How Older Parents Can Assure Their Children a Secure Retirement
Posted on | June 11, 2009 | 2 Comments
As an older parent (I’m now age 57), I’m grateful that my children still listen to their dad’s advice.
I’ve always counseled my children to prepare for the future financially by maximum-funding a tax-advantaged life insurance contract on themselves.
It’s the only investment vehicle that accumulates money tax-free, then allows you to access your money tax-free, and when you ultimately die, it even blossoms in value and transfers income-tax free.
No other investment does that. I own several universal life insurance contracts (both indexed and fixed), and I have received an average internal rate of return of 7-8 percent on most (that’s cash on cash -after the cost of the insurance is deducted).
Sure, some years I have only been credited the minimum guaranteed interest rate of 1, 2, 3 or 4 percent. But other years, I have earned as much as 21 percent, as the interest rate credited was linked to whatever the S&P 500 did that year — without my money at risk in the market.
Recently I’ve begun to teach my children they can take this strategy a step farther — and I can help.
Let me tell you of the advice that I’m now giving my children.
“Kids, what if I could tell you which two teams would be playing in the Super Bowl next year, and what the final score will be? While I can’t predict that, I can predict something else with fairly good accuracy: 80% of us will live to age 65; 60% to age 75; but only 30% to age 85; and less than 10% of us will live beyond age 90.”
Average life expectancy for a 60-yr old is about 22 years.
In facing the reality of the years I have left, I’ve come upon a revolutionary way to help my children assure their own financial security — especially down the road when I “check out.”
In doing the math, it became obvious that if my middle-age children were the owners and beneficiaries of a life insurance policy on my life for, let’s say $1 million, it would be better for them to deposit premiums of $500 a month into that policy, rather than into a Roth IRA or 401(k).
Why? Because an IRA or 401(k) would need to earn an average yearly rate of return of 9.4% for 30 years for $500 invested per month to grow to $1 million.
But, if I “go” anytime in the next 30 years or so, by using a life insurance policy, they would immediately receive a nice $1 million tax-free nest egg!
Hence, I’m insisting each of my children own a life insurance policy on my life as part of their overall retirement planning process.
The miracle of compound interest and tax-favored accumulation of money is great. But nothing beats the power of safe, positive leverage. I’m thrilled I can leverage my life to leave a legacy for my kids. You might consider the same.
Doug Andrew
photo by Leonid Mamchenkov
Tags: 401(k) > 401(k)s > Death Benefit > Doug Andrew > Fixed Insurance > Indexed insurance > Max Funded Insurance > Parents > Retirement > Roth IRA > S&P > Secure Retirement > Universal Life Insurance
Comments
2 Responses to “How Older Parents Can Assure Their Children a Secure Retirement”
Leave a Reply
July 10th, 2009 @ 5:24 pm
Where are you getting quotes for $1M universal life policy on a 57-year male for $500/mo?
July 22nd, 2009 @ 11:02 am
Where are you finding a $500/mo premium for a $1M whole life policy?