Denali Northern Expenditure

How to Insure Against Your Money Fears (And When an Annuity Makes Sense)

I just finished reading Die With Zero (affiliate link). The basic premise is that your money is worth more at different stages of your life (ie: when you’re younger you can do more things, so you shouldn’t wait until you’re old and retired to enjoy your money). The book is a good balance to all the “do nothing but work until you can retire early” literature available, but the most interesting idea to me was the fact that you can insure against all of your money fears.

People often save WAY too much money because they fear leaving their kids in the lurch, ending up in a retirement home, or outliving their money. Insurance can help you overcome these fears.

When You Need Life Insurance

Life insurance is a way to make sure your kids will be okay financially when you die. Term life insurance is the way to go because it’s cheaper and you likely don’t need life insurance for your entire life. I firmly believe everyone should have life insurance if you have young kids. Life insurance would allow your family the financial options of being able to pay for the funeral and end of life expenses, but also be able to take the time they need to adjust to just one parent. Even stay-at-home parents need life insurance. They are covering the bulk of the childcare and housework and those things are NOT free. Also, again, the loss of a parent/spouse would be a serious adjustment. Money can help the other spouse take a break from work to figure things out.

At the end of a 20 or 30 year life insurance term, you likely won’t need life insurance any longer. If your children are adults and you have enough savings to be able to continue to help them with college (if you’re still doing so) AND live your current life AND pay funeral expenses, you’re successfully self insured and no longer need life insurance. Indeed, your savings will no longer need to cover two of you (as one of you will no longer be around).

Long-Term Care Insurance

Long-term care insurance is complicated and expensive, but if your biggest fear is not being able to afford expensive long-term care toward the end of your life, you can help relieve that fear through insurance. Nursing homes can cost upwards of $100,000/year, so it’s a legitimate concern. However, in the worst case scenario, you run out of money, they don’t kick you to the curb. If your assets have been depleted, Medicaid kicks in.

I don’t think long-term care insurance is a good fit for everyone, but I do think it’s a great idea if your biggest concern is long-term care.

When an Annuity Makes Sense

An annuity is an insurance plan against outliving your money. This was maybe the most interesting idea Die With Zero introduced. Annuities are terrible investments and only exist because people think they will live longer than they actually do, so the annuity makes money because they don’t pay out as long as you think they will.

HOWEVER, if your biggest fear is outliving your money, an annuity is a great idea. Guaranteed income forever to help you overcome that fear!

Do I think everyone should go out and get annuities? Nope. They’re still terrible investments, but prior to this book, I didn’t see a reason anyone should get one.

Money is Emotional

Anything that pretends we can all make totally rational money decisions based entirely on math is crazy. We’re emotional. We have histories with money that color our decisions. We have actual fears about money that lead us to make other decisions. Using insurance products to help people have less fear is actually a great idea. If you won’t be comfortable knowing you may not be able to pay for long-term care or will never feel like you have “enough” because your biggest fear is outliving your money, there are ways to help you overcome those fears!

Spend More Money Now

I think Die with Zero is actually a great book to read in the middle of a pandemic, because if you’re anything like me, you feel like after the past year and a half of being stuck a home, you’re a bit concerned about how much you’re going to “let loose” financially when it’s safe to go and do things again. I’ve already prepped Mr. T that if cheap tickets to somewhere I want to go pop up, I’m not going to be as rational as I once was about my decisions and will probably be purchasing said tickets (work and school can work around TRAVEL for a change!). This book will make you pat yourself on the back and say: I’m in my golden years when I can go and do and have the health to do so, so it’s time to be SPENDYPANTS. (Also, this is your warning that if you’re following for frugality tips or semi-minimalism, that Maggie is no longer with us. The current Maggie goes to Goodwill weekly and plans to go hog wild the next few years financially. It’s gonna be a wild ride.)

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2 Comments

  1. Now I’m afraid to read it because I’ve been spending quite a bit and don’t think I could resist yet another justification of why I should KEEP spending. Because we most certainly didn’t pull back during the pandemic, there was always something to spend on 😬😅

    I just want the math to work so I can play now AND later. Why is that too much to ask??

    • MaggieBanks

      Yes, I agree. It would also be lovely to have the math work for ALL THE THINGS. But it does argue that you plan to spend as much money in retirement as you would now as a healthy person, but your health deteriorates so you will actually likely need less. An interesting idea.

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