If you’re earning good money and have a decent surplus each month, you may wonder where to put the excess.  Invariably, you will run into someone that encourages you to commit to a whole life policy to save money “tax-free” towards your goals, pitching you flexibility and “no risk” in this type of financial product.  My colleagues and I too often see whole life being positioned as this sort of  “Swiss Army Knife” solution.  However, life insurance is really a salesperson with a hammer seeing everything as a nail: at Walkner Condon, we use life insurance as a protection against risk and instead develop a strategy using a variety of tools to maximize your wealth over the long run.  In turn, we recommend that investors consider these five (actually six, we threw in a bonus, because we’re nice guys) options for their monthly surplus:

Pay Off High Interest Debt

If you have any meaningful amount of revolving credit card debt, you should be paying that off first. With student loan debt, you will want to consider the interest rates and terms of each of your loans. In many cases the interest rates are greater than 6%, so you will want to make a plan to pay this off well before the due date. There’s no reason to use be paying premiums into whole life insurance before you first address your debt situation, particularly because it takes a while to build up cash value (due mostly to policy fees and commissions in the beginning) and at best you will earn 5-5.5% annually.

Establish an Emergency Fund

To assure you can withstand unexpected expenses, everyone should have an emergency fund. This should contain at least a few months of regular expenses in case of a job loss and also should be funded with enough money to withstand a “major” expense such as a car or home repair.

Fund Up To Your Match (and More) in Your 401k Plan

If you have a 401k, you need to take advantage of your match through your employer. This is free money as long as you stay through your vesting period. The money that your employer puts in will remain in tax deferred until you take it out, and your contributions in most cases can be put in either the “traditional” pre-tax side of your 401k or the Roth after-tax side. The Roth 401k will grow tax-deferred and ultimately will be tax free after age 59 ½. 

After you fund up to the match, you will want to consider the prioritization of your savings with the other options presented in this blog post. The maximum employee savings in 2019 for 401k plans is $19,000 with more potentially available to self employed individuals and in other unique cases.

Max Out Your Roth (or “back door Roth”) IRA

A Roth IRA is a powerful investment vehicle due to the flexibility of the investment choices as well as the ability to get out your contributions before age 59 ½ . As long as the money is used after 59 ½ the gains are all tax free, making it a great planning tool in retirement. Unlike 401 plans, there are contribution limits. See here for these details

If you are ineligible to make contributions you still may have the ability to get money into the Roth through what is called a “backdoor” Roth IRA. There are nuances to doing these, but it may be a great way to move money into a Roth for high income earners.

Contribute to Your HSA

HSAs are one of the unsung heroes of long-term investing because they offer three distinct tax advantages – they are deductible when contributions are made, they are tax deferred when the money sits in the account, and tax-free when distributed for qualified medical expenses. In order to be HSA eligible, you must be enrolled in a health insurance plan that is considered to be “high deductible”.

Open a Taxable Investment Account

After you save enough money in your emergency fund and save in many of these long-term areas, another consideration should be to fund an account that is liquid. This may not be as aggressively invested as other areas, but the goal is to grow assets here that may be used for purposes other than retirement. This may be a bucket of money for a down payment on a future residence, accruing money to buy into a business, or just saving for a goal in the future that will become more certain. While this may not be as tax efficient as the other investments listed above, it often carries more liquidity. Furthermore, this carries no interest on it to get your own money out when contrasted with whole life insurance.


I say this all with the caveat that if you need life insurance, you should get it. If you fund all of the above items (as well as college savings plans if you have kids) and still have money left over, perhaps you should consider whole life. Or if you have significant estate planning considerations, you may want to look at an Irrevocable Life Insurance Trust (ILIT). If not and you have to prioritize your savings like most people, you may want to “buy term and invest the difference.”  That is, pass on whole life and instead better direct savings elsewhere and buy term insurance.

Clint Walkner