Is Burial Insurance Right for Me?

Whether you are discussing life insurance, health insurance, homeowner’s insurance, or auto insurance, the purpose of the insurance policy in question is the same. It is to relieve the shock of expensive or unplanned bills. Burial insurance, which is a form of life insurance, has the same goal.

Today, in the United States, funeral costs can range from $8000 to $14,000. Many people have enough assets to absorb such an expense. Many people do not. That is where burial insurance can be an enormous benefit to loved ones being left behind when someone passes away.

Many people are surprised at how affordable a small funeral insurance policy is. They are well worth the cost when the alternative is stiffing family members with a huge bill from a funeral home when they are already going through enough grief in mourning your loss.

Another benefit of this type of insurance is it allows someone to plan and pay for their funeral ahead of time, ensuring that all of their final wishes are handled. You can meet with the director of a funeral home ahead of time and plan things like the service, flower arrangements, casket, burial plot, cremation, and any other last requests you have. Doing this ahead of time allows you to come to an agreement on the price and sign a contract with the funeral home. You can then purchase a burial policy that has a death benefit of that amount, making the funeral home the beneficiary.

The benefit of this kind of arrangement is two-fold. First, you are planning the funeral service and arrangements you want while paying for them and not leaving others with the bill. Second, you are relieving your loved ones of the added burden of arranging your funeral, burial, last requests, etc. They will be grateful to not have to worry about such things during their time of mourning.

For the relatively inexpensive cost of burial insurance, the only question really is why would you not have a policy?

Save For Retirement Now

It is not difficult to understand why retirement is not a pressing concern for most 20-somethings. Young people entering the workforce are see kick-starting their careers as a more pressing matter than what happens when they are ready to end their career 40-50 years down the road.

What many of these young people do not comprehend is the huge advantage they hold right now if they want to be wealthy in retirement. Thanks to compounding returns, a person in their 20s can invest a relatively small amount of money over a short period of time and wind up with far more money than someone older who saves much more money over a longer period of time.

I found an example on BankRate.com that illustrates this perfectly.

If you begin saving for retirement at 25, putting away $2000 a year for 40 years, you will have around $560,000, based on an estimated earnings of 8% annually. Now, let’s say you wait until you are 35 to start saving. You put away the same $2000 a year, but for 30 years instead. Earnings grow at the same 8%. At 65, you have $245,000. Starting just 10 years later results in you having less than half the money at age 65.

Save a little now will result in big rewards later.

Unfortunately, many young workers today are passing on the chance to save early for retirement. A recent study conducted by Hewitt Associates, a human resources consultant, found that just 31% of Generation Y workers (those born in 1978 or later) who are eligible to put money into a 401(k) retirement savings plan are doing so. When employers offer matching contributions, this only compounds the mistake.

Start Saving ASAP

You can always find reasons not to have saved yet. Cash flow might be an issue. It might seem difficult to balance rent, student loans, and fund a 401(k) on top of that. However, do not let expenses become an excuse to get started.

Saving in your early 20s are your prime years to take advantage of compounding returns. If you miss out on the opportunity, it is lost forever. You need to seek a balance between expenses and saving for retirement. Even putting away a smaller amount now will put you ahead of the game. Starting later, will make it nearly impossible to catch up, even if you are putting away larger amounts.

Enroll in Your 401(k)

401kAlthough your income in your 20s might be nowhere near where it will be later in life, make the most out of the money you are making. You want to put your money into vehicles that will help them grow as quickly as possible. One such vehicle is a 401(k).

If you are eligible to participate, do so. There are plenty of advantages to a 401(k) plan, but chief among them is that most employers match your contributions in order to encourage your participation. Each dollar that they are matching is a 100% return on your money on day one. That means even if the stock market were to have a rough year, you are probably still going to come out way ahead.

I many plans, the employer will match up to 3-4% of your salary. Your contributions go into the account before the money is taxed. That lowers your taxable income, saving you money now too. It will be taxed when you start doing withdrawals in retirement at whatever tax bracket you are in at that time.

No 401(k)? Try a Roth IRA Account

So your employer does not offer a 401(k)? Do not let that be an excuse to not contribute to a retirement account. Instead, look into opening a Roth IRA account. Unlike a 401(k), your contributions are taxed, however, the big benefit of a Roth account is that you will pay no taxes on the growth of the account.

Let me say that again. Withdrawals from a 401(k) are 100% taxable. However, withdrawals from a Roth account are not taxed at all. This is what makes a Roth IRA such a great option for young people. The money is going to be in the account for much longer. It will have more time to grow, and it will do so all tax-free.

Think about that. If you could sock away $4000 a year for 40 years into a Roth IRA and get an 8% return on your investments inside the account, you would be a tax-free millionaire.

You Can Be Aggressive

Not only can you be aggressive with your investments in retirement accounts at a young age, you should be aggressive with your investments. You have the advantage of time to recover. Do not listen to the naysayers out there that are afraid of anything to do with the market and foolishly stick retirement money into CDs and savings bonds.

In 2009, the DOW hit a low around 7,000 points. You may remember the panic investors had. The only people who lost money in the stock market, even back then, are those who got out. Today, the DOW is over 15,500 points.

Now, when you get closer to retirement, should you be more conservative with your money? Absolutely. You do not want to be the person that had their money aggressively invested in the market in 2009 with plans to retire in 2010.

Just as big of a mistake though is the investor that got nervous and stopped investing in the market in 2009 even though they had 30+ years until their retirement. They wanted to wait until things got better. The problem with that strategy is that trying to time the market like that usually results in an investor missing the market’s best days.

Invest aggressively. Not foolishly, but do not be afraid to have a large percentage of your retirement money invested heavily in the stock market.

Educate Yourself

Young people are often too embarrassed to admit that a lot of financial talk seems like a foreign language to them. It is an odd phenomena. They completely understand that a doctor understands more about their health than them because of their medical education. They understand that a plumber is better suited to fix a leaky toilet because of his experience and training than they are. However, when it comes to finances, many young adults refuse to admit that they are often times out of their league.

Unless someone has taken the time to teach you about finance, and I mean really teach you, not the poor excuse for financial education that our public schools pass off on us, you are going to need to do some learning on your own.

Many employers offer employees access to advisers who can help guide an investor as to which investment choices are most appropriate for them. These same advisers can explain what investments are in a particular fund and why they would recommend one investment over another.

Read a few financial books, visit websites like this one. The more you know, the easier it will be to make informed decisions. You do not have to be an expert broker, but you want to have a solid foundation about your retirement investments.

Build a Safety Net

You need to start saving and build up an emergency fund. This will help set your mind at ease in case you have a car problem, your roommate cannot pay rent or their share of the bills, or any other unplanned situation that may call for more money than you had budgeted for that month. In a perfect world, you want to have 3 months of living expenses saved up for an emergency. That is not always realistic for a young person, but the idea is to save something. Have automatic deposits made regularly to this account. Some employers will let you do a split deposit of your paycheck. If your employer does not allow that, it is very easy to setup an automatic transfer from one account to another with your bank.

There are two reasons as an investor that you want to have this emergency fund. First, you want to avoid piling up debt onto credit cards. You will waste tons of money in interest and fees that could have gone into your retirement instead.

The second reason is simple. I can tell you that over the long-term the stock market is going to grow. It always has. You can take just about any 15 or 20 year block in the market and you will see growth, usually substantial growth. However, what I, nor anyone else can predict with any certainty whatsoever, is what the market is going to do on the day you need some of your money.

You cannot rely on your investment accounts as savings. The day you have something happen and need some of your investment money might be the day after the DOW just plunged 500 points.

On top of that, if you put the money into an IRA or 401(k), you can be facing tax penalties for early withdrawals, which will cost you even more money.

Be Debt-Adverse

If you just cannot seem to find the means to stretch your paycheck and put money aside for retirement, it is time to take a look at your spending and make some changes.

You have two options really: make more money or spend less money. You could look at picking up an extra job for now to give you the extra money to put away. It might seem like a difficult challenge to work a second job, but a little sacrifice now can pay off big time down the road.

The second option is to cut back on expenses. Where can you save some money? Do you really need all those extra channels on your cable bill that you barely watch anyhow? Is getting a roommate an option, or maybe a smaller, less expensive apartment? If you have a big car payment, can you trade down to something more affordable? How much are you spending eating out? Can you pack a lunch to work? Do you really need that $4 coffee every morning instead of brewing your own?

Make your bills and your retirement savings your number one priority before everything else. Get in the habit of doing this.

Do now what others won’t, so that in the future you can do what others can’t.