The Set-Up... It's All About Time

The saying goes "Money Can't Buy You Happiness". I say "...but it buys you the things that make you happy". 

(By the way... Thanks Babe for those words... I love you too)

With our little one coming in less than 41 days, I've been extremely busy trying to put a plan together for her. There are a couple of things certain in life: death, taxes and time. So, what I have been asking myself the past couple of days is what we need to do to set this girl up, so that she'll have less things to worry about in the future. What can we, as future parents, give this munchkin what our parents haven't been able to do? Meanwhile, I was running a couple of numbers today. And I came to the conclusion that time is the keyword. 

The next thing is to find a way to generate tax-free compounding of earnings inside a vehicle. The longer we can keep the money invested, the greater the wealth accumulation. So, what better way to start accumulating a large amount than to start during childhood? When tax-free and tax-deferred compounding has more than 50 years to run its course, a relatively modes savings plan can produce substantial wealth. 

The final objective is to put a plan together that protects our munchkin's life, while generating a supplement to her future income too. Since I want to create an interactive blog (and since I don't want to give away the farm), here are some examples. Did you know that...

- If you start putting a life insurance policy together for your newborn child by paying $75 a month, your child will be able to retire at 65 with a TAX-FREE annual income stream of over $136,000 a year for the next 25 years (total of $3,400,000 income)!

And assuming her life expectancy is 100 years old, her legacy to our grandchildren would be at least another $3,000,000.

- As far as starting a tax-deferred and tax-free vehicle for her, I'm thinking of funding a Roth IRA for her. But don't you need to have income and be at least 18 years old? The answer to both is NO. It's difficult to prove this income. The Internal Revenue Code says all income is taxable unless an exception is made, and there's no exception for amounts paid by parents to family members for household chores. So little baby ... be ready to do some paid chores around the house. By the time you're 30, you should be on your way to have your first $100,000 in your account. Cost? Another $50 a month.

It's all about time ... $550-600 for your child a month (that's how much day care costs nowadays) shouldn't be much to ask for. That will take care of:

- $250,000 college tuition 20 years from now

- $100,000 down payment for a house or something else

- generating a retirement income for her of $136,000 for 25 years thereafter AND $3,000,000 in estate benefit. 

Too good to be true? Absolutely not ... a combination of timing, caring parents will do just enough. Remember, take the emotion out of life and it all becomes a numbers game. 

Speaking of preparation. Meanwhile, we did some shopping at Babies R Us, Target and Walmart yesterday. And I'm proud to say that we're the owners of 368 diapers... which will probably last us only 1 month, assuming she'll consume 8-12 diapers a day. Hey, but at least we're prepared. All we need now is for her to come out.

Until the next post ... L'Chaim