthless. There is no financial gain for you to go with a company your employer chose to manage your retirement savings plan.

I ONLY contribute the to my 401k to gain the companies maximum contribution. I invest another %10 of my income in the stock market. I carry life insurance but only term life at a rate of 3x my annual salary, because like you I have no immediate dependents but it would set my brothers and sisters up for their children. I also carry a cash balance for all my bills and living expenses for 9-12 months.

-my free advice

*Edit: 2.b. Or you have better income potential by moving frequently.
~$100 a month for $100K term life is not very good. I do not know your health situation but I carry a ~$175K policy for $15/month. Shop around for all your insurances', term-life, auto, and renters. <-- Every year.

 

The only benefit to a 401k(if not matched) is that the money that's going in isn't taxed. But your money should work for you.

 

The problem with a 401k is that you are limited to the options within that 401k. The only time it makes sense to do a 401k is if it is a matched 401k, a Roth 401k, or if you have maxed out all other retirement accounts and wanted to continue to add to your retirement accounts.

 

Agreed and agreed

 

Tokyojoe,

I pay 16 bucks a month for 400k term and 100 bucks a month for 100k permanent.

One thing that I have to take into account is I live in ca. Housing is outrageous unless I commute 45-1hr away from work so renting which I pay 650 a month is super cheap if compared to buying a house or living alone.

This also goes to the Roth. I pay additional state income tax. But who is to say I don't live in ca when I retire then I was taxed extra if I contributed to a Roth....

The 401k isn't terrible I'm up quite a bit this year just I need to look at the fees. I use my contributions to keep my agi lower. Which as I understand I can't write off if I open my own traditional Ira as long as my company offers a 401k. Hence me opening a Roth.

 

I know housing is ridiculous. Honolulu has one of the most expensive housing market in the nation. 500k barely gets you in a condo. Being single is really hard owning a home in expensive markets.