Whole life vs. 401k

VanHook

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So on a different forum, a thread was started about retirement and of course it got sidetracked a bit. I don't remember all the exact details but at some point, an insurance agent (or something similar, I don't know exactly what her title is) started posting and basically recommended whole life insurance over a 401k as a retirement plan. She even said that if your employer offered a 401k match, that she didn't recommend contributing to get the match. I was blown away by this and have never, ever once seen anybody recommend that. She said multiple times that "you have to pay taxes on it when you withdraw it so it really isn't free."

Anyways, for those of you who know more about whole life policies, what are your thoughts on them? I am fairly well-versed on most things financial but will admit that I don't know a whole lot about whole life policies. Most everything I've read about them just said not to ever buy a policy. Thanks.
 
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Always take the free money with the match! Besides, the magic of the 401k is that you don't pay capital gains on the growth. The 401k and the Roth IRA are the best retirement tools available to the average guy. I would run away from anyone who tells you not to take the free match of a 401k match. Just my thoughts.
 

Trigger50

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Get lotsa opinions before deciding. Alot depends of what goals are, plus family size etc...
 

npaden

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I wouldn't say to never buy a whole life policy, but it is crazy talk to tell someone not to at least get their match on a 401K plan.

Many 401K plans offer a ROTH option so the tax discussion becomes moot pretty quick there.

Some of the very largest commissions in the investment world are in whole life policies. It's pretty easy to see why someone who sells them would be pushing them as the best option.
 

TimeOnTarget

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The only person who comes out ahead on whole life is the person selling it.
 

LopeHunter

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Here is my advice as passed along generations around our table. Get term life when you are very young and have minimal net worth but have a dependent (spouse who does not work, kids) or two. Perhaps get 2 or 3x your annual wage earnings. That will bridge several months or years if your spouse needs to move, change careers or sell the home. I expect my spouse to enter another relationship if something happens to me. Seems silly to wear black for decades.

Term life should be relatively inexpensive while you are in your 20s and into your 30s. Get some disability coverage through your workplace if they offer it.

Put money in a 401K if offered at work or IRA if not.

Whole life and annuities make no sense for most of us on this forum. If you are a 1%er then get a wealth adviser that works on hourly fee and not as a override on your investment holdings and investment purchases.

If you look up the net worth for most people at age 20, 30....60, 70, 80, etc then you will probably realize how few have managed to build up even $100K net worth. Catastrophic medical costs can bankrupt 90% of us in a year or two though otherwise building up a bit of wealth will put you far ahead of the herd.
 

idnative1948

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Dad sold insurance until he couldn't take it because he always pushed term over whole life. Said if us boys ever bought whole we had too much money to burn. JMHO so don't rant on me.
 

dukes_daddy

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Diversify

401K gives you an automatic raise of whatever percent your employer matches and you also decrease your taxes.

IRA if you have access to a good advisor. My Edward Jones guy is amazing.

Hindsight is always worth passing on. Grandpa always told me "ain't making more ground and got to dig for gold so buy both". He was right!
 

ashersdad

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Get a good financial advisor that will focus on YOUR goals and YOUR individual situation.

Remember that guys like Dave Ramsey are talking to the masses, not necessarily the individual (I do like Dave). Most (not all) should have at least 10x their annual income in term life insurance. Whole life can have its place, but it's rare. Disability insurance is also a must.

NEVER turn down a 401k match. If you have a Roth 401k option or qualify financially to contribute to a Roth IRA, your CPA can help you decide if that makes sense for you.

My Dad always said, "save early and save often". Good advice.
 

dainer

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Anyone here think whole life is a good option for those who do not qualify to contribute to a Roth IRA, or, for those wishing to put away more than $5,500 a year??

Not sure why everyone hates whole life, as I would imagine it is a useful tool to a large percentage of the people who are actively investing. If you go into it with realistic expectations of 4%, realize it's not only an investment vehicle, and enjoy the peace of mind it offers, what's the drawback?
 

TimeOnTarget

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Anyone here think whole life is a good option for those who do not qualify to contribute to a Roth IRA, or, for those wishing to put away more than $5,500 a year??

Not sure why everyone hates whole life, as I would imagine it is a useful tool to a large percentage of the people who are actively investing. If you go into it with realistic expectations of 4%, realize it's not only an investment vehicle, and enjoy the peace of mind it offers, what's the drawback?
While I'm certainly not a pro or in the insurance field, I don't think whole life is ever a good option.

My term life guy also tried to sell me whole life. He gave me a policy that guaranteed a 4% return. But when you actually run the #'s on your dollars invested the rate of return was 0.75% over 40 years! This is using the #'s right off of the papers that he gave me.

How is that ever a good investment?


The key to using term vs whole life is that you have to actually invest the money you would have spent on the whole life premiums so that by the time your term life runs out you are self insured life insurance wise.
 

Straight Arrow

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The only person who comes out ahead on whole life is the person selling it.
As a senior citizen who purchased whole life right out of college and paid into it for decades, finally terminating it after realizing it is a poor investment tool and a very expensive life insurance option.
I recommend a Roth IRA and/or 401k, especially if it involves matching contributions.
 

Nemont

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As a guy in the business my advice is this: Buy insurance for insurance sake, invest in retirement plans for retirements sake.

Ask yourself this question: Do you know anybody who has retired on their life insurance policy?

Nothing is good or bad except by comparison. There are times when a whole life policy is a better insurance policy rather than term, for instance in cases where a buy/sell is to be funded by life insurance inside of partnerships or family businesses where one is unsure of the time horizon and you may need coverage for your or your partners "Whole Life".

A life insurance policy including variable life insurance policies are not efficient ways to invest your hard earned retirement funds. With annuities there are other considerations but there may be a place in you future for one but that depends upon a whole host of other factors, including what happens to the funds should you die. With annuities you don't get the stepped up basis for tax purposes.

Also just another side note, don't look to hunting forums for you investment/insurance advise.

Nemont
 

SnowyMountaineer

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...Also just another side note, don't look to hunting forums for you investment/insurance advice.
Ha, no kidding. There are only a dozen or so guys I'd even take hunting advice from on a hunting forum. Granted many of the considerations above are valid.
 

Cornell2012

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...recommended whole life insurance over a 401k as a retirement plan. She even said that if your employer offered a 401k match, that she didn't recommend contributing to get the match.... She said multiple times that "you have to pay taxes on it when you withdraw it so it really isn't free."
I mean if someone on the street said to you "I'll give you $20 if you put $100 in your savings account, but the government will take $10 of it," (exaggerations) would you take them up on the offer or just give up free money because the government will get some? The face value is maybe higher than what you actually get, but it is still free money.

I'd be wary of advice from people on the internet, especially people who have something to gain by you acting one way or another.
 

sbhooper

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While I'm certainly not a pro or in the insurance field, I don't think whole life is ever a good option.

My term life guy also tried to sell me whole life. He gave me a policy that guaranteed a 4% return. But when you actually run the #'s on your dollars invested the rate of return was 0.75% over 40 years! This is using the #'s right off of the papers that he gave me.

How is that ever a good investment?


The key to using term vs whole life is that you have to actually invest the money you would have spent on the whole life premiums so that by the time your term life runs out you are self insured life insurance wise.
Exactly! The only problem is how few people have the discipline to invest it.
 

TimeOnTarget

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Exactly! The only problem is how few people have the discipline to invest it.

People will pay $100+ monthly premium for whole life but dont have the discipline to invest those same dollars. This blows my mind.


Set up direct withdrawls from your bank account just like the insurance probably would be set up. Except have your money going into something with an actual rate of return.
 
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