Monday, April 22, 2013

Alternative Uses of Life Insurance Help College, Retirement


Americans aren't saving enough money, hampering their ability to save up for their ideal retirement experience or top-notch college education for the kids, a new study suggests.

They are not laying the foundation now for brighter days in the future. Surely the sagging US economy hasn't helped much since 2007, but even before the bubble burst, we were generally not very good at socking money away for the future.

New information from the Employee Benefit Research Institute shows that the number of Americans with less than $25,000 in savings (excluding their homes) has increased to 57 percent from 49 percent in 2008. According to the Wall Street Journal, who wrote about the survey earlier this month, about 28 percent of Americans are not confident they will have enough money to retire comfortably – a record high for the institute's study.

Half the people surveyed said they were not sure where they would come up with $2,000 if something came up. According to the story:

"Workers are recognizing there is a crisis," said Alicia Munnell, director of the Boston College Center for Retirement Research. She noted that companies continue to do away with traditional pensions. The survey of workers and retirees was conducted in January, even as the U.S. stock market was heading toward new highs.

Planning now is essential to getting yourself on a firm footing for when more money is flowing through the economy and your accounts again. Consider using life insurance for the following reasons:

Roth IRA accounts have a limit on tax-free contributions ($5,500 in 2013), but life insurance does not have a limit on contributions. Section 529 plan for college can grow tax free, but if the child decides not to go to college, the money is taxed like an IRA. With life insurance, if the policy holder passes away, the money can be used to cover a variety of family costs (i.e., college expenses) tax free, depending on the plan.

Section 529 plans can have volatile returns, but life insurance payments -- although more conservative -- remain constant. The trick is to project costs far out into the future and juggle that with earning potential over time to arrive at the correct payments to give policy holders their perfect retirement lifestyle. And life insurance funds can be accessed at any time, not just when the kids go off to college.

Keep this in mind the next time you are considering financial tools for education and retirement. If you have more questions or need more information, our staff at Palma Financial Services stands ready to help.

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