You can’t avoid it; So, get ready – 01/06/2024 – From Grain to Grain

Two events in your life are certain and everyone should prepare. In fact, one of them is certain and the other is very likely, but both require preparation and effort. Therefore, we usually want to postpone discussing them as long as possible. This delay often ends up harming those we wish well and ourselves.

Postponement is almost natural for everything that is important. Today I was attending a philosophy course by Profa. Lúcia Helena Galvão in which she explained how we resist starting what is important. We always put “urgencies” at the front.

Retirement and death are two important problems that everyone faces. I tend to talk a lot about the first. Talking about the second is difficult. Preparing for it is even more so. But, it is a certain event. Therefore, delaying can be costly to those we wish most well.

In any financial planning, both events must be addressed. Both are important and we should not postpone the discussion.

We often think that when preparing for retirement, that is, saving a reserve to live on income in the future would be enough to also meet the second event.

This thought is not completely wrong, but it is only correct if everything really goes as planned, that is, you live a lot and save a lot.

Using an analogy, it’s like going out on a cloudy day. You plan and take the umbrella. This would be preparing for retirement. However, what if there’s a storm like that where an umbrella won’t help? It may work out and it rains little. But, this would not be being prepared.

We must be prepared for storms.

For example, imagine a 35-year-old individual with a newborn child who decides to start financial planning. Retirement is important, but ensuring the child’s education and well-being until adulthood is fundamental.

What if something happens in the next 20 years? Will retirement savings be enough to cover your absence during this period?

Consider that the average expected expenses with the child total R$1 million and each spouse is responsible for half of the expense.

If this individual takes out Whole Life insurance worth R$500,000, he would pay the equivalent of R$20,200 per year for 10 years. In the first payment, he has the guarantee that if something happens, his child will already receive R$500,000.

However, if he instead decides to just save the same amount, also for 10 years, in investments that yield an interest rate equivalent to IPCA + 5% per year, it will take him more than 26 years to be able to leave the same amount of R$500 thousand for the son. In other words, in this case, the son was not assured when he needed it most.

The graph above shows this difference between application and insurance.

However, the big problem lies precisely in these next 20 years.

Obviously, if nothing happens, it’s better to just save. The same goes for your car insurance. If you don’t crash or get robbed, the best thing would have been not to pay.

What is more important, ensuring financing for the education and well-being of loved ones or the car? I ask this, because many end up leaving it up to luck to decide their fate.

You may wonder, but what if nothing happens?

Calm down there. We are all going to die. Therefore, Whole Life insurance continues to be your asset succession element. You will not suffer inventory or income tax costs.

There are still advantages of shielding, because as insurance is not considered a property asset, it is free from legal problems and gives you asset protection.

For business owners, this type of insurance is recommended for asset protection. Labor or credit problems at the company can lock up your entire financial assets, but Whole Life insurance is free and can be used as an emergency cushion at these times.

Within estate planning, we must plan cash flows not only if everything goes well, but also count on adversities and how we can protect ourselves and our loved ones.

Michael Viriato is an investment advisor and founding partner of Investor’s House.

Speak directly to me via email.

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