It is often challenging when you are younger to decide the best course of action to get started investing in retirement. You find yourself being told something different by everyone you talk to. One popular suggestion is to buy term and invest the rest. This could be a more cost effective method than the cash value life insurance I mentioned in my last post but, then the question becomes "Invest in what?".
I did a comparison between two term policies with the same insurance companies. I did one with return of premium and one without. The difference is, as you may have guessed, if you don't die during the term with one policy you get all of your money back. With the other policy, you don't. I used a 30-year-old male, non-smoker, in excellent health with a $250,000 death benefit and a 30-year term. The premium for the first policy was $28.53 per month while the second was $21.66. The difference was $6.87 per month. So again, the question is "Invest in what?".
Anyway, just buying the first policy and getting your money back at the end was equivalent to buying the cheaper policy and faithfully invest the difference of $6.87 every month for 30 years and getting an 8.02% return year in and year out. While that may be achievable and realistic, the odds are that you would need a much greater return than that to cover commissions and transaction fees.
Your ability to build your nest egg will likely increase over time but, a policy like this might be the first block in a solid foundation for your overall plan. It would provide protection for your family while you were working and all your money back at the end.
