Simple Debt-Free Finance

A Simple Approach to Getting Out of Debt & Into Wealth

Planning for Retirement

Posted on | January 9, 2008 |

“It behooves a man to make preparation for a suitable income in the days to come when he is no longer young and to make preparations for his family should he be no longer with them to comfort and support them.”

-Arkad, the Richest Man in Babylon.

Translation: Save for your retirement (don’t burden your loved ones or the rest of society) and get life insurance.

If you follow the 1st cure for a lean purse, and put that 10% of your savings into a high yield savings account (making use of the magic of compound interest), then you’re off to a good start, a solid financial foundation indeed. But high a yield savings account alone is not enough to build the wealth needed for your future income. To avoid the pitfall of inflation eating away your hard earned nest egg, you need to invest for growth while time is on your side.

The key principals here are:

  1. The time to plan for your retirement is now. Figure out how much you’ll need for retirement, by using a retirement savings calculator and set a plan to reach that figure. Make as much of it automatic as you can. This means using Direct Deposit of your paycheck as well as automatic contributions to 401k/IRA and savings accounts.
  2. Diversify. Diversify. Diversify. Stocks and Bonds. If you’re worried about picking the wrong stocks, think Index Funds and ETFs. With these flavors of tools and the many online brokers available today, it’s easier than you think!

Be sure to check out these resources about Asset Allocation:

Investing for Beginners: Asset Allocation
Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing

“Provide against a lean purse in their mature years, for a lean purse to a man no longer able to earn or to a family without its head is a sore tragedy.”

This brings us to life insurance and disability insurance. There are a number of online search tools for getting agents to compete for your business, but I’m not going to link any in this post. The truth of the matter is, I haven’t used any of them so I don’t feel right recommending any. I do need to revisit my own policies however. I have one through my employer and one on my own so there’s probably some doubling up going on there.

Just some quick notes on life insurance in general:

  • As the quote above suggests, the main purpose of life insurance is to replace your income should something unspeakable happen to you and you are no longer around to financially provide for your loved ones.
  • Life insurance for children makes little (if any) sense, since they do not provide an income that would need to be replaced.
  • Stay at home moms may not provide an income to be replaced, but they provide a very real and necessary service: caring for your children. If she’s no longer there to care for them, you’ll have to find someone who can or some way you can and either option means $$. So, keep that in mind too.
  • Go with a term policy and not whole life or permanent. Term policies are for a set period of time (20 or 30 years) and only pay out in the event of the insured’s death; replacing their income. Whole life (or permanent) policies have an investing component to them, but many people feel that the fees and commissions only serve to build the agent’s wealth at the expense of your own. The thinking here is this: If life insurance is meant to replace your income, then don’t mix life insurance with investing for the future- invest that money on your own in low cost mutual funds (index or ETFs) and keep more of your money working for you, instead of an agent. Also, many times the investing portion of the policy is locked up in an annuity that carries surrender fees and penalties for early withdrawal, so investing on your own (or through a separate investment broker) gives you more control over where you put your money… and it is your money after all. The two big questions most people have about Life Insurance are: What kind should I buy, and How Much Coverage Do I Need? You can follow the links to read my thoughts on those questions.

As for disability insurance… it’s the one most people forget about. We tend to think about the BIG one, as it were, “What will happen to my loved ones if I die?” and we never think of the more mundane, and likely scenario of becoming injured or contracting a disease and being unable to work for a living. I’m fortunate enough to have a good plan through my employer, so I don’t have any experience with shopping around for this one.

Bookmark and Share
Related Posts Related Websites
Category: Insurance, Retirement, Saving

Comments

Leave a Reply





  • Search

  • Get Updates

    Subscribe in NewsGator Online
    Add to Technorati Favorites

  • Recent Comments

  • Tags

  • Contact

    If comments aren't enough, feel free to contact me at:

  • Frugal Hackers badgeMoney Hackers Network
    RSSMountain On our way to 1,000,000 rss feeds - millionrss.com Blog directory
    Investing Blog Directory RSS Search Blogged.com hihera.com

  • Blog Catalog Visitors

  • Disclaimer

    The information and opinions provided on this site do not constitute professional advice. This blog is intended to provide general information only about the author's own personal financial journey. While all information shared here is believed to be accurate, the owner/operator of this website specifically disclaims all warranties expressed, implied or statutory, regarding the accuracy, timeliness, and/or completeness of the information contained herein. You are advised to discuss your specific requirements with an independent financial adviser. All posts are © 2008-2011, Simple Debt Free Finance.

  • Unique visits since 2008:

  • ss_blog_claim=f34d742cbb91cfd8bb6b4f0e010113be ss_blog_claim=f34d742cbb91cfd8bb6b4f0e010113be

  • Useful Links: