Lazy Money Isn’t Pulling Its Part in Your Weighted Portfolio
Money market funds, CDs and savings accounts were the safe money havens of the past. But today, they’re crediting rates are so low, taxable and eroded by inflation. You worked hard for your money, so you need to make your money work hard for you. Watch the interview with retirement specialist John Glowacz.
Using the Rule of 72 to calculate when your money will double is a way to gauge the laziness of your money. If your money market is crediting .2 percent, it will take 360 years to double. If your jumbo, long-term certificate of deposit is crediting 3 percent, it will take 24 years to double. These returns are not acceptable, but people accept them because their money is safe. If safety could be achieved, then lazy money could be changed into working money.
Here’s an example of safe money that uses the tax advantages of single premium life insurance, the investment methodology of indexing and living benefits. Many insurance products use the S&P 500 Index, but there are several domestic indices that use Wall Street-recognized indices like the Goldman Sachs Dynamo Strategy Index. The convergence of big name firms and insurance companies continue to produce new solutions to old problems that many retirees face.
The Goldman Sachs Dynamo Strategy Index is a multi-asset indexed inside a single premium life insurance company EquiTrust. Although the single deposit is not directly invested in the Index, index credits are linked to returns of the Index to deliver high-risk, adjusted returns combining Modern Portfolio Theory and the principles of Momentum–Based Investing. (You can order the full explanation online.) Like many indexed insurance product lines, your deposit participates in the upside potential of the market (not including dividends) and is protected from the market’s downside risk.
The earnings accumulate tax deferred and the death benefit would pass tax-free to your beneficiaries if you’re under the unified credit threshold. The death benefit also avoids probate. There are living benefits as well that could cover chronic care, nursing home confinement and terminal illness. In addition, you can access cash values via policy loans or withdrawals of basis. Loans may be available, but a waiting period may apply depending upon your state residence. Withdrawals are permitted of up to 5 percent without a surrender charge. Keep in mind gains in the policy are subject to ordinary income tax at your effective tax bracket.
This option may be an alternative for your lazy money. You’ll need to discuss your situation with your financial advisor or insurance professional to determine suitability.
Syndicated financial columnist Steve Savant interviews retirement specialist John Glowacz. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.