Friday, April 3, 2015
Entry 25 - Life Insurance Question Responses
1. Explain how term life insurance works.
- A person with term life insurance is covered for a certain duration of time, this amount of time expiring at a certain outlined date. It is at this expiration date that the policy owner must decide whether to renew life insurance for the recipient or to let the coverage end, this decision often taking into account whether the person in question is of a high liability or not. For example, if the recipient has multiple health complications and thus needs medical treatment often, he or she is of a greater ‘liability’ and in this way requires more coverage and money on the part of the one providing coverage. If this is the case, this person is less likely to get reasonable coverage and may not receive coverage at all due to his or her high need for maintenance. To receive term life insurance, your health state must be analyzed and you must be allotted a fixed rate by which to pay on a monthly or annual basis.
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| Like the characters in the Walking Dead TV series, term life insurance issues run on expiration dates |
2. Explain how whole life insurance works.
- Whole life insurance, in contrast with term life insurance that covers in intervals, provides coverage to a recipient for the duration of his or her life. Upon death, a payout is made to the beneficiaries of the the holder of the contract. In addition to providing coverage, this breed of insurance also accumulates a monetary value over time that increases as the supposed worth of the person it is entitled to increases, this savings aspect also being funneled to those in support of the recipient at the time of his or her death.
3. Explain how variable life insurance works.
- Variable life insurance is a type of permanent life insurance, meaning it applies to a person for the whole of his or her life. This type is different in that it has a high cash potential as some of the policy’s funds are allocated to a separate account used for investment purposes, this add-on giving the recipient the opportunity to make money while not having to put work into this line of battle. This lucrative investing scheme is made even more so in that the earnings the recipient makes through such dealings is not taxed, but is rather tax-deferred and thus evades the high taxes of adulthood. In this way, the money made through Variable life insurance is either enjoyed by the retired or the beneficiaries to the retired at the time od their death.
4. What are the advantages and disadvantages of variable life insurance?
→ Advantages
- tax advantages
- opportunity to invest and make money
- flexible premiums
- cheap Life Insurance Quotes
→ Disadvantages
- risky investments that have the possibility of failure
5. Compare term life and whole life insurance. What are their advantages and disadvantages?
→ Term life insurance
- disadvantages
- no cash value
- temporary protection
- advantages
- adjustable coverage
- rewards for being healthy - a reasonable rate applied
- low premium rates
→ Whole life insurance
- disadvantages
- cost
- premium rates can be times as expensive as is considered normal
- chance for investments allows to not grow at all
- locked monthly premium amount that grows over time
- advantages
- permanent schedule
In the same way memory of food sticks to the mind, permanent life insurance sticks with one's life till death do they part, supplying the persons family with money once death is reached
6. If you die, the insurance company has to pay your beneficiaries a lot of money. How do life insurance companies make money?
- Life insurance companies make their money by charging high rates to those feeble enough and close enough to death, and also incur a large enough profit from life insurance policies for those whole insurance expires before their time of death, this occurrence resulting in no reimbursement being made to the recipient’s beneficiaries.
7. Which life insurance is right for you and your family? Which one will you choose and why? For the purpose of this class, use either term life or whole life.
- I believe term life insurance will do just fine for me, as I will be better able to pay increasing rates over time with the help of a steady job that will only promote me to more lucrative responsibilities. Also, if I stay healthy as I get older, I will only be entitled to more benefits that will keep premium rates for my possible family and I. In this way, my coverage should be refreshed prompt every time an expiration date nears, and so my family will always have the protection of being reimbursed upon my time of death. The stability of term life insurance will only help to keep my life out of debt and allow me to focus on accumulating other storages of cash potential as options for benefiting my home life.
8. Deduct the monthly expense from your budget. Update your budget with the cost of life insurance. Your teacher has the fees for you.
9. Calculate the amount of money you will spend after twenty years.
- After 20 years, I will have spent $97,269.60 on term life insurance, with coverage being based on a rate of 7.12% (respective towards 20 year issue duration).
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| This handy green leaflet helped me to find out which insurance premium rate I would use to calculate how much I would have to pay monthly for life term life insurance |
Entry 24 - Investment Question Responses
1. Describe the retirement plan. The content should have depth and demonstrates understanding.
- 401(k)
- This particular plan offers an employee of a public or private for-profit establishment an account into which he or she can deposit money accumulated over time until retirement is declared. In this way, this plan a certain amount of money is deducted from a recipient's periodic paycheck before taxes are applied to this income, and the money stocked away in the account through this methodology is saved from state and federal income taxes until its total amount is retrieved during retirement, by which point taxation is considerable less than what it would have been during’s one’s ‘golden’ years in a job. By taking advantage of the benefits that can be provided by the system, a 401(k) plan ensures an retired worker earns most of what he or she put into his or her line of work through mostly uninterrupted monetary compensation.
- Social Security
- Instituted as a Federal government program in 1935 by U.S. President Franklin Delano Roosevelt, a Social Security plan takes a certain percentage of a person’s annual paycheck through Federal Insurance Contributions Act (FICA) taxes that are then offered as financial assistance other participants in the program, these participants being disabled or retired. The person in question receives his fair share of Social Security when he or she retires from the work force of injures his or herself so bad as to render him or her uneconomical. In this way, Social Security is not in the form of an account but rather follows the mantra “pay as you go”.
- Trust Fund
- A Trust fund is a unique variety of legal assistance that holds monetary property for a third party, this party often being a person or an organization. To make certain the benefits of a trust fund are realized in a legally sound manner, such an entity requires the presence of three interpersonal parties: the grantor, who is the person that orchestrate the donation of a valuable something to a another person or group of people according to certain terms; the beneficiary, who is the component being donated to through the establishment of a trust fund by the grantor; and the trustee, who makes certain the the pillars on which the trust fund is built are realized in the eyes of the law.
- Roth IRA
- A Roth IRA account is an individual-dependent retirement plan in which a certain portion of one's annual paychecks is inputted into an account. Before being deposited though, a tax is applied to the transaction and therefore the amount of money in this account represents how much will be rewarded to its holder at his or her time of retirement.
2. Is this retirement plan tax deferred?
- 401(k)
- This plan is tax deferred, meaning the state nor federal governments places tax requirements on accumulated retirement savings until a recipient of the plan withdraws the money when finished with work and ready for a new life whose next destination is death. With this withdrawal, a reduced tax rate is applied on the saved funds, resulting in more money saved through targeting the lowest possible rate - a rate only achieved during retirement. This reduced rate is most likely reasoned as humane for the elderly person receiving more financial aid since he or she needs more maintenance that keep death at the door for as long as medicine permits.
- Social Security
- This plan is not tax deferred. Rather, to calculate the income tax for an annual income below $25,000, one must assume that social security benefits will untaxed. If however, one income measures $34,000 or beyond, then 85% of his or her social security benefits are taxed, meaning this portion of benefits will be taken into consideration when income taxes are being filed.
- Trust Fund
- Technically, money is a trust fund is tax deferred since the heirs to a trust must have their ‘gift’ taxed according to their standing tax brackets.
- Roth IRA
- No, this plan is not tax deferred. The money one deposits into an account of a Roth IRA origin is taxed immediately upon entry, and therefore the money the account’s owner sees in this possession is what he or she will be entitled to upon declaration of retirement.
3. When are you allowed to take money out of this retirement plan?
- 401(k)
- I am allowed to take money from this plan without an early withdrawal fee when I have reached the age of 59 ½. If wish to have access to my savings anytime beyond the age of 55 without an early withdrawal charge, I must have been let go by my employer or must have been disabled and thus in need of emergency monies. Regardless of when I can withdraw my stored funds, I must have them out of their storage account by the age of 70 ½ unless I am still a full-time employee sponsoring the plan, in which case any money I stock away as before will be taxed as income rather than be subject to a deferred taxation process. Verification from the employer must be accessed in retirement from a job is sought after, so that the opportunity for fraud in minimized.
- Social Security
- One is allowed to start acquiring Social Security monetary benefits between ages 62 and 80, the age in this 8-year period he or she chooses to retire at being his or her freedom of choice.
- If you retire before 62, you must make sure you can sustain yourself and your livelihood until Social Security assistance can be claimed, which is reason why many retirees combine Social Security with another retirement plan - to ensure an impossibility of debt.
- Trust Fund
- This threshold depends on the terms agreed upon by the grantor in the rules and regulations for his or her trust fund.
- Roth IRA
- One can withdraw from this plan whenever he or she desires without any penalty being applied. However, it is common and thus a norm to have held a Roth account for at least 5 years and for the holder to be at least 59 ½ before money is withdrawn, as money withdrawn according to such a restriction usually means a tax-free transaction.
4. Is there a maximum contribution per year? What is the maximum contribution if any?
- 401(k)
- There is a no official federally imposed contribution minimum set for each passed at a job, but many workplace-invested plans from which participants get a 401(k) require a minimum amount of 1-2% of one’s salary to be contributed to one such account annually in order for the account to stay active and acquire benefits for its work-bound user. In contrast, the IRS often requires this plan to have a limit amount of 1-20% of one’s salary, this cap depending on the company employing the plan, with a specific $11,000 maximum being set for the employee per year.
- Social Security
- Credits are incurred based on an income made, and it is the amount of credits that dictate how much income can be contributed per year to secure Social Security eligibility. In the year 2010, one credit was equivalent to every $1,120 a person earned, with this figure adjusting higher each year. In this way, a maximum of four credits can be earned per year, and each credit maintaining Social Security benefits for its holder.
- Trust Fund
- There is no definite maximum set in place for a trust fund, as its grantor sets how much the fund will be worth and whether he or she wishes to make a one-time donation to the storage unti or an annual contribution in the first place.
A trust fund rewards a beneficiary a gift usually in the form if money
- Roth IRA
- For the years 2014 and 2015, as dictated by the IRS, one’s yearly contributions to all traditional and Roth IRAs cannot exceed $5,500 ($6,500 if he or she in question is 50 or older).
5. Do you get paid from this retirement plan for life?
- 401(k)
- If you don’t die or you don’t have a place in debt by the time you retire, then you get compensation from the years you worked at a job with a 401(k). The amount you get is of course taxed at a reduced percentage than if it was taxed beforehand, at a more youthful age. As a result, the amount a person gets once retired from such a plan depends how much he or she contributed while working.
- Social Security
- This plan cover’s its recipients till their death beds are their new destination, meaning these participants are aided by financial means for life.
- Trust Fund
- Depends on the parameters described by the grantor for the fund, with options including monetary rewards to the beneficiary for life or a one-time donation this benefiting party.
- Roth IRA
- This account can continue to grow from deposits of stocks and other such ventures till death. In this way, the holder of a Roth IRA has mostly free range with ‘when’ the money held in the plan can be accessed.
6. Can you leave the money in this account after retirement? If not, when do you have to close the account?
- 401(k)
- You may keep money in this account, but as a certain age decided by the employer, you have to withdraw a certain percentage and certain percentages after this point over outlined periods of time.
- Social Security
- Money is not stored in any account as this money is withdrawn by order of the federal government.
- Trust Fund
- Depends on the terms of the grantor.
- Roth IRA
- You can continue to work with a Roth IRA account after retirement, with no due date for closure.
7. Is there a monthly minimum amount you have to withdrawal during retirement and how much is it?
- 401(k)
- There is no minimum amount.
- Social Security
- $1264, for retired workers as is the most case. It is important to note that if you wait longer to withdraw, you are entitled to more per year.
- Trust Fund
- Depends on decision of the grantor.
- Roth IRA
- As long as you withdraw after certain age and as long as you keep the account for a certain number of years, there is no minimum limit you must withdraw during retirement tax-free.
8. What are the advantages and disadvantages of this retirement plan?
Advantages:
- 401(k)
- Through a 401(k) account, a person is provided with place where to store money while it averts high income taxes while work is being performed through a job. In this way, the money stocked away in such an account supplies confidence at retirement, and is charged lower taxation since it is only allowed to be withdrawn from at a retired age when the government is likely to be more lenient. Another benefit a 401(k) plan provides is the opportunity for an employer to match the contributions made to the plan by the recipient, this matching schedule reflecting usually between 25-100% of the contribution amount. In this way, a reward for hard work and seniority is also taken into consideration for retirement support.
- Social Security
- With social security, a recipient receives a steady stream of income from the federal government while having to contribute a rather small amount per paycheck. Such stability is due to the fact that a person in a job position is paying taxes towards the social security of another person/other people, and therefore society ensures that every willing person is receiving such benefits one way or another.
- Trust Fund
- A Trust Fund allows for the uninterrupted benefit of a third party, with freedom of how such a gift should be managed according to the wants of a grantor. In addition, the inclusion of a trustee helps to eliminate fraud when such a transaction takes place, helping retirement to become more selfless and less of a monetary struggle as well.
- Roth IRA
- A Roth IRA account is wonderful in the sense that what one sees in his or her such account is what will be granted in full when retirement strikes. In this way, leaving an heir a monetary gift is most ideally done through a Roth IRA account given its eliminated taxation strings after work has been completed on behalf of the account’s host. In addition, Roth IRA accounts can be utilized until a late age of 70 ½ allowing its holder to continue making contributions and investing after retirement has been called upon. This advantage is especially applicable in the case of investors and real estate agents who want to make an extra buck through taking full advantage of the market and the country’s economy.
Disadvantages:
- 401(k)
- There are structural flaws in how 401(k) plans are ran, including the occurrence of dollar cost averaging, wherein money taken from paycheck is placed into an account via investments in the market. This excuse for explaining the way in which this plans behaves is not lucrative for the user in times when the market is flat when it is trending in a negative pattern, resulting in uncertainty in just how much a recipient of this plan is entitled to upon retirement. In addition, administrative costs can be hassle during the application process and a complex wilderness of terminologies and ‘add-ons’ that sometimes take the mantra ‘less is more’ a bit too seriously could make the holder more likely to be ripped off for the sake of a long-term retirement plan.
- Social Security
- This retirement plan can be a burden on incoming workers given how the workers it is benefitting are living longer nowadays and straining the pool from which the plan’s are derived. In this way, Social Security has had to dip into its trust funds a bit and has also considered raising it taxation contribution minimum, making a future generation more resentful towards its inner workings.
- Trust Fund
- A Trust Fund is not adaptable and is thus concrete is how it was written at conception, meaning that changed circumstances, however important, are irrelevant. In addition, the one benefiting from a trust must have his or her property re-registered in the name of the trust, resulting in a burdensome process commonly consisting of a costly filing of fees. Other note too keep in mind that could wreck habit for the sake of prosperity is that creditors do in fact have access to the cash in one such fund, meaning this money will be associated to the beneficiary’s current financial status - even if its is overridden with debt -, and that a trust fund can be very costly to establish.
- Roth IRA
- The drawbacks to having a Roth IRA account are dependent on the preferences on the user, with each drawback not having the capacity to cripple of person's livelihood. This is precisely the reason why people often use a Roth IRA as a secondary retirement plan. One such drawback is how the annual maximum contribution amount for such an account is not enough, with this limit primarily benefitting the lower middle class and giving the wealthy and upper middle class the necessity to work moredo through their saved-up funds. This factor is especially seen clearly when compared to the maximum contribution amount of a 401(k), which usually applies a percentage of a paycheck to an account, this method adjusting with the paycheck it is benefiting in the long-run. The cap for an IRA Roth is steady at between $5,000 and $6,000. Another drawback is that having a Roth IRA is not considered a tax deductible, and thus an escape from taxes; however, the benefit of having no tax upon withdrawal often outweighs this minor setback.
→ Comparing two of the aforementioned retirement retirement plans
1. Which two retirement plans did you pick? One of which must be from your chosen career.
- I chose to go along with a 401(k), which is applicable in my job as an Environmental Scientist with the U.S. Fish and Wildlife Service, and a Roth IRA.
2. Look at your current budget. How much money do you have available to make investments? How much will you invest each month?
- Currently, according to my present budget, I have about $3,455 available for investment purposes at the end of each month, this amount being calculated through taking my income as an Environmental Scientist in San Diego, supplemented with work as a Starbucks barista, and applying this to my expected expenses. It is important to keep in mind that this ample amount of money is achieved after completing graduate school at UC San Diego, and is thus a more realistic statistic when I am at the height of mt career at the age of about 35 - during my supposed platinum years leading up to my retirement. I plan to invest about $1500 per month towards a Roth IRA account, and $414.62 per month towards a 401(k) account - this amount being calculated through the assumption that I will be donating 12% of my monthly paycheck to such a flexible plan.
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| This calculation has numbers plugged in for the one general layout shown below, with $414.14 representing how much I plan to donate to a 401(k) retirement account each and every month; to find how much a Roth IRA account would earn me by the time I retire, I plugged in $1500 instead of $414.14 |
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| This future value equation is the one I used to calculate how much each retirement plan I chose to work with would reward me after I retire from my line of work, with variable r working with the amount of time passed in months |
3. Calculate the amount of money you will have at retirement using an equation for both of your retirement accounts. Assume you are retiring at age 60 and have been making monthly contributions starting at age 35.
- Using the fact that my retirement savings will be invested over the course of 25 years - 300 months - the fact that they will be invested at a rate of 0.00167, I can safely estimate that I will have accumulated $409,575.37 through a 401(k) plan and $1,481,749.69 through a Roth IRA plan by the time of my retirement.
4. How much money will you have saved by the time you retire based on your online budget?
- The retirement amounts I have taken into consideration shall allot me whopping total of about$1,891,325.06 to live on from the day I retire till the time of my death.
5. Payment is different for each retirement plan. How are the payments handled at retirement for your two investments? For example, do you have to pay a fee or are you only allowed to withdraw a certain amount each year?
- Through both plans, I am allowed to withdraw however much I deem reasonable per year. In the case of a Roth IRA, I am even allowed to make other sorts of investments after during retirement, such as those in the stock market.
6. Determine your monthly distribution from both accounts at retirement. Assume these investment choices were made at age 35.
- 401(k)
- $1365.25 monthly (through dividing amount from equation computation by 300 - assuming I will live to the age 85 and retire at the age of 60)
- Roth IRA
- $4939.17 (through dividing amount from equation computation by 300 - assuming I will live to the age 85 and retire at the age of 60)
7. Create a monthly budget for your retirement. Lets assume you are retiring at 60 years of age.
https://docs.google.com/spreadsheets/d/1oQN8PkE8n36AcdU41_AGoBbrGwPgN1rBs5KoqXXQUsA/edit#gid=0
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| This table shows the expenses and their partner benefits garnered through retirement plans I chose |
8. Will you be able to live comfortably based on your lifestyle at retirement? Provide a clear explanation.
- I will definitely be able to live comfortably in my current experience with my retirement budget, where I shall have about $700 to use freely each month. This stance in society as a tightly-budgeted elderly individual will make certain I still have responsibility in my life and will also make certain I live out the rest of my days here on Earth with entertainment and possibly a trip every year.
BIBLIOGRAPHY
BIBLIOGRAPHY
Kennon, Joshua. “What is a Trust Fund?.” Beginnersinvest.about.com. About Money, n.d. Web. 1 April 2015.
Kessler, Glenn. “Social Security: A guide to critical questions.” Washingtonpost.com. Washington Post, 8 Jan. 2014. Web. 1 April 2015. http://www.washingtonpost.com/blogs/fact-checker/wp/2014/01/08/social-security-a-guide-to-critical-questions/
“Retirement Topic - IRA Contribution Limits.” Irs.gov. IRS, n.d. Web. 1 April 2015.
“Six problems with 401(k) plans.” Investopedia.com. Investopedia, n.d. Web. 1 April 2015.
“Ultimate Guide to Retirement.” Cnn.money.com. Cnn, n.d. Web. 1 April 2015.
“What is a 401(k) plan?.” Practicalmoneyskills.com. Practical Money Skills, n.d. Web. 1 April 2015. http://www.practicalmoneyskills.com/personalfinance/lifeevents/benefits/401k.php
“What is social security?.” Nasi.org. National Academy of Social Insurance, n.d. Web. 1 April 2015. http://www.nasi.org/learn/socialsecurity/overview
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