Q: We are in our late twenties, and we want to build up cash to buy our next home, but we are currently under-water on our current home even though we put our 20% down. We are currently fully funding two Roth IRAs at $10k/yr and paying ~$500/mo for a $400k whole life policy (in year 2) through a mutual insurance company that is paid up at 65. We also currently each have $500k term policies for 20 years (in year 2). We have a fully funded emergency fund as well as about $5k additional in savings. Our current “financial advisor” (who sold us the whole life) says we should cut off our IRA contributions due to market volatility and maintain our whole life to increase our savings for our short term need to move to our next home (we feel we need to be out of our current home in 2 years when our kids start school so that they can be in a decent school, which we are not currently in). It just doesn’t feel right, but we don’t understand why – they are really good selling their insurance. We want an unbiased opinion.
It sounds like you are getting advice that I wouldn’t exactly agree with. Congratulations on maxing out the Roth’s and having your emergency cash position in place. If you want to save money please don’t do it inside of the insurance contract. Why would you want to pour more money into something that is so high in cost? Even when you add money to a policy like that you don’t get dollar for dollar back because of the cost of the insurance. The best solution will be to build up cash in a high yield checking or savings account. You should be able to find one at www.bankrate.com that will pay above 1%. You should also check with you local credit union. They may have attractive rates as well.
As for the life insurance, I believe term is the best insurance you can buy. You may want to revisit the insurance situation with someone who doesn’t want to sell you more insurance. Feel free to contact someone at our office for a free one hour consultation. Also here is the website for other fee only financial advisors in Atlanta – NAPFA.