Financial Strategies # 4 Speculation or Prediction for Retirement

In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.^[1] Speculation typically involves the lending of money or the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a significant risk of the loss of the principal investment. The term, "speculation," which is formally defined as above in Graham and Dodd's 1934 text, Security Analysis, contrasts with the term "investment," which is a financial operation that, upon thorough analysis, promises safety of principal and a satisfactory return.^[2]

In a financial context, the terms "speculation" and "investment" are actually quite specific. For instance, although the word "investment" is typically used, in a general sense, to mean any act of placing money in a financial vehicle with the intent of producing returns over a period of time, most ventured money—including funds placed in the world's stock markets—is actually not investment, but speculation.

Speculators may rely on an asset appreciating in price due to any of a number of factors that cannot be well enough understood by the speculator to make an investment-quality decision. Some such factors are shifting consumer tastes, fluctuating economic conditions, buyers' changing perceptions of the worth of a stock security, economic factors associated with market timing, the factors associated with solely chart-based analysis, and the many influences over the short-term movement of securities.

There are also some financial vehicles that are, by definition, speculation. For instance, trading commodity futures contracts, such as for oil and gold, is, by definition, speculation. Short selling is also, by definition, speculative.

Financial speculation can involve the buying, holding, selling, and short-selling of stocks, bonds, commodities, currencies, collectibles, real estate, derivatives, or any valuable financial instrument to profit from fluctuations in its price, irrespective of its underlying value.

A prediction or forecast is a statement about the way things will happen in the future, often but not always based on experience or knowledge. While there is much overlap between prediction and forecast, a prediction may be a statement that some outcome is expected, while a forecast may cover a range of possible outcomes.

For me the bottom line is this - I want my money to be there when I need it. It is not acceptable to have it taken away suddenly at any time especially right before I will need it? So what is the most predictable way to assure safety of my money? This hub is all about what I am doing and why.

Now that you have read the exact meanings of the words Speculation and Prediction which do you prefer in relation to your retirement?

What is generally offered to you as the best place to put your hard earned money during your entire working lifetime to save for your future retirement?

Financial vehicles that offer safety and security, predictability, guaranteed growth and preservation of capital, liquidity and control of your funds OR Speculation with the probability of loss of capital, no guaranteed growth, unpredictability and high risk, with penalties and restrictions?

It seems most people have chosen to follow the speculation route for three reasons;

1. Social Security payments are mandatorily withdrawn from pay cheques.

2. The lure of having matching or some such additional contributions made by the employer.

3. The campaign by the TV famous financial guru's against whole life insurance.

These reasons plus probably other reasons as well have led people to believe that speculation, the not really knowing, the too complicated to fully understand, the risk taking, the unpredictability, the trusting the experts, the 'half truths' of the interest rates reported and the 'rates of return' market myths is normal, acceptable and is the only way.

People think that the government or someone will be there to take care of them when and if they ever need help.

Did you know the average 65 year old has only $166,000 in their IRA. How long will that last?

Did you know that 90% of 65 year olds in this "richest country in the world" are broke and/or working.

We have to change the financial model and system we are following if we want to survive, and the only way to do that is to go back to what people knew to do before the 1980's, put your money in to life insurance.

You must read all of the hubs in my financial strategies series so you can fully appreciate all the benefits specifically designed whole life insurance policies offer. I am covering one benefit in each of my hubs in this series.

Did you know that in 1983 con­gress changed the laws so that other coun­ties could not copy what Galve­ston had done 2 years ear­lier. Galve­ston County (like a few oth­ers before it) pulled out of the Social Secu­rity sys­tem because they found a safer and more flex­i­ble and lucra­tive way, for the aver­age per­son, to save for retirement. Life Insurance. Why did the governmant change this law? Because they needed everyone to pay into the social security system to make it function optimally for them.

What else did the Government do in the 1980's?

In 1984 they created a new law called DEFRA - Deficit Reduction Act of 1984.

In 1988 they created another law - TAMRA - Technical and Miscellaneous Revenue Act of 1988.

Why was DEFRA & TAMRA created? The government wanted to stop people putting unlimited funds into a life insurance which had tax advantaged growth.

Instead they wanted people to start putting their money into qualified plans and to encourage that process they had to place limits on the amount one could save in life insurance.

With qualified plans though, the government is not saying you do not have to pay taxes, they are saying you can defer paying taxes until you withdraw the money (which also has a time constraint or more penalties and restrictions apply) and then we will tell you what tax bracket you will be paying us back at. Also, you have to withdraw your money and pay the taxes back between certain ages whether you want to or not. These restrictions do not apply to life insurance policies.

Also in 1988 the Government decided on an Upper Limit of Tax Advantaged Growth they would allow and still have access to the cash value in life insurance policies. Those policies that fall outside these limits are called MEC or Modified Endowment Contract which means that the insurance policy will be treated like all the other qualified plans with the same rules, regulations, restrictions, and penalties governing them. Some such plans are 401(k), IRA, 403(b), SEP IRA, Simple IRA.

So why is it that the government changed laws that encouraged us not to put money into a financial vehicle that offers tax advantaged growth? Isn't it obvious? Because it is so very good for us and not so good for them. They needed to find a way to capture the taxes due on more of our investment growth than they were able to get their hands on in a life insurance policy so they created social security and qualified retirement plans.

What is the main point of knowing this? Dividend paying, cash value, whole life insurance policies with Mutual companies that are set up with specific riders are the absolute best place, I believe, to keep as much of your money as possible.

What if you could know the end, at the beginning?

What if you could determine with reasonable assurity that if you do this today, your outcome will be this tomorrow?

How can one plan for the future without having some sort of positive history to look back on and a mathematically predictable outcome in the future?

Whole Life Insurance offers illustrations that you can work with to determine the outcome you are looking for. There is no speculation when it comes to the type of life insurance I offer.

See below for some examples of different aged clients and different annual premium amounts..

Cost of Life Insurance can be determined according to what your objectives and priorities are. The following example was specifically designed for someone who had not saved a penny for their retirement and had no death benefit for their family who were relying on his income to live on. In this example the person chose an annual premium according to two factors; first a minimumn amount of tax free income they felt they could live on seeing as at the time of the decision they had zero income set aside for their future and secondly how much they could afford to do without for the first number of years while they funded their cash value. These policies begin with 60 to 70% cash value but that percentage increases quickly over time.

They chose $1,600 a month as their premium because approx $1,100 would be available if they needed the cash and so $500 is all that would be tied up over the first year. By year four, the cash value will equal $20,664, which is more than the $19,200 premium.

At age 51 the death benefit is $350,000. and the cash value is $13,520

At age 61 the death benefit will be $697,454 and the cash value is $215,907

At age 71 the death benefit will be 1,072,750 but at age 70 the premiums stopped needing to paid by the owner/insured. The cash value is $567,702

Because this policy was set up as a tax free retirement fund, this person will begin withdrawing $31,481 income every year for 20 years unless he passes away before age 90. He will still have a death benefit of $175,000 left after age 90 if needed. Of course, if you are able and if you choose to you can always keep paying the premiums or repay the loans you take at retirement to keep a higher balance available for your beneficiaries if you so choose.

This equates to this 51 year old paying $364,800 of premiums into his policy (19 x $19,200) but having a life­time ben­e­fit is $804,624. So in 19 years the growth in his pol­icy has been $439,824. This is a growth of approx­i­mately 120.5% over 19 years. ( 364,800 x 120.56% = $439,802)

In no other financial vehicle could his money be safe, accessible for any reason without penalty and growing tax free like it can in this type of whole life policy. Also, his wife felt taken care of because the death benefit was growing as her husband was aging.

If this couple did not use this policy for retirement income but instead left it alone as a life insurance policy, then at age 81 the death benefit would have grown to be $1,523,263 and at age 91 the death benefit would be 2,101,093.

Remember now that one is no longer required to make any more premium payments at and after age 70, so for a total cost of $364,800, in the properly designed life insurance policy, if one passes away at age 91 a wonderful legacy of over two million dollars can be left for the loved ones left behind.

What ever cash value is outstanding when the insured dies, this amount is deducted from the death benefit amount and the beneficiaries receive the balance.

You can have as many life insurance policies as you can afford, so you could have one for retirement and one for just death benefit etc. if you wish. The more you bank with the policies during your time before retirement, the higher the death benefit and so the higher the cash value and so the more available money for funding your retirement.

Please read all the hubs in my Financial Strategies Series so you can learn about ALL the benefits of owning a dividend paying, cash value, whole life insurance policy with a Mutual Company that is designed with specific riders to supercharge the wealth building capabilities of this investment.

Contact me today for your free, no obligation consultation.

My fifth HUB in this Financial Strategies Series is INTEREST - rate vs cost - earned vs charged

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