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Can Helping Your Kids Hurt?

I recently saw a Pew Research study on financial independence among young adults. The study found six in ten parents of people aged 18 to 29 had provided at least some financial help to their children. In many cases the support was for regular monthly bills like groceries, rent or car insurance.

Of course if your young person is not working, they may need that support. But how long is it reasonable to continue to support your kids if they are not actively seeking an education and are working full time. It’s a question every parent has to answer for themselves. But it is important to understand whether you are setting your kids up for financial failure.

In one of my favorite books, The Millionaire Next Door, Thomas J. Stanley and William D. Danko, contend that it’s easy for a financial boost for your kids to become financial enabling. The support you provide increases their ability to spend on things they otherwise could not afford. With high rents and big student loan bills, life can be financially difficult for those just starting out, and it can be hard to know where to draw the line.

I did not draw the line in the right place. Last May, I wrote about how my daughter financially crashed and burned in How to Go From Happy to Desperate in Six Weeks or Less. Following the crash, to help her get back on her feet, she was living with us. Her budget was meant to be similar to what she would have to pay if she were living on her own with a roommate in our area. She gave us money for her non-discretionary expenses, like rent, utilities, groceries, car insurance, etc. We put it in savings for her. What was left had to cover everything else.

Except her medical costs. She doesn’t make much money. She has a government job with great health benefits but pretty low pay. I didn’t want her to skip getting the care she needed because she couldn’t afford her out-of-pocket expenses. So we agreed that we would pay for her medical expenses, and she didn’t need to include those in her budget.

Toward the end of that year, she had some tests done, and the medical bills came to around $500. No big deal for us, and we were happy she was getting help. She was actually doing really well with her budget. She was covering her “pretend” bills, and saving money beyond the money she was giving us. She had really embraced the idea of assigning a job for every dollar she had.

The problem was, she was assigning money that should have been earmarked for medical expenses, had we not been paying them, to pay for a tatoo. While we laid out $500 for her medical bills, she spent $500 on said tatoo. It was totally my fault. She had saved for it. She didn’t have to spend the money on anything else. But it bugged the heck out of me.

We made it possible for her to pay for a tatoo, because we were paying for an expense that was legitimately a part of her cost of living. And that is where the flaw in providing support to your kids lies. It masks their true cost of living, and as a result, they make decisions based on the inaccurate picture.

I want Kaye to understand her cost of living. She will make long ranging decisions such as where to live, whether to go back to school or change careers based on what she thinks she can afford, and I want her to make those decisions with all the clear-eyed facts.

Today, Kaye covers all of her expenses on her own. She includes saving for out-of-pocket medical costs in her monthly budget. Similarly she sets aside money for car maintenance and repairs. Of course we will help if something big and devastating comes up. But she is fully living within her means and saving for her needs as well as her wants – including her next tatoo.


Photo by Cory Woodward on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

How Close are You to Your Money?

I’ve heard more times than I can count “I don’t know where all my money goes.” People carry little cash. Heck, some stores don’t even take cash anymore. Few families keep a check book. It’s no wonder it’s hard to keep track of where your money goes. Without the tangible activity of pulling cash from your wallet or subtracting from your bank balance, there is little connection to your money.

This idea hit home several years ago. I’ll never forget the time when I was grocery shopping with my daughter. She was about six at the time. I had just checked out, paying with my credit card as always, when I realized I had forgotten the bread. Thinking it would make Kaye feel like a big girl to go through the check stand on her own, I gave her some cash and the bread and urged her to get in line for the cashier.

She looked at me like I was speaking a foreign language, and panic began to creep into her eyes. She held up the money and asked what she was supposed to do with it, and shouldn’t she have a card?

I was stunned. I didn’t realize that she didn’t understand what cash was, or that paying with cash or a card were essentially the same. Without that understanding, she couldn’t know that spending using a card was ultimately constrained by how much cash was in the bank.

Our family pays for everything with a credit card. It’s a tool. It has never made me feel less connected to my money. I am viscerally aware of every dollar I spend, whether it’s cash or card, and we pay off our credit cards every month.

But we are unusual. Only about a third of Americans pay off their credit card balance every month. A credit or debit card or payment app obscures the feeling of giving up money in exchange for whatever is bought for most people. That makes it emotionally easier to let your money go, and that can be a recipe for overspending.

Society is moving away from cash, and there are positives and negatives that come with that. If the negative for you is that you don’t know where your money is going consider approaching your spending differently.

Create a plan with a specific goal in mind. Before you spend any money from your next paycheck sit down and decide how every dollar is going to be spent. Be realistic. You need a plan you can stick with. But cover all of your bases. Make sure you are including money for expenses that don’t show up as regular bills, like car maintenance or celebrations.

The only way to keep your connection to your money is to be intentional with it. Cash may no longer be king, but you can stay in control. Rather than letting your money decide what you will do, decide what you will do with your money. Your financial security and your goals require you to make a plan, and understand where every one of your dollars goes.


Photo by Daniel Jensen on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Nothing Happens Without a Plan

October is Financial Planning Month. Of course it’s also Adopt a Shelter Dog Month, Breast Cancer Awareness Month, Global Diversity Awareness Month, National Bullying Prevention Month, and about ten other awareness, appreciation and support worthy causes month. But since Financial Planning is in there, there is no time like the present to do something important for you.

Rarely anything happens without a plan. Even your daily to-do list is essentially a plan. If something isn’t on that list, the chances of it getting done go down dramatically. So your financial security certainly isn’t going to happen without your attention. It won’t happen when you get a raise. It won’t happen when the kids are out of day care or college. It simply won’t happen unless you make a plan to make it happen.

Recently I’ve been speaking with a few couples who have just gotten started on their plan. They are in their sixties. They have saved a bit along the way, because they knew they were supposed to, but they haven’t followed a plan. As a result, they had not saved enough to support their lifestyles after they leave work. And in all cases, they are mentally ready to leave work.

Fortunately, because they have saved some, and they have equity in their homes, they are still going to be able to support themselves. But their lack of planning earlier means they will have to make significant changes to their lifestyle, even if they plan to work until they are in their seventies.

Now of course, if you are not currently saving, or saving enough, saving more will require a change in your lifestyle, even if it’s only being more conscientious with how you spend. It’s never too late, but the sooner you start the less dramatic and painful those changes will be.

The start of any plan is a goal. Some goals are far away and as hard to imagine as they are easy to put off. Typical savings metrics are uninspiring. You need three months of expenses in an emergency fund. You need 25 times your income in savings before you can retire. Both of these are daunting and unimaginable.

Savings goals aren’t actually about the money, but rather what you want to do with the money. So rather than save an emergency fund, a better stated goal would be to protect yourself from a financial setback, such as a job loss. Rather than saving for retirement, save for the freedom to choose whether to work and who to work for.

The next piece of a good plan is to define your goal, and this is where the money comes in. Your goal isn’t about the money, but it does have a price tag. If you find saving hard, simply start with a dollar figure you can live with. However ultimately you will want specific targets, especially for your long-term goals. And you’ll want to break those goals down into shorter more manageable targets, like how much you want to save this year, in the next three years, and so on. The rules of thumb can be a good place to start, but you know your circumstances, so make your own targets. For some free calculators to help you get started, check out my resource page.

With your goal defined, you can develop your strategy. Be very specific. Decide exactly what you will change on a daily, weekly and monthly basis in order to achieve your goal. Think about what might go wrong and how you will adapt, and if you can’t do all you want to now, think about how you can do more later. If you have a significant other, you have to work together on this. It will be hard to make progress if you both aren’t all in. Decide together on your goals and your strategy, and hold each other accountable.

I try to limit promotion of my book, Save Yourself, to the footer of my blog, but given the topic I’ll make an exception. My book provides a step by step guide to creating your own financial plan from developing goals and defining them to creating a strategy to achieve them. The final chapter walks through the development of a real couple’s financial plan. There are worksheets and references to calculators throughout. It’s available on Amazon and BarnesandNoble.com.

I hope you’ll take some time during Financial Planning Month to get started on your own path to creating your plan. Nothing happens without a plan, and that goes for your financial security too.


Photo by Ben Regali on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Talking Paying for College

With school having just started, many homes with teenagers are starting to get serious about preparing for college. Some seniors will be taking early acceptance by November, while juniors are mulling their options. So it’s time to get real with your kids about how you’ll pay for college.

You want the world to be your child’s oyster, and no one wants to talk about expenses when dreaming about the future. College is expensive no matter where your child chooses to go, but some choices will set you back farther than others. The following chart shows the average cost of college for the 2017-2018 school year from the College Board.

While most parents want to send there children to college, only about 57 percent of them save for it. The average household savings for college was only $18,135, according to Sallie Mae. That won’t even cover a single year at a four year school. So, that means the money must come from somewhere else. The following chart shows how America pays for college, also from Sallie Mae.

A full 27 percent of the cost of college will be paid for with loans. The average student loan debt per borrower from the class of 2017 was $28,650. At the current Federal Direct unsubsidized student loan interest rate of 4.53% for undergraduates, over the standard 10 year repayment period, payments on loans of that amount will be about $297 per month.

That can be a significant piece of a new graduate’s entry level job income. It’s no wonder that 30 percent of college graduates with student debt move back in with their parents. With money like this on the line, it is important to sit down with your future college student and cover the facts.

Here are five things to discuss with your child before she chooses a school.

  • Tell your student how much you will be able to pay. This includes what you have saved and what you are willing to commit to out of your income. The converse of this is how much should she expect to pay.
  • Outline options for raising the extra money. In addition to student loans and scholarships, your student may be able to raise some money through part-time or full-time work. Taking a gap year to work and save up for school is a reasonable approach.
  • Help your student understand the implications of their choices. Private and out-of-state public four year schools cost nearly twice as much as in-state public institutions. Student loans may be hard to avoid, but they can certainly be minimized if you understand your trade-offs. You can calculate the monthly payments given different loan amounts on the Federal Student Aid web site.
  • Provide context for the information. Estimate the kind of monthly salary your student might earn given her career interests. Payscale’s College Salary Report is a good place to start. It wouldn’t hurt to also talk about average living expenses. Nerd Wallet has a cost of living calculator. Don’t forget to show the impact of taxes. How much of her take home pay will be left after student loan payments?
  • Consider starting school at a community college. The average cost per year at public two year colleges is only $3,570 assuming your student can stay at home while she attends.

If you don’t have enough saved to pay for college, think carefully about the impact of paying for school out of your current income. It can put you behind in your efforts to save for your own future. And avoid taking on your own debt to pay for college for the same reason. If you are behind in saving for your own retirement, paying for college should not be your top priority. Your child has time to recover from the expenses of school. You do not.

A college education can substantially improve your child’s ability to earn a living. But taking on a lot of debt to pay for it can weaken her financial stability. Help her understand that her choices have implications for her lifestyle after school. Before she makes her final decision, she should know what she’s in for.


Photo by Tim Gouw on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Don’t Touch That

I’ve recently had a revelation. It started with my quest to make the perfect pizza dough. Then I realized, looking back, some of my more successful efforts were the result of the same idea. Things turn out better if I leave them alone.

It took many attempts to make pizza dough from scratch. The first several batches could be considered weapons. They were so hard, their only possible use was to hurt someone. I tried the cold rise, the warm rise, the overnight in the fridge rise. Finally I just used my bread maker. Low and behold, the dough was perfect. All it took was me not touching it. Apparently I had been overworking the dough.

I make a mean Thanksgiving turkey too. The secret of my success? I leave it alone. I don’t baste it. I put it in the oven, and only open the door to take the foil cover off so it can brown. The bird is juicy and perfectly done in less time. That is because I’m not constantly letting all the heat out of the oven.

I have to say my investment strategy is and always has run along the same lines. I generally leave my investments alone. Since I started saving for retirement, right out of college, the bulk of my money was invested in a single mutual fund, the Vanguard Life Strategy Growth fund. Target date funds didn’t exist at the time, or I probably would have started with one of those.

Since we were saving for an early retirement, we needed to save outside our retirement plans, so about half of our savings was taxable. As we got older, our investment strategy needed to get more conservative. But I didn’t want to pay capital gains tax on my Life Strategy investment. So I solved the problem by gradually buying bonds and bond exchange traded funds with my savings contributions. No selling, no trading, only buying.

Now that I’m retired, it hasn’t changed much. We still have the Life Strategy Growth fund and the bonds. Each year some of the bonds mature to provide for our spending money during that year. At the beginning of each year, I rebalance between the Life Strategy Growth fund and my bond holdings. And that is the extent of my investment management strategy. Like the pizza and the turkey, the secret to my investment success is leaving my investments alone.

Could I have had better results if I had been more active. It’s not likely. In fact it’s far more likely that my results would have been worse. The average actively managed investment strategy does not produce better results than a buy-and-hold index investment strategy. Though active investment managers will tell you their strategy is the one that does.

If you are wondering how to invest your retirement savings, find a strategy that you don’t have to put much thought into. A target date retirement fund is a perfect solution. You can spend your energy saving for retirement and your investments will do much better if you leave them alone.


Photo by Nadya Spetnitskaya on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Time to Retire Retirement and Bring Out Financial Freedom

These days, it’s easy to find advice that says you should never retire. There is evidence that maintaining some structure and the social network that work provides is good for your physical, mental and financial health. And there is nothing wrong with putting a positive spin on the necessity that far too many face; the need to keep working to pay the bills well beyond the normal retirement age.

Unfortunately, this line of thought is being used to justify not saving for retirement. That is a mistake. Even if you love your job, there is a good chance that you won’t be able to do it forever. The older you get, the more health issues can sabotage your plans, whether the issues are your own or a loved one’s. Older workers face higher unemployment, and it’s more difficult to get a job after the age of fifty-five.

But while you are young, and have the time to save for retirement, these eventualities seem remote and certainly not your own. So it may be a good time to start thinking about your life beyond work in different terms. While retirement conjures visions of white haired people playing endless golf and gardening, having enough money to be able live without a paycheck has a much more important benefit – financial freedom.

That is why I left work at the age of 51. My husband and I had saved enough money to support our lifestyle for the rest of our lives. He had retired the previous year. We didn’t need to work for pay anymore. While I liked my work, which was challenging, I had become tired of catering to other people’s demands. I figured if I didn’t like retirement, I could always go back to work. Because we had saved, we had choices.

I have never looked back. Since leaving work, my husband and I have done the things that are important to us. I began this blog and wrote a book to help others learn how to save and invest for their own financial security and retirement (you can find it on Amazon). I’ve personally helped dozens plan for their retirement and get their financial houses in order, all for free, because I think its important and I like doing the work.

I also serve on the boards of a few non-profits where I do volunteer bookkeeping and offer my expertise. That includes the non-profit my husband started to coordinate services to low income and homeless individuals and families. He is building a mobile shower unit to serve the homeless in our county. You can read about the project here. The proceeds from my book have gone to fund this effort.

So, as you can see, our time is filled with activities that have meaning and that we value. The money we saved for retirement gave us financial freedom to do what is important to us. It gave us the power to choose what we do with our days, and the freedom from fear of losing a job.

What would you do, if it didn’t matter whether you brought home a paycheck? Start a business? Create art? Help a family member or neighbor in need? Leave me a comment if you’re willing to share. You may not know right now what you would do with your financial freedom. But wouldn’t it be nice to have choices?

Maybe it’s time to retire the word “retirement” and replace it with financial freedom, as in, “I’m saving for my financial freedom.” That might just be motivating enough to get you to start working toward it today.

Photo by Fuu J on Unsplash


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

There is No Stock in Money Market Funds

Recently, I’ve recommended a money market mutual fund to a few friends who had money sitting idly in bank savings accounts. I knew they needed to keep the money safe, but it could still be earning some interest. So, I was surprised to hear from a couple of them last week as the stock market was gyrating.

Both were concerned that their savings could be in jeopardy, though neither had seen any changes in their account values. So, I knew I had not done a very good job of helping them understand where they had put their money.

Money market mutual funds are a safe place to put money that you need to be there under any circumstances. They are perfect for holding money you are saving for an emergency or a big ticket purchase. They are an alternative to high yield savings accounts, which have gotten a lot of press lately.

My friends’ confusion may have come from the idea that money market funds are mutual funds. Mutual funds can invest in any kind of asset. True, about half of all the money invested by mutual funds is invested in stocks, but there are funds that invest in all sorts of things other than stocks.

Money market mutual funds do not invest in stocks at all. There are strict regulations regarding what a money market fund can hold and still be classified as a money market fund. These funds only invest in high-quality short-term debt instruments. In fact, they cannot invest in anything that will pay off in more than 13 months, and the average time to pay off of all their holdings must be 60 days or less.

These debt instruments range from Treasury bills, which are the short-term debt of the U.S. Government, to short-term loans to well heeled private companies. The interest earned by these instruments are the source of income on the money market fund. The income is usually paid out monthly in the form of a dividend to the fund shareholders.

Money market funds usually offer higher returns than a savings account, and recently some funds’ yields have surpassed even high yield savings account yields. Money market funds can be easier to deal with than a high yield savings account, where you may find restrictions on the number of withdrawals you can make in a given month.

The big difference is that money market funds are not insured. A savings account at a bank, even a high yield savings account at an on-line bank, is FDIC insured up to $250,000. If your bank goes out of business, you will get your balance up to that amount back from the Government.

Money market funds rely on diversification, high credit quality and short-term exposures to maintain their steady $1 per share value. They offer no guarantee, yet they have been consistently successful at managing their risk. Since their introduction in the 1970s, only two funds have had their share values drop below $1; one in 1994 due to large holdings in unconventional investments and one in 2008 due to a large holding of Lehman Brothers debt.

While a loss is theoretically possible, money market funds have historically been and continue to be a safe alternative to bank savings accounts. They offer an opportunity to earn a bit of better return on your money without giving up flexibility. The value of your investment there will not be impacted by anything that happens in the stock market. So you can rest assured your money will be there when you need it.

Photo by Alexandra Gorn on Unsplash


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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

Three Simple Truths About Investing

If you are saving for retirement, or any other long-term goal, how you invest your money is an important piece of achieving that goal. Many of the folks I’ve spoken with are not investing their savings well, or even at all, meaning they may be earning interest but little else. Some even say they haven’t been saving because they don’t know how to invest their money.

I get it. The vast majority of people have no education in investing, and, while there is lots of information about it on the internet, it is really hard to know what to trust. Advice and information can be conflicting. If the bulk of your savings is in your retirement account, it can be hard to get help from an adviser, who generally will require a large minimum investment amount to take you on as a client.

But while the thought of risking your hard fought savings in any investment can give you a case of anxiety, here are three truths to keep in mind that can help calm your nerves.

  1. You don’t have to get everything, or even anything perfectly right. Good is really good enough, and frankly there isn’t any strategy that is perfect. The investment market values are the culmination of every investor’s opinion about what will happen in the future, and no one actually knows that. Successful investors hold a variety of investments knowing some will be better than others, but not knowing which is which over any short time frame.
  2. Timing is nothing. The perfect time to invest your long term savings is today. No it doesn’t matter if the market is overvalued, interest rates are too low, or if a recession is on the way. First there is no sure way to know that any of this is true. And second, it won’t be the last investment you make. You’ll be saving for a long time, and you’ll be investing in all types of markets. Third, ten, fifteen or twenty years from now there is a high probability your investments will be worth more than they are now. Time is on your side, and the market has never failed to recover from a downturn.
  3. Keep it simple. There are many low cost perfectly good ways to have your money invested for you. In your company sponsored retirement plan, you likely have the option to invest in a target date retirement fund or a managed account. If so, choose the option that fits with the time you have remaining before you retire. You can safely put all of your money in that investment. It is completely diversified and will adjust so that it continues to be an appropriate investment for your age. You can find similar options for your individual retirement account. Vanguard, Fidelity and T. Rowe Price all offer reasonably priced target date retirement funds. Betterment and Wealthfront, as well as others, offer low cost managed solutions for your IRA or taxable savings. Many state 529 plans also offer age based investment options for your college savings.

Investing your savings well is important to helping you reach your savings goals, but that doesn’t mean it has to be hard or scary. Choose an off-the-shelf investment option that will remain appropriate for your age throughout your career and don’t worry about what the market is doing on any particular day, week, month or even year.

Confessions of a Super Saver, aka So Tight I Squeak

In the last year, my husband, Jeff, and I have been attempting to be a one car family. At first it wasn’t even real, since one of our neighbors snowbirds in Palm Desert and asked us to drive his Portland car. But now it is, and I find myself wrestling with transportation decisions when I really shouldn’t. It is a great illustration of how our minds can get in our way, whether it’s with spending or saving money.

First, why are we doing this? Now that I don’t work, I barely drive. Most of my social and volunteer activities are in down town Portland, and I live less than half a mile from a light rail station. When I go down town, I much prefer to take the train, because I may, in fact, be the world’s worst parallel parker. The rec center where I work out is a block away. When we had two cars, I only used mine once a week, if that. For the first couple of years of retirement, aside from road trips, I probably only drove 1,000 miles a year, and many of those I could have walked.

So having a second car was a waste, and it really wasn’t good for the car, which needs to be driven to keep working well. We are literally saving thousands a year by owning only one car. The average cost to own a car is over $9,000 a year.

For that money, I could take a Lyft or Uber every day. I can use the train all day every day for nearly five years. Yet I hesitate. If I want to go to a place where I can’t walk or easily take public transit, I tend to assign the cost of a Lyft to my activity, and mull over whether the activity is really worth it.

This is not because money is tight. We have plenty of money to do whatever we want. It’s because I am habitually and detrimentally frugal (some would say cheap). Mulling the value I get for the money I spend is so deeply ingrained in the way I think that it gets in my way.

So that is my confession. I’ve read that every strength, taken to an extreme, becomes a weakness, and this is one that has for me. What I really should be thinking about when I call that Lyft is how much fun I’m going to have, or how much good I’m going to do if I’m volunteering. I shouldn’t be thinking about money at all, because I’ve already figured out that I’m saving a ton by not owning a second car.

This is how our brains work. We are naturally irrational. We focus on the thing that is in front of us, and it takes effort to see the big, long-term picture. Whether we’re a saver or a spender, it is this short-term focus that works to our detriment.

It helps to verbalize what you are trying to accomplish. If you need to save money, talk about what you are saving for with your partner or a friend. Write it down in a journal or wherever you keep your budget. Revisit it regularly and mark your progress. If you are holding too tight to your money, like me, turn your attention to and talk about all that you have accomplished, and take joy and comfort in knowing you are on track.


Photo by Thought Catalog on Unsplash

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For a comprehensive, step-by-step guide to building your own financial plan, pick up my award winning book, Save Yourself; Your Guide to Saving for Retirement and Building Financial Security.  It is available on Amazon.

When to Kick the Life Insurance Habit

When my husband, Jeff, and I retired, we dropped our life insurance policies. Even though our daughter was still in high school, we had already saved all we were going to save. The income generated by our savings would be there regardless of whether we were alive, and we had no work related income to replace.  We didn’t need life insurance any more.

I have had the pleasure of telling a few friends they could cut their expenses by dropping their life insurance policies. Initially the reaction is a small gasp. It seems somehow sacrilegious to give it up if you are trying to live a financially sound lifestyle. But for these individuals, who happened to be single women with adult children, life insurance wasn’t a necessity. The kids were out of the house, and they didn’t need Mom to provide for them anymore.

Not everyone needs life insurance. Now you don’t see that statement very often. More often you see gloomy statistics, like less than 60 percent of Americans have life insurance, from a 2015 BankRate.com survey. Of the 40 plus percent of those who don’t have it, for some at least, there is a good reason.

You don’t need life insurance if you don’t have anyone depending on your income for support. The purpose of life insurance is to replace your income if you pass away. If any of these situations sound like you, you don’t need life insurance:

You are single and have no children to provide for. While many will miss you if you are gone, no one will miss your income.

You are single with adult children. The same goes here. Your children are grown and they can get along without you providing them with a life insurance benefit.

You are nearing the end of your career and you have the savings you need. As you get older, your savings grow and you have more equity in your home. These assets will help provide for those you leave behind. Therefore as you get older, assuming you are saving as you should, you need less and less life insurance, until eventually you need none.

You are a child. Children don’t need life insurance. They don’t have an income to replace. Some insurance companies sell policies pitched as a way to save for college. These policies are whole life policies that have a savings element. They develop a cash value over time which can be borrowed when your child is ready for college. But you would be better off just investing the amount of the premium in your state’s college 529 plan. All of the money will go to savings rather than providing a profit to the insurance company and life insurance coverage that you don’t need.

If none of these situations is you, you probably need some life insurance, but the amount you should have could be different depending on your situation.

You have young children. Those who have young children need the most life insurance. And they are most likely to be under insured. The life insurance provided by your employer will definitely not be enough. You will want your children to be raised with the comfortable lifestyle that you hope to provide for them, and you don’t want to make life financially difficult for your spouse or their guardians. The younger your children are, the more financial support they will need. LifeHappens.org has a good calculator that takes into account all of the relevant information to help you determine how much life insurance you will want to put in place.

For this situation, term life insurance is all that you need. Term life insurance provides coverage for a specific period, like ten or twenty years. Your premiums will be the same throughout the term. At the end of the term you can renew or allow your policy to lapse. You can also cancel your policy at any time without penalty. Term policies are the lowest cost form of life insurance. They are perfect for most people, whose need for life insurance declines over time.

Do not make your minor children beneficiaries of your life insurance policy. Insurance companies won’t pay out a benefit to anyone under the age of 18. Name your spouse, your children’s guardian or a family trust as the beneficiary instead.

You are married and your lifestyle is dependent on your income. It is worth having a discussion with your spouse about how he or she would want to live if you were gone. Would he want to stay in the house, or downsize? Are there debts to pay off? What income could he expect from working? If your spouse could not maintain his or her lifestyle without your income, even if you don’t have children, you need life insurance. If your spouse is working or reasonably could work if you were gone, you won’t need as much. If you have debt that will need to be paid off, you may need more. Term life insurance will do in this case as well.

You have outstanding private student loans.  If you have outstanding private student loans, someone may be liable for their payment after you die. If a parent, grandparent or someone else cosigned for your loan, they may still have to pay the debt after your death. If you live in a community property state and took on the loans after you married, your spouse may still have to pay. You should have enough life insurance to cover the repayment of those outstanding loans. If you are a parent cosigner, you can take out a life insurance policy for the amount of the loan on your student. Again a term policy will work just fine here.

Not everyone needs life insurance. As our kids grow up and our savings build, our need for life insurance gradually declines until it no longer exists. For the time that you do need life insurance, for most people a simple low cost term life insurance policy is all that you need. Don’t spend any more money, or spend it any longer than necessary, on life insurance.


Photo by Jason Briscoe on Unsplash

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