Proposition 14 is being advertised as making the primary process more open by allowing voters of any party to vote for any candidate on the ballot. I like the sound of that, BUT, it is the other things that they don't tell you about that have me concerned.
First: Once the primary is over, the only people who will be on the ballot in the general election will be the two people who got the most votes in the primary, no one else. That means that the smaller political groups will not be allowed to participate in the general election. To me that seems wrong.
Currently in the general election we are allowed to vote for anybody we want and we have the opportunity to choose between many different candidates. If this passes, we only get to choose between two.
I know that for a candidate from a smaller party, such as the "Peace and Freedom" or "Green" parties, the chances of winning a general election may be small, but just having the candidate on the ballot means that I can vote for him or her if I want. Not if Prop 14 passes. Also, just having such a candidate on the ballot makes the other candidates address the issues they raise.
Second: Under the new law, none of the candidates have to tell you what their party affiliation is. How can you have a election and not know a candidate's party affiliation? We could end up with two candidates on the ballot, both from the same party, and never know it until after the election is over.
Thursday, August 5, 2010
When Does $35,000 Equal $190,000?
Here is an illustration of the high cost of waiting to start a simple saving program.
Bob is 21 years old and he decides to begin saving for his retirement. He starts putting $5000 each year into some type of account, (a IRA, for example). He does that for 7 years until he turns 28 and then he decides to quit and spend his money on other things. He lets the money in his account sit and earn interest until he retires at age 65.
Fred, who is also 21 years old, decides that he will start saving later. He spends all his money and doesn't have any left over to put in savings. Then, when he turns 28, Fred decides he had better start putting money away for his retirement. He begins to put $5000 a year away just like Bob did, only Fred faithfully puts $5000 in every year starting at age 28 until he turns 65.
At age 65, which one has the most money?
Remember they are both using the same type of savings program and they both realize the same rate of return. Since Fred has put a total $190,000 in his account, compared to Bob's $35,000, it would be reasonable to assume that Fred will have more money.
In truth Bob will have more money than Fred when they reach age 65.
Because Bob started earlier, his money has had more time to "compound", (doubling periods). Using an example rate of 10%, Bob's $35,000 will grow to $1,944,326 by the time he is 65. Meanwhile, Fred's $190,000 will have only grown to $1,820,217. That is a difference of over $100,000 !
This simple illustration underscores the importance of time and consistency when saving money for future needs.
Bob is 21 years old and he decides to begin saving for his retirement. He starts putting $5000 each year into some type of account, (a IRA, for example). He does that for 7 years until he turns 28 and then he decides to quit and spend his money on other things. He lets the money in his account sit and earn interest until he retires at age 65.
Fred, who is also 21 years old, decides that he will start saving later. He spends all his money and doesn't have any left over to put in savings. Then, when he turns 28, Fred decides he had better start putting money away for his retirement. He begins to put $5000 a year away just like Bob did, only Fred faithfully puts $5000 in every year starting at age 28 until he turns 65.
At age 65, which one has the most money?
Remember they are both using the same type of savings program and they both realize the same rate of return. Since Fred has put a total $190,000 in his account, compared to Bob's $35,000, it would be reasonable to assume that Fred will have more money.
In truth Bob will have more money than Fred when they reach age 65.
Because Bob started earlier, his money has had more time to "compound", (doubling periods). Using an example rate of 10%, Bob's $35,000 will grow to $1,944,326 by the time he is 65. Meanwhile, Fred's $190,000 will have only grown to $1,820,217. That is a difference of over $100,000 !
This simple illustration underscores the importance of time and consistency when saving money for future needs.
Buying Life Insurance?
If you are considering buying life insurance, how do you know if the agent will show you all the products available so that you can choose the one that will best meet you and your family’s needs and goals? I am a firm believer in “comparison shopping”. The key here is making sure you know what to ask for so that you have the right things to compare. You have to ask the right questions to get the answers and information you need to make an informed choice.
When dealing with the average agent you will most likely be presented with policies that are of a type that is referred to, (in the industry), as “cash value” or “permanent” insurance. These products are often called “Whole Life”, “Universal Life”, “Variable Universal Life” or some variation of those names. These are products where, in essence, the insurance company has bundled together a death benefit and some type of account that accumulates a balance of cash, (often called an accumulation account). The way these policies work is part of the monthly amount paid to the insurance company is used to purchase the death benefit, (i.e. pay the premium), pay any required fees, and then remaining amount of the monthly payment is placed in an account where it is supposed to earn interest and grow.
What most people don’t know is that there is another option available that the agent has somehow “neglected” to present. This other option is very rarely offered to the consumer on a regular basis. This is unfortunate. I feel it is a very powerful alternative to the other products available. What is it? It is an option where the customer purchases a term insurance policy and invests the difference of the cost in a stand-alone savings/investment “vehicle”. Here is an illustration*.
First let’s look at one type of insurance plan that is often presented by agents. We’ll call it, “Plan A”
Let’s pretend that Mr & Mrs Smith want to have life insurance, (and yes, they should have it). They are both in their mid thirties and have two children. Their budget is such that they can afford to spend about $150 a month. The first type of insurance under consideration is the “whole life” policy. The Smiths are probably able to get a policy that provides $100,000 death benefit on him, and $75,000 on her. The coverage will last from now until age 100. When the Smiths reach the age of 100, the insurance company promises to pay them $100,000. If they decide they want to “take the money and run” before that, (at age 65, for example), they can terminate the policy, (end the insurance), and take what ever cash has accumulated to that point, (probably about $50,000 to $65,000). Ok, that sounds pretty good, doesn’t it?
Let’s look at the other option. We’ll call it, “Plan B”
With a 30 year, renewable term policy, Mr. Smith can get about $200,000 of coverage, Mrs Smith about $150,000, and they can get $10,000 on each of the kids. Total monthly cost, about $53. Remember, they budgeted $150 per month for this, so what would happen if they took the $97 and put it into some type of savings “vehicle”? Over the course of 30 years, $97 a month could grow to about $300,000 **. This is what is referred to as, “buy term and invest the difference”.
With this type of policy, at age 65, Mr & Mrs Smith would have the choice of continuing their insurance coverage if they felt they needed it, AND they could also take the $300,000 and use it how ever they see fit, (without ending their insurance coverage). Some agents might argue that the premium on the term policy will be higher at re-newal. That may be true, but the $300,000 would also be creating about $2500 in interest income each month**. More than enough money to pay for any modest rise in the premium costs. (Besides, if the Smiths have $300,000 saved up, do they really need to buy that much insurance any more?)
When dealing with the average agent you will most likely be presented with policies that are of a type that is referred to, (in the industry), as “cash value” or “permanent” insurance. These products are often called “Whole Life”, “Universal Life”, “Variable Universal Life” or some variation of those names. These are products where, in essence, the insurance company has bundled together a death benefit and some type of account that accumulates a balance of cash, (often called an accumulation account). The way these policies work is part of the monthly amount paid to the insurance company is used to purchase the death benefit, (i.e. pay the premium), pay any required fees, and then remaining amount of the monthly payment is placed in an account where it is supposed to earn interest and grow.
What most people don’t know is that there is another option available that the agent has somehow “neglected” to present. This other option is very rarely offered to the consumer on a regular basis. This is unfortunate. I feel it is a very powerful alternative to the other products available. What is it? It is an option where the customer purchases a term insurance policy and invests the difference of the cost in a stand-alone savings/investment “vehicle”. Here is an illustration*.
First let’s look at one type of insurance plan that is often presented by agents. We’ll call it, “Plan A”
Let’s pretend that Mr & Mrs Smith want to have life insurance, (and yes, they should have it). They are both in their mid thirties and have two children. Their budget is such that they can afford to spend about $150 a month. The first type of insurance under consideration is the “whole life” policy. The Smiths are probably able to get a policy that provides $100,000 death benefit on him, and $75,000 on her. The coverage will last from now until age 100. When the Smiths reach the age of 100, the insurance company promises to pay them $100,000. If they decide they want to “take the money and run” before that, (at age 65, for example), they can terminate the policy, (end the insurance), and take what ever cash has accumulated to that point, (probably about $50,000 to $65,000). Ok, that sounds pretty good, doesn’t it?
Let’s look at the other option. We’ll call it, “Plan B”
With a 30 year, renewable term policy, Mr. Smith can get about $200,000 of coverage, Mrs Smith about $150,000, and they can get $10,000 on each of the kids. Total monthly cost, about $53. Remember, they budgeted $150 per month for this, so what would happen if they took the $97 and put it into some type of savings “vehicle”? Over the course of 30 years, $97 a month could grow to about $300,000 **. This is what is referred to as, “buy term and invest the difference”.
With this type of policy, at age 65, Mr & Mrs Smith would have the choice of continuing their insurance coverage if they felt they needed it, AND they could also take the $300,000 and use it how ever they see fit, (without ending their insurance coverage). Some agents might argue that the premium on the term policy will be higher at re-newal. That may be true, but the $300,000 would also be creating about $2500 in interest income each month**. More than enough money to pay for any modest rise in the premium costs. (Besides, if the Smiths have $300,000 saved up, do they really need to buy that much insurance any more?)
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