FAQ  #5. What is the advantage of dealing with insurance and investment planning issues now? Why not postpone them?

Of course, there is a good chance that you can postpone dealing with insurance, in the sense that you probably will not die, get injured, or sick very soon. But you just don’t know, that’s the point. The essence of insurance is dealing with these unknowable things. Chances or probabilities play roles to various extent in all our decisions in life, whether we calculate them consciously or not. With insurance, this probability element becomes the focus of the decision, or at least this is the sensible way of approaching it.

I wish good luck to anyone who really trusts fortune tellers and horoscopes, but it’s unlikely that we will ever really understand each other, I guess. Instead of relying on such dubious sources, we can get some guidance from statistics instead. It’s so even though we know that certain people can misunderstand, misinterpret or misrepresent some statistical facts. On this site, you will be able to find some statistical data (of various types, … health, wealth, economic, financial, etc.), and links to web sites with even more data. Please do not look at them as if they were presented for the purpose of scare mongering or (good or bad) predictions, … or as if you were an outsider. These data are about us, our lives, our societies, and our money.

Besides not paying attention to statistics, another mistake many people commit is that they allow urgent things to rule all their thoughts, at the expense of more important things that do not seem to be that urgent today. We frequently do it as individuals, groups, and whole societies as well. At the end we pay too much for not balancing the important with the urgent.

A few aspects to remember, … first in the insurance field :

Turning to savings and investments, to numerically assess the impact of various time frames, let’s see the example of someone who wants to retire at age 65. If we assume a very good 10% annual real rate of return on investments, and $200 saved in every single month, this person will accumulate $1.11 million if he / she starts at age 25, $0.68 million if he / she starts at age 30, but merely $0.413 million if the accumulation starts at age 35 only.

Even if he / she invests more money monthly, it will be very hard to catch up if the savings program is delayed. Let’s say that this person starts at age 30, instead of 25, with a regular saving of $300 from then on, or at age 35, with $400 in every month in this latter case. Staying with the same 10% annual rate assumption, the amount available at age 65 will still lag behind what can be achieved with only $200 a month, but started at age 25. Here are the numbers:

$200 monthly, started at age 25, growing at 10% a year, leads to . . . $1,110,069 at age 65

$300 monthly, started at age 30, growing at 10% a year, leads to . . . $1,019,637 at age 65

$400 monthly, started at age 35, growing at 10% a year, leads to . . . . . $825,137 at age 65