I’m looking for advice. My mom is 56, doesn’t have a traditional job (she drives for Uber), and has almost no retirement savings except for one finished whole life insurance policy. She also wants her savings to benefit our family.
Here’s the breakdown of her policies:
- 6 whole life insurance policies through MetLife (for her and her children)
- 3 are nearly done → leaving those alone.
- 3 started ~5 years ago, with ~12 years left to pay, about $270/month each (next payment is in 2 days). These 3 are all for my younger siblings.
I suggested putting those monthly payments into a Roth IRA instead, since it could grow more over the next 10–12 years and help build retirement funds.
She prefers life insurance because she sees it as “safer,” can pull money out anytime, and it leaves money for the family, but cashing out early usually gives less than expected.
I’m worried that we could lose money or not gain any money from investing in a Roth IRA, since I’m not knowledgeable on the subject, and that I'm making a bad decision for the family. I read that a common approach is something like 60–70% stocks and 30–40% bonds, but I don’t know which specific stocks or bonds to choose.
Additional context:
- She’s not fluent in English, so I would be the one figuring out Roth IRA investments.
- We’ve never invested before.
- We are a low-income household, and I'm currently unemployed but actively looking for work.
My questions:
- At her age, with almost no other retirement funds, and wanting to save for family, does investing in a Roth IRA make sense?
- How do Roth IRAs actually work, how do we use them, and are there beginner-friendly resources for someone like me to learn and manage it for her?
- Can we lose money in a Roth IRA, and how does that compare to the “safety” of life insurance?
Thanks for any advice or guidance!
Should my mom invest in a Roth IRA instead of paying for life insurance at 56?
byu/Otherwise-Damage-601 inpersonalfinance
Posted by Otherwise-Damage-601
2 Comments
>I’m worried that we could lose money or not gain any money from investing in a Roth IRA, since I’m not knowledgeable on the subject, and that I’m making a bad decision for the family. I read that a common approach is something like 60–70% stocks and 30–40% bonds, but I don’t know which specific stocks or bonds to choose.
Yes, you could lose money that’s invested inside a Roth IRA because it’s not guaranteed profit. It’s not like a CD or savings account, where the interest rate is a guaranteed 3-4%. It’s more like investing in the broader stock market, which can go up and down a bit. You don’t invest 60% in random assortment of stocks, btw, you generally invest in something like an index fund.
Ex: you open a Roth IRA with Vanguard.. and invest 60% of your funds in VTSAX. What is that?
>VTSAX is a broad-based index fund created by Vanguard. It is the total US stock market and is made of 4068 companies
So you don’t rely on 1-2 companies to do well, but like 4,000+ of the biggest U.S. companies to do well.
Here is the growth chart for how well VTSAX has done in the past several years:
https://finance.yahoo.com/quote/VTSAX/performance/
The red lines = down years, but the green lines (up years) far outnumber the down years.
The safety of whole life insurance is one thing — you don’t lose money, because it’s guaranteed, but the rate of return you’re getting is lower than a CD, because the investment part is very poorly performing.
See this post:
https://www.reddit.com/r/personalfinance/comments/1qd2zha/parents_paid_for_whole_life_insurance_for_me_for/
OP’s parents paid $1,300/year for 17 years and the pay out amount is $30k… that is a very low return for their money.
Hopefully someone else will chime in, but whole life insurance is quite expensive. I’m sure your mother could get a term life policy for much cheaper and use the price difference as part of a savings account.
There are eligibility requirements for a Roth IRA, but I don’t know what they are. Sorry, I have a Roth option in my 401k. But you need to figure out the eligibility requirements first.
Investopedia might have some beginner friendly resources for you.
And YES, you can lose money in a Roth IRA, just as you can in a Traditional IRA, a brokerage account, or a 401k. Whole life insurance as a safe place, well, maybe safe for the insurance companies. Your return on investment in whole life is low as compared to the stock market I’m sure other will comment with better information.
The investment you want in your IRA is going to be a S&P 500 index fund. Vanguard offers VOO, but it is pricey per share;$600 a share. Schwab offers SWPPX at under $18per share, but is not as tax efficient as VOO. Then there is Fidelity Investments offering FNILX with zero expense ratio, which might cancel out the tax inefficiency. FNLIX costs under $25 per share
Good luck to you. IMHO, investing is better than whole life insurance.