A lot of the financial advice that he puts out is pretty sound, but when it comes to life insurance this guy is a blithering idiot. Trust me on this. I wonder how many people have compromised their retirement/financial plan by taking his blithering idiocy to heart. One thing to remember when it comes to retirement/financial planning is that there are very few if any absolutes. When someone starts spewing out things like, “all cash value life insurance policies are horrible” be very cautious. When someone spews a one-size-fits-all plan, be very cautious. I hear Dave Ramsey do this all of the time. How many times have you heard him say as a blanket statement, “save your nest-egg, open up ROTH IRA with a good growth mutual fund, get debt free, get ONLY term life insurance and invest the difference ...”
The truth is that the Dave Ramsey blanket financial plan can be pretty stupid for some people. The reality is that term life insurance is good for some people’s situation, and that a good variable universal life or whole life insurance policy is good for other situations. Let me throw out a question; what is the biggest bill that most Americans pay? It’s taxes. Your biggest bill is to the tax man. When you tap into your 401(k) after you retire you will be paying income taxes on the payouts. When you tap into that killer growth mutual fund that you’ve been contributing to, you will pay taxes. Plus that 1099 you got in all the years past. Of course if that killer growth mutual fund was in a ROTH IRA you wouldn’t pay any taxes on the gains. But, right now the annual limit to a ROTH is 5000 bucks per year. Also, if you make over $169,000 jointly the ROTH is probably out for you. What if you are above the income limit but want to have an investment option that offers the tax advantages of a ROTH? A cash value life insurance policy could very well be great deal for you because the cash value in an insurance policy can be accessed tax free.
In a good variable universal life insurance policy the tax advantages will most likely far outweigh the charges of owning the policy. It’s a FACT. If you do the math, taking into consideration the ultimate service charge of Uncle Sam, the variable universal life insurance policy can prove its worth. Dave Ramsey be damned. Also, what if you’re contributing the max to your 401(k) and you’re maxing out your ROTH? Well, it MAY be a good idea to cut back on what you’re contributing to your 401(k) down to what your employer matches (make sure to take advantage of that free money) and then use the difference to take advantage of the tax advantages of a good cash value life insurance policy. It could help offset the tax hit you’ll take from payouts from your 401(k).
Of course it’s much, much more complicated than this. A good, solid financial plan is a complex, long-term undertaking. If you’re serious about this--and you should be--consult a professional who is equipped to mold an approach to your specific needs and goals. DON’T listen to some fool on the radio.
Here is what I believe is the best advice in this regard. Consult a professional who does not have all of their eggs in one or very few baskets. If you go to a place that only specializes in insurance, insurance will probably be the only solution offered. If you go to a master of mutual funds, then mutual funds will be the solution. A straight up stock broker/wealth management person will also be limited. The professional you consult should be someone who is licensed and has access to all of these things. That way they are not trying to fit you into a plan limited by their lack of tools. What they will do is fit the plan to you and your needs and they will have access to all the tools needed to do it. They should have access to everything from life insurance, to disability insurance, to annuities, mutual funds, money market accounts, CD’s, long term care, wealth management and stock brokerage, and everything in between.
Do this and turn off Dave Ramsey.
I’m just saying.
Posted by The Raging Patriot at 07:37 PM. Filed under:
