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Ralphs. Fresh for everyone. ♪ Q&A show today, and I've got six unique, interesting, and varied questions lined up. Gonna respond to Sean's question about how to approach life insurance planning for his kids. Clear up some stuff for Chris on 72(t) withdrawals for early retirees. Basically, how do I pump a bunch of money into my 401(k) accounts and then retire at 50?

Does 72(t) work for that? Melissa has some questions about the much-vaunted mortgage acceleration program, which is the idea where you use a home equity line of credit to pay off your principal mortgage in order to pay it off faster. Robert has some questions about his wife's non-qualified deferred comp pension plan at her publicly traded Fortune 500 company.

He wants to know how safe that is. Mary wants to know whether to set up a corporation in California or Wyoming, and how to set up a corporation for her 16-year-old son. And then, Bonica has some questions about how to approach asset allocation and diversification from a Sri Lankan perspective.

♪ Welcome to the Radical Personal Finance podcast. My name is Joshua Sheets. Today is Monday, January 12, 2015. This is the show where I hustle every day to try to clear up all of your questions and give you a little bit of a guiding light on your path to financial independence.

A couple days late with today's Q&A show, but it's going to be worth it. I expect it to be long, but worth it. ♪ It's been an interesting week last week and an interesting day even today. As I record this right now, it's about 8.30 as I sit down and hit start.

I do expect this show to be fairly lengthy, but it is going to be packed. So, feel free to split it up into multiple set listening sessions if you need to. But it's been a busy week around the Sheets household. After getting back from the break, and by the way, if you want to skip straight to the questions, just check for the timestamp and you can go straight to question one.

But getting back from the break was an interesting experience this year. I had lined up the shows to release while I was out of town over Christmas vacation. And I was fortunate prior to Christmas vacation, I'd built up a backlog of about six shows in advance. And those shows were helpful to me as they allowed me to...

Well, it was useful to be ahead a little bit during the normal course of the week. But getting back from vacation, I just got overwhelmed with digging out from email. And then to compound it, I wound up getting sick. So, last week I had released a show on Tuesday and on Wednesday.

And I had shows planned for Thursday and Friday. But man, Thursday and Friday, I was flat on my back on... Yeah, I was sick and I wasn't able to get the shows done. That was a little bit disappointing to me. It kind of broke my streak. That was the fewest shows released in a week ever, actually, since I started doing the show.

But good things, good things all around. What I was reminded of, even today, as I record this later in the evening today, it's been a neat day with my family. And even just last week, even though it was a busy week and it was a week of being sick, I was reminded about the benefits of entrepreneurship and being able to have a little bit of autonomy over my schedule.

I haven't shared on the news yet, but on this show, so I'll go ahead and make the announcement right here. But there have been a lot of challenges in my family over the last few months. And they've been really great things. My wife and I are expecting a baby.

And so, that has been super exciting for us. It'll be here, hopefully, about summer of 2015. And so, that kind of gives me a neat kind of bracketing to my year, as far as to expect a baby in the summer. But the last few months have been very challenging around the household.

She's had to work through some of the morning sickness for the last few months. And she's hardly been able to cook anything for the last few months. So, I've been doing most of the cooking. And she's been pretty sick, actually, this time around. So, that brings a lot of extra challenges to the household.

But it also brings a lot of the blessings. And I've appreciated, even over the last few months, how simply due to being able to work from home on a flexible schedule, how I can mix up my working schedule in such a way that it actually works with my family's schedule.

So, I do a lot of work early in the morning before they're up, later in the evening after they're in bed, and then a lot of times during nap times, things like that. So, it's just a real blessing. And even today, as I was working on it last week, in addition to my being sick, her being sick, the dogs also needed some veterinary care.

And we're in the process of interviewing different midwives and trying to figure out who we're going to work with this baby. And even this morning, I had to flip the whole schedule upside down to have some morning appointments. And it was just a cool experience for me to be able to get up and actually took my family out for breakfast.

It was neat. It was a beautiful day. And so, we went for breakfast in Stewart prior to some appointments and just being able to gain control of the day. And an encouragement to all of you who may feel frustrated, as I often used to feel, is that it wasn't that I didn't want to work.

It was that I wanted a little bit of control over just my daily schedule and my ability to be with my family when they needed me and the ability to get my work done, but do it on a flexible schedule. And then I have days where you get sick and sometimes you just can't get the work done, at least when you desire to.

But to me, it seems, as I've said many times on the show, it seems that many of the benefits that many of us desire from being financially independent can be achieved in a shorter time frame just simply by building up our own business or building up some sort of remote work agreement, just essentially regaining control of our schedules.

And certainly many of us have occupations for which that's not going to be possible. If you are on call and you are an emergency room physician, you need to be there on the hours that you're there because the emergency room needs to be staffed. And all of us will have our own unique occupations.

But at least for me, I'm grateful to be able to shut the show down for a day or two when I'm sick just to be able to recover, focus on my health and just try to get better. I'm grateful to be able to love and serve my family and to just simply discharge the responsibilities in a way that I'm able to do so.

It's a real benefit and a real blessing. Thank you to all of you who are listening and who are helping this personal business get going. So just a little bit of appreciation. It was a neat day and I've been excited about today's show. I've put a lot of effort into just creating my thoughts and hopefully it'll be compelling to you.

But I just want to share that with you. A, to announce our news. We finally were able to announce it to our family over Christmas, so that was exciting. And I wanted to share it with all of you. It's going to be a neat experience for the year. So take heart, keep working strong.

Those of you who have a desire to run your own business or be involved and get more control over your schedule and to be able to have more facets of your life fully integrated, which is my desire. I don't want my life to be siloed like it seems to be in our modern culture.

It so easily is. I desire for my life to be more integrated and not a millionaire yet, but I'm able to enjoy the benefits of having an integrated life. My wife was remarking, even this afternoon as we were driving home, she was talking about how nice it was not to have to schedule an appointment at a certain time and rush out from an employer and have to be back in 90 minutes and feel all stressed and frantic about just things changing and things being mixed up.

It's just nice to have a little bit of control over your schedule. So I hope that's encouraging to some of you. I'm doing my best to get back in the swing of things, get on the routine here. I didn't realize how much it hurt not to have interviews in the can, so I'm going to try to build those up as much as possible and get back into the swing of things here.

But let's get to the questions now. And we're actually going to start with a question from Sean. - Hey, Joshua. My name is Sean. I listen to your show quite a bit. I just was listening to one of your shows where you were talking about the program that you were going to set up regarding for do-it-yourselfers.

And funny enough, I've been having this question on my mind for a while. I have two kids. One was just recently born and another one is two and a half and interested in buying life insurance. And I consider myself a do-it-yourselfer. At the same time, I would love some kind of program to be able to get an introduction to life insurance because I'm going to start that process to go acquire it.

And I'm not sure if you have anything in your program that's beta regarding that topic, but if you're looking for someone to kind of test it out on, I'd be very interested in the program that you're putting together for that. And you could use me as a beta. The process I'd be willing to pay as well.

But I really want to get educated on what is life insurance and be educated when I do go to purchase it that I'm well suited to make a good decision. Anyway, I love your show and thanks so much. Talk to you soon. It's a great question, Sean, and I thank you for calling it in.

I don't know when I'll be able to actually get the program or get the educational materials that I mentioned established. So I'm good at giving information away for free and not so great at actually making money on it yet. So I'll go and give you a little bit of insight for free.

Hopefully that'll help you to make some good decisions and then join the Irregulars Membership Program. That'll be the most helpful. So real quick on life insurance. Life insurance is actually one of those things where it's very difficult to be a DIYer. And the reason is that to the best of my knowledge, I have never found any company that sells insurance products without commissions.

So regardless of what choice you make with life insurance products, there is going to be a commission involved, which means you're gonna be working with a life insurance agent. Even if you call one of the people that advertise on TV, they're selling exactly the same product that a local life insurance salesperson is selling at exactly the same rates.

And they're just simply receiving the commission based upon their TV advertisement instead of working with a local agent. So I think life insurance is one of those things where you're well served by finding a local agent. Now, I do think you're well equipped. It's important to be well equipped in advance of that conversation to understand a little bit and that'll help you to make good decisions.

But it's one of those areas where it's difficult to be a DIYer. There are no insurance companies that sell direct to the consumer without an agency structure, at least that I've ever found or that I'm aware of. And the ones that do, I should caveat that a little bit.

There are a couple of companies that write themselves, put it this way, there are no competitive companies with products that I've reviewed so far that I would actually perceive to be market-leading products that sell directly to the consumer. And I think a life insurance agent can be valuable. Let me give you some ideas.

So life insurance for kids, and to be specific, we're not talking about you and your wife having life insurance policies on your life to protect them for which they would be the beneficiary. We're talking about life insurance policies on your kids' lives. And this is actually one of the more controversial subjects in financial planning.

You can read scathing essays on all sides of this issue, giving all kinds of advice. So I'll tell you how I parse the advice out, and I'll add my opinion to it. It is important to recognize at the beginning that this is actually a challenging area to plan in because it's so emotional for many people.

Many people have a very difficult time talking about it, thinking about it, thinking about their child dying, thinking about what they would do if their child died. It's just a tough, tough, intensely emotional issue for people. And I think that's why the financial advice that is proffered on this subject is so varied.

And so the rhetoric is so intense. It's because of the emotional intensity that exists for most people. I've actually have the privilege, I guess, misfortune, fortune of being able to be a little bit closer to the issue. My wife and I, we haven't lost a child, but I had a sister who died as an early teenager in my family.

And I was younger than she was, but because of that, she had an illness and she died as an early teen. And so in working through that, I was able to see some of that from a close perspective in my family and was able to talk with my parents about it and learn some of what they've learned through it.

One, I guess, just thought I would share on that is that it's very rare that finances are the major aspect of this. When a family loses a child, it's very rare that finance is at the center of the conversation. But I do believe that finances and having planned for that possibility can make a big difference.

One of the most heart-wrenching statistics that I read sometimes is the number of families who, number of marriages that are broken apart after the death of a child. If you are, one of the things you need to be very aware of, if you and your spouse ever lose a child, that that is, I don't remember the statistics, but it is a major, major, major problem in many marriages.

And you had better know that and start fighting for it. Because in dealing with the emotion and dealing with all of the guilt, everything that's associated with that, plan for that. That's been the number one piece of advice I've had when talking to people who have gone through that is you need to immediately focus on your marriage, immediately get help, immediately get counseling, and don't short-circuit that.

Because you've got to emerge from that event with your marriage intact. And I do think, again, that having some financial planning in place can help. So this is an issue that's important to me for, I guess, three reasons. Number one, I have a sister who died. Been through it with that.

Number two, I've had clients that I've worked with, and prospective clients, and I won't share any case details, but one of the most heart-wrenching scenarios in my life was a child that I actually wrote a life insurance policy on. And then the parents later discontinued the policy, and then the child died.

And they needed the insurance desperately. And it was a very difficult responsibility to feel as the planner. And I again and again racked my brains. Is there something I could have done differently to have kept the insurance in force for them? It was really tough for me. And then it's also just important to me because I have kids, two kids now, one who's pre-born and one who's young.

So I've done planning for my own kids, which I'll get to in a minute. So let's talk about philosophies. There are three major philosophies in mainstream personal finance that I have been able to identify when people talk about this issue. And those philosophies are primarily about the purpose and the amount of the insurance.

The first major philosophy is actually the least common. And essentially it's this. As a parent, you invest heavily in your children. And financially, you invest heavily. You invest a lot of money in paying for their birth. For some people, paying for their conception or paying for their adoption. Some people, you invest heavily in their birth.

You invest heavily in their care and their nurture over the years, whether that's from the perspective of providing food and housing, providing entertainment, providing educational opportunities. As parents, we invest heavily in our kids. And so based upon that, some people have the philosophy that because you've invested heavily in your child, you need to protect yourself such that your investment will pay off.

If your child dies prematurely, then your investment is essentially for naught. So therefore, you should buy a lot of life insurance on their life. Now, this is every parent I've ever mentioned and given Joshua's little three philosophy speech to. Every parent that I've ever mentioned that to you is kind of in the US has looked at me and said, "Are you nuts?

What's wrong with you?" This is a philosophy that almost no one in the US actually goes for. But that frankly, I think much of the world will, does naturally understand this. We do spend a lot of money on our kids. And in the United States, at least, maybe in Canada too, or other, I don't know, other societies, we've developed the idea that we do so and then we send them off and then we never rely on them.

We develop our kids and we send them off and we get them out of the house at 18 years old and they're done, they're gone, they're on our own. Now we're gonna do our own thing. We have this very can-do spirit about us that says, "Yes, I do that and then I'm gonna send the kids off." And so we view ourselves in fact as failures if we don't.

So in the US American culture, we would view ourselves, generally speaking, as a failed adult if we find ourselves dependent upon our children in our old age. I think it's a little foolish, frankly. I prefer the more integrated family cultures that exist in much of the world. And I think it's a little foolish actually practically in the US American context.

The fact is that we do depend on our children financially and the numbers and the trends and the statistics indicate that even more people are going to in fact be depending upon their children in their old age. I've seen this in various trends. I'm interested, I mentioned on a recent show about the fact that some of the more home models, floor plan models for model homes from some of the large home builders, it's becoming quite popular to purchase a home with an included suite for extended family.

So whether that's built into the house or whether that's an attached garage or an attached apartment, something like that, that's become a growing trend in the home building industry. If you just look at the statistics on the amount of money that the average US American actually has and the amount of money upon which the average US American is actually going to retire, it's clear that it's not possible to live on that amount of money.

And then as going forward as the US entitlement programs constrict, as Social Security and Medicare, especially and Medicaid as well, but that's less applicable necessarily to older people, but as Social Security and Medicare over time, demographically and just from the sheer force of numbers, especially demographic numbers, as those programs constrict, it's not possible for the average retiree to be able to retire.

And so this trend is gonna continue. So I actually prefer the Asian model or that's where I've seen it the most, but who knows, maybe it's also Latin American. I don't know what culture is all. It seems like every culture that I've been in except the US American culture.

But I like the idea of invest in your kids and then have your kids support you in your old age. Frankly, I can't figure out why 70-year-old parents don't wanna live with their kids. Now, maybe I'll feel that way when I'm 70 myself and I'm like, "I don't wanna ever wanna see my kids again.

"I'll go see them once a year in the motor home," type of thing. But I personally have a, I think it's ideal for families to live together. But getting off of that, I mean, the point is that I've never found a US American, really, who's willing to purchase a big life insurance policies on their kids' lives.

Because of the fact that they've invested $150,000 in raising a child and the fact that they're gonna need to be cared for if their child dies prematurely. Now, I think it's a perfectly rational economic model myself. And I think it makes a lot of sense, but I've never gotten many people to buy that.

So I'll cover exactly how to fund these models in a minute. But that is the first one that I've seen. The second primary philosophy that I've seen espoused in financial literature is the idea that you need to have some small or minimal amount of life insurance, which is adequate to cover funeral costs.

This is what you read primarily in mainstream financial publications. And this one is interesting to me because although I think it's logical and I think it's well-meaning, I think it's mostly irrelevant for most people. It's a good example of where general advice just doesn't cut it, in my opinion.

Because if you're wealthy, to define wealthy, let's just say middle-class, mass affluent, or up. If you're wealthy, you can simply afford to pay for the funeral if your child dies. Funerals are not that expensive unless you go all out with it. And even if you do go all out, you can certainly finance it.

You can certainly have emergency funds and cash reserves. You can pool the money from other places and you can cash flow it over just a series of payments over time. So if the idea is purchase a minimal amount of life insurance, which is sufficient to cover the funeral cost, well, in this case, given the low probability of it happening, I don't think it's a big deal for wealthy people because if it does happen, you can just self-insure it easily.

Remember our little model of insurance which we've talked about in the past? It was actually episode 91 where I gave you a model of figuring out do I actually need insurance? So you can find that show at radicalpersonalfinance.com/91. So in this model that I gave you, where I said we look at risk factors on a scale of how severe is the expected loss and then how frequent is the expected loss.

And for risks that have a low expected frequency and a low expected severity, we would just simply retain that risk. And so the risk of a child dying, it's very infrequent, extremely infrequent, statistically speaking. And in the case of a mass affluent or the middle class and above person, it's a relatively low severity from a financial planning perspective to pay for the funeral.

So we would just simply retain that risk and self-fund it essentially with a general savings fund. Now the flip side of this is let's say that you're not wealthy. You're not in a situation where you're not middle class and above. You're poor or just getting started or struggling. Well, in this situation, I look at that and I say, is that actually going to be my primary bit of financial advice for someone who's struggling that they should focus on taking care of the risk if their child dies?

I would probably just run, I would just keep that risk even so and deal with it if it happened because the expected frequency, the statistical potential of it is so low. And there are so many other things screaming for those dollars. It would seem like a not very high priority idea for me.

So also if somebody is poor or struggling financially, then the question is always, are they going to be able to keep the policy in force? Are they going to be able to fund the premiums? And that's a real challenge. So this is one of those things where mainstream financial advice, I read it and I say, that's a good idea, but the middle class and rich don't need it and the lower class probably can't afford it and there are other priorities higher in importance.

So it makes sense on the surface, but doesn't make sense to me. Just as an advice, that's just Joshua's opinion. Now on that, remember that funeral costs are only part of the cost and I'll come back to that in a minute, but this is what's often forgotten is that the actual cost of paying for a funeral is probably not that high, but that there may be other associated costs, especially medical bills.

And this is one of those things that really hurts people. This is another reason why I say, can the poor middle class keep the policy in force? Because what often, if for example, if a child is sick and dies at the end of an extended illness, then in this scenario, a lot of times the money's been exhausted previously and there are many, many bills and that's when the insurance is most needed and it's hard to afford.

So I'll come back to that in a minute. So that's the second one. So philosophy one was you invest heavily in your kids, buy a lot of life insurance on them. Philosophy two is you need some insurance just to cover funeral costs. Or my philosophy, my preferred philosophy is actually number three, which is essentially you probably need some life insurance if you can afford it.

And the cool thing is, is that you can cover the life insurance now and more importantly, you can help your child with establishment in the future. And this is the approach that has made the most sense to me. It's what I've chosen to do for my son. And it makes sense to me because it allows me to think in a couple of ways and I'll explain it.

But one of the ways, one of the unique things that you can do with insurance for kids is you can add a couple of options. And one of the more important riders that you would add onto an insurance policy is called an additional purchase benefit rider. And that additional purchase benefit allows the child to purchase additional amounts of insurance in the future with no additional underwriting requirements.

So no medical exams. And this can be extremely helpful both from the physical perspective but also more importantly in my mind, some of the occupational things that can affect life insurance underwriting. One of the keys is when, so I bought my son's insurance policy for him. Now, granted I was a life insurance agent so I probably was more motivated to do this than most people.

But I bought it for him when he was I think two weeks old and I think that was the requirement, if my memory is correct, something like child has to be 15 days old before they can qualify for the insurance policy. But when you buy one, buy a policy for a child at that age, hopefully the child doesn't have any health risks.

Hopefully they haven't started smoking. Hopefully they haven't indulged in recreational drug use or something that's gonna affect their insurance medical underwriting. And hopefully they haven't started riding bulls for a hobby or flying airplanes yet. So you can purchase that insurance for them. And then on my son's policy is almost a half a million dollars of additional purchases, amounts that will be offered to him at regular intervals between the ages of 20 and 40.

So his policy can go from a small token policy now to a fairly hefty life insurance policy over that course of time. And this was actually the big reason why I did it. Yes, I do value having the life insurance policy in effect for him if he dies. That would be important because if he were to die prematurely, then it would allow my wife and I some breathing room, some time just to step back from whatever employment or business pursuits that we were under to take time to heal and to grieve and to recover.

But it's also just, yes, for my son, it's a whole life insurance policy, which I'll cover in just a moment because this is one of the other major areas of controversy with what type of insurance do you get for your child. But my son's is a whole life policy.

And yes, the cash value, yeah, theoretically it might be something, but that wasn't the primary motivator for me in doing it. The big motivator was to lock in a policy in the insurance industry. We have this horrible lingo is called to protect your insurability, which nobody outside of the insurance industry ever says anything like that.

But insurance agent like to spout that all the time. We've got to protect your insurability, which means we would make sure that you don't need to pass a medical exam in the future. And again, this may be super helpful. Let's say that he has something like asthma or develops autism or develops some other heart condition, lung condition.

He can't get any life insurance, but then he starts a family and he needs life insurance. Well, at least with the policy that he has now, then he's protected and he's able to get additional amounts of life insurance to cover his financial needs and financial goals. And then I mentioned it already, but just to stress it, the health stuff is one side, but then there's also the occupation and avocation.

So occupation, he goes and becomes a deep sea underwater welder on oil rigs in the North Sea, probably a fairly dangerous occupation. I'm not sure how the insurance company is going to view that. Or he goes and becomes a NASCAR driver. They're not writing life insurance policies on his life in that scenario, but he's got the policy.

At least he can continue to get some insurance regardless of his occupation or hobbies. The day you sign up for flying lessons, your life insurance rates drastically increase. It's absurd. So by having that in advance, he has some protection. Those are the three primary categories that I think of.

And you've got to just pick kind of what makes sense to you. Most people, now there are other categories. So other categories would be, are we going to set aside large amounts of money in cash value life insurance contracts for tax avoidance? Are we going to hold life insurance contracts in a trust as part of our trust tax planning?

Are we going to set aside insurance contracts outside of an estate for generational estate planning purposes? Those are all applicable, but they're a bit esoteric and they're not really of interest to the, they're not applicable to the normal person. So let's just set them aside for a moment. Let's just deal with those three things.

Those are my little three categories of how I think of them. So need lots of insurance, need just a little bit of insurance to cover, and yeah, need some insurance, but we're also doing it for other purposes. Incidentally, if you have difficulty with the topic of owning life insurance on your kid's life, or if you're a financial planner, talking with people about this topic, then one thing you might consider doing is think about it as a legacy fund.

And with a legacy fund, personally, I'm okay with the idea of loaning life insurance, but lots of people aren't. And so if you can just think of it as, instead of how would I benefit or how would I profit from my child's death, think what would, if my child died prematurely, what would I want their legacy to be?

And I'll give you two examples that I've heard of. Years ago, I heard a talk, it was actually a Northwestern mutual agent from the company I formerly represented. And that agent was talking about the fact that he'd been a life insurance agent for a while. And then tragically, the first life insurance contract that he had put in force, that he actually received payment from, was actually his own child's.

And one of his sons, tragically had been on his way back to college, had been involved in a car accident and was rear-ended by a semi-truck and had died. And so the first death benefit, death claim that he ever filed for a policy he had written was on his own sons.

Well, he used that money as seed money. And I believe he started a foundation, something like the Truck Safety Coalition or something like that, where they were involved in lobbying for greater laws and ideas and regulations on the over-the-road trucking association industry. And so he used that to establish a foundation, and that was in honor of his son.

Another one I remember recently is I recently heard a presentation by the sister of a young lady named Dori Slosburg. And there's a foundation here in Florida called the Dori Slosburg Foundation that's also involved in traffic safety issues. And Dori Slosburg was a young lady. She died as a teenager in a traffic accident.

And her father and her family established a foundation and have made a lot of progress in promoting their agenda of greater traffic safety ideas. And they did it. They didn't have anything to fund it with, but they started with just simply their own money. My point is sometimes if things like that happen, wouldn't it be a blessing if there were a life insurance policy that could actually pay out money for...

that could actually pay out money to help in that scenario? Hopefully that's helpful to you. Now, how do you actually buy the policy? Now, this is another one of those things where the tough part is the advice doesn't seem to match up to real life. One of the best examples of this is advice on buying term life insurance.

I've read several essays from people, very well-meaning, and their advice was buy level term life insurance policy for your minor child and buy a large life insurance policy. Now, I've looked and I've looked and I've looked. I've never been able to find a life insurance company that will actually sell a standalone term life insurance policy for a minor child under the age of 18.

If you know of one, let me know. Comment on today's show notes, radicalpersonalfinance.com/132 for today's show. I would love to know about them, but I've never been able to find one. And I do actually understand from the insurance company's perspective why they wouldn't desire to offer one. But it's funny, I've read that advice in written essays and I've never been able to find a company that would offer that kind of policy.

Term life insurance is generally not sold to minors. If you want, if your child is 18 and over, it's simple, I've done this for some parents actually who when their child is going to college, they're getting ready to write a very large check for college tuition. And they go ahead and put a larger term life insurance policy in force on their child's life.

And if you're gonna write a check for $50,000 a year of private school tuition, buy a life insurance policy for $250,000 a term life insurance for an 18 year old would be under 20 bucks a month. So buy a term life insurance policy and cover yourself and cover them.

If your child is under 18, make sure, or excuse me, over 18 on that scenario, make sure it's an annual renewable term life insurance policy. Pay for it for a few years and then transfer it to them if they want it or drop it if you don't need it anymore.

But make sure it's annual renewable term instead of level term so you have more flexibility. If your child's under 18 then and you need a lot of life insurance policy on their, a lot of life insurance coverage on their life, you're not gonna be able to do it with term life.

The closest that I've been able to figure out that you can get to it would be to do some sort of stripped out universal life insurance policy. So you could take a universal life policy, fund it minimally so that you're essentially buying term protection with very little cash accumulation and the policy will expire at an earlier age.

That can get you pretty close and you might be able to get one of those in force. Or if you have the cash flow, you can go and set up a traditional whole life policy of some kind. I personally have a bias toward being conservative here. Me as an agent, I will usually lean in the direction of a more conservative approach, a whole life policy, a life paid up at 65, something like that.

Where there's plenty of cash to keep the policy going. And I would look with hard, I'd be slow. If you're struggling with the cash flow, it's probably not the right fit for you in my opinion. It's just probably not. So I tend to be conservative 'cause I don't want the policy to fall apart at an inopportune time.

So do your aggressive investing with another financial instrument and stick to, I like to be conservative with insurance is my bias. Shop carefully. You don't wanna make a mistake here. You wanna make sure that you have a policy that your child will love owning in a few decades time when you transfer it to them.

Not something they're gonna wake up owning at 30 and just be ticked off that mom and dad threw their money away into a poorly designed insurance contract for many years. So make sure the policy is well designed. Make sure that the fees are low, the expenses are low. I'm personally, I'm biased in favor of a mutual insurance company instead of a stock insurance company to remove the percentage of returns that goes to the owners of the company and get it back into the insurance contract.

So I'm also, again, biased in favor of a conservative policy instead of an aggressive equity-based approach. Although I could actually argue for those as well. And then also if you're gonna get big insurance policies for yourself, excuse me, for your kids, you better have big insurance policies on yourself.

So if you're wondering, you can't go and buy a million dollar life insurance policy on your 10 year old son or daughter's life if you don't have 10 or $20 million of coverage in force on you. And it's all done based upon the ratio. So that would be how I would handle it for number one, if you're trying to get a big insurance policy to protect your, essentially your investment in your child.

Number two, if you're just trying to cover yourself for a burial policy and you just want something that's the minimum, here are the best route is just to simply get a term rider. And you can get this in a few different ways. I've never been able to find, like I said, a standalone term product, but you can easily get a term rider in a number of different ways.

Start with your group benefits at work. That's usually gonna be the cheapest way and the simplest way. So you add on 5,000 bucks for each of your kids and it costs you 72 cents a month. Start with that. Number two is look, if you don't have anything, your group benefits, look for things like your auto coverage, your property and casualty.

Maybe there might be some benefit that's available to you as a simple add on there. Banks sometimes offer this thing. I've seen advertisements for it. And then look at your personal term insurance. If you have life insurance, term life insurance yourself, look to see if your company offers a rider.

Some do, some don't. Some policies do, some policies don't. You have to look at each individual situation, but a lot of the companies that do, I don't like them 'cause they're kind of gimmicky about it. They try to do the family coverage thing to sell more insurance. But maybe you're already in that situation and you have that option.

Number three, a balanced approach. It's like, again, this is what I've done for my son. It's a relatively small whole life policy. For him, it's 25,000 bucks of whole life insurance. It's well-designed, carefully designed with low expenses and high cash and credit. And high cash accumulation. So that way, I just want it to always be around.

It's possible that this policy could just simply be his permanent burial policy that he always keeps around for the rest of his life. And it's just purely intended to provide some cash liquidity at death. I'm not saying, by the way, one of the needs that I learned that I never appreciated until I actually went through it with a client was the value of having some sort of life insurance policy available.

At death. Even if you don't necessarily need it, because you can afford to die and you can afford to pay for your funeral. I had a unique experience with a client who was retired. They were in their 80s. And they were retired. They were multimillionaires. Not multi-multi, but multiple millions.

And my client, the wife, died unexpectedly. And it was very interesting to go through, because at this time in their financial life, they had several homes that they were trying to sell that were on the market, but with a slow-- this was a couple of years ago-- with slow-moving real estate market.

They weren't selling quickly. And they had some assets locked up in a trust and some illiquid trust assets. So the interesting thing was, even though this client was a multimillionaire, it was stressful to them to handle the final expenses. And as I remember, it was something-- somewhere between $50,000 and $100,000 of life insurance that was there.

And it was such a blessing to this client to get that check. It was about $80,000. And it was such a blessing for this client to receive the check for $80,000, because what it allowed him-- knowing that that was in force-- it allowed him to provide for the type of funeral that he wanted to provide for his wife.

Without being concerned about the expense up front. And so it was interesting. I never imagined that a multimillionaire would-- I'd always been generally in disfavor of the idea of having burial policies that are whole life policies that are going to be around as burial policies. Never made sense to me.

I thought, if you've got money, just take some money from stock and move it. But it really opened my eyes to something that I had been previously blind to. So for my son, maybe it'll just be around for his own burial down the road. I don't know. At an old age, I'll transfer it to him at some point.

The policy will probably quick pay in his 20s, depending on interest rates. So quick pay, meaning that I won't have to pay any more premiums on it from when it's in his 20s. It won't have a ton of money, because I don't put much money into it. I think it's less than $20 a month that I put into it.

And for me, the insurance is simply nice to have, in my mind. If he died, I'd arrange for cheap burial arrangements and pay cash. And I have the insurance, but I don't need it for that. Just pay cash for the funeral or finance it. I don't know, get a 0% credit card or something.

But also, the big reason I like having it is from the perspective of if there were things like medical costs. These can be very substantial. I've seen this with a few different people that are close to me. Also, the key benefit I mentioned is that APB and the waiver of premium.

And so since I've watched people close to me go through things like muscular disease-- I had a friend who died from muscular dystrophy. And watching a family go through that process and the child eventually dying, but then knowing the medical costs outstanding, really would have been a benefit. And I have always liked to put on life insurance policies for children.

The APB option, the additional purchase benefit option I explained, and also a waiver of premium option, which is the scenario where if he were to become disabled, then the insurance company pays the premiums. And what's beneficial formally with the company that his insurance is with is if he were disabled, they would still-- the insurance company would still exercise all of those additional purchases.

And they would pay for the additional increases in the policy. And that can be a substantial amount of money. Personally, I have little need of the policy from an investing perspective. It's too small to be substantial. And then the growth in whole life insurance policies for kids is just simply too slow up front to really matter in their life.

I've never been able to make one work at all, the numbers to work at all, for any kind of short-term financial needs. Too conservative to make any big difference. And my tax rate at the moment is too low for me to need it to protect from kiddie tax or any of that stuff.

I don't have it in a trust. So it's pure savings and protection. I'll focus on other investing ideas. Then I'll come back. And maybe later on down the road, I'll think about buying more life insurance. But it's certainly not something that's needed right now. So those are my thoughts on life insurance for kids.

Sean, I hope that's helpful for you as kind of an intro. Probably told you some terms there that might not have made sense. But hopefully that helped you. So I've just made a split-second decision. I'm going to change the course of today's show. It's-- we're at 47 minutes into the episode, and I've answered one question.

So I need to get a little bit of room to catch up this week. So what I'm going to do is I'm ready to answer these next five questions on my list. I'm going to answer the next one now in today's show. And then I'm going to split this out.

And we're going to do a Q&A show each day this week. And that will help me to get ahead a little bit with the content. I've got some pretty big shows that I've been-- was working last week on getting out. I've got a big-- some big shows planned on 529s, some stuff on investing, health savings accounts.

So I need to put some prep time into those. So I'm going to do these Q&A shows. We're going to split this out into five shows. And then episodes may be a little bit shorter, but that will help me. So let's just take one more question here today. And then we will wrap up for the day.

And so this next question comes from Chris. And here we go. Hi, Joshua. This is Chris. This is a long way off for me. But if I turn 50 and my wife and I have a few million dollars tied up in retirement accounts, can we start withdrawals on a 72(t) basis at that point and then cancel them or otherwise change it when we hit 59 and 1/2?

I'm pretty sure that we can, but I can't seem to find a lot of details about that. Anyway, I freaking love your podcast. It's awesome. It's informative. It's just-- it's kick ass. Anyway, thanks a lot. Bye. Chris, thanks so much. And so this one's going to be my shortest answer of the-- well, it's going to be the night.

Now it's going to be the week. Yes, you can do that. And that can work fine. For the early retirement space, if you've got loads of money and you can retire at 50, this can work great. So the reason I poo-poo the strategy for most people is most people don't have enough money that they can survive on the relatively low rates of withdrawal that you can get under a 72(t).

So let me explain. This is essentially the rule where you can pull money out of an account early. And as long as you take it out in a series of substantially equal periodic payments, then you can avoid the 10% early withdrawal tax. So Chris, in your numbers, let's just say I put in somebody that is an account balance of $3 million in retirement accounts.

And you're going to retire at the age of 50 with a 45-year-old beneficiary. I tossed this into a 72(t) calculator. I'm using the Dinkytown one here. And the reasonable interest rate is 2.1% under those assessments. Then you can see that the amounts of money that you would be getting out, let's just say at 2.1%, the required minimum distribution would be $88,000 for the required minimum distribution method.

The fixed amortization method would be $123,838 per month. So you'd be in good shape. And that would work fine for you. Now, the secret, as you mentioned, is that when you start a series of equal periodic payments withdrawal strategy, you must continue it for at least five years or until the age of 59 and 1/2, whichever of those is longer.

So if you started at 50, as you asked in your question, yes, you can go from 50 to 59 and 1/2. And because that's been at least five years, and because you're older than 59 and 1/2, at that point in time, you can indeed change your distribution strategy. So it can work fine.

And it's a great strategy for some people to think about and to plan on it. It very well could solve that question of how do you get the money out. What it doesn't work well for is it doesn't work for most of the mainstream financial planning clients that a financial planner will often encounter, who are from often two schools of thought.

Number one is, Joshua, I don't have enough money for retirement. Well, in this case-- and it's early, so can I get money out? Well, in this case, the amount of money coming out of the account is insufficient to live on. It's useful to have as a backup tool, but it's not a primary tool because there's not enough money to live on.

Or this flip side is most people that save $3 million are not going to be content with $120,000 a year lifestyle. You have to remember that many people, their goal is to say, how much can I take out? So it's not a matter of what's the safe withdrawal rate, what's the 4%, which would be $120,000 or $3 million.

The question is, how can I push this as aggressively as possible? And they want to get out more money out front oftentimes. So the numbers have to work for this to be effective. So it's a useful tool to have, but I've-- I don't know. At least I've not been a planner forever, but in the six years I was doing it professionally, I never found the scenario of the client that it actually worked for.

So that's the answer to your question. And with that, I think we will skip for today's show. I'm sorry. I hope you don't feel bamboozled in the intro of my telling you we were going to do content that we didn't get to. So tune in tomorrow, and I will answer a question-- you know what?

I'm going to stop the music. And here's the question that we're going to answer tomorrow. We're going to have this beautiful question from Melissa on a very interesting strategy. - Hi, Joshua. It's Melissa from Pennsylvania, and I have a question for you. I keep a money journal where I just jot down ideas and books and different things as I come across them.

And I was reading through a page that I had jotted down a note from a year or two ago about paying your house off with a HELOC loan. Essentially, it was-- from what I understand, it was you deposit-- you create a HELOC. You deposit your checks into it and pay all your bills out of the HELOC, almost using it as a savings account, and in turn, paying off more of your principal and decreasing the length of your loan.

Basically, I come to you for advice on if that is a legitimate idea, and also if you have any knowledge of that. Also, in the page I jotted down, it must be associated with a book called Master Your Debt and a website, truthinequity.com. Any advice you have would be great.

Thanks a lot. - So there's my teaser for tomorrow's show. Some of you are scratching your head and saying, "Huh?" And others of you say, "Ah, I know what that is." It is quite fun. Tomorrow, tune in and I will share that information with you. It's going to be a good one.

I got the book and I read it, and I will explain it to you in words you can understand, and I'll tell you my thoughts on it. So tune in tomorrow. Thank you all so much for being here. I appreciate each one of you that is listening. I really do.

I appreciate each one of you who supports the show. If you would like to support the show, if you gain value out of today's show, I hope it was specific and helpful. I would love it if you'd consider joining the membership program. That is the Irregulars. You can find all the details on that at radicalpersonalfinance.com/membership are all the details.

But basically, it's you pay me money, and I am able to afford to keep doing the show with the depth that I try to do it with. That's essentially the deal. I think as we go out here, that I will read you one review very quickly here. In the time that I have.

And Michael says, "Finance geek. Excellent outlook on achieving financial independence and getting out of the rat race." Thank you, Michael, for that review on iTunes. I appreciate that. And also, Illiterate, what an interesting name, says, "Sheets does a fantastic job of removing his personal opinions and proscriptions from the meat of his show and fulfills his mission statement of providing thought-provoking information and wide-ranging insights with examples from both mundane and extreme.

Anybody looking to be a financial planner for themselves or others should give him a listen." Thank you to the two of you who left those reviews for me on iTunes. I appreciate that very much. Sorry that today was a little bit disjointed. It'll be better tomorrow, back when my brain is working a little bit more.

We'll be with you tomorrow. Shop break-resistant glassware at WineEnthusiast.com so you can spend more time and less time. I'll get the broom. Shop our Black Friday and Cyber Monday deals for the best prices of the season on wine storage, gifts, and more. Plus, get free shipping on orders of $99 and more.

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