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Many fear death—it’s a primal, instinctive concern that has shaped human behavior throughout history. Yet today, according to Kelly LaVigne, Vice President of Consumer Insights at Allianz Life, nearly two-thirds of Americans harbor an even greater fear. With inflation climbing, debt accumulating, and expenses increasing, this new source of anxiety has surpassed even the fear of dying itself: the fear of not having enough money to maintain their desired lifestyle.
This financial anxiety isn’t limited to older Americans approaching retirement. It has permeated across generations, affecting Baby Boomers, Generation X, and Millennials. Particularly concerning is that 71% of Gen Xers report being more worried about running out of money than about their mortality.
The widespread nature of this fear makes perfect sense when we examine the economic realities facing Americans today. According to the US Bureau of Labor Statistics, since January 2020, wages have increased by 22.7%, but consumer prices have risen by 21%. This leaves only a 1.7% real wage increase over 45 months (as of September 2024)—translating to an average annual real wage increase of just 0.38%.
This stagnation in purchasing power has led more than one-third of Americans to abandon their retirement dreams altogether. They simply don’t believe they can afford to stop working. But does it have to be this way?
To understand why so many Americans feel financially insecure, we need to recognize the four main factors eroding wealth:
The stock market’s unpredictability can dramatically affect retirement accounts. While historical averages show positive returns over the long term, individual experiences can vary widely depending on when someone needs to access their funds.
Jack Bogle, the founder of Vanguard Mutual Fund, highlighted in his book “Don’t Count On It” how inflation steadily diminishes purchasing power. He noted that $1,000 invested 50 years ago would have grown to $212,000 based on the market’s 11.3% average return. With inflation averaging 4.2% over that period, the real return drops to 7.1%, reducing the value to just $30,866.
The problem with inflation is its cumulative effect. What cost $100 fifty years ago would cost $186 today in 2024—a 53% increase. This erosion of purchasing power contributes to Americans’ fears about financial security.
Continuing with Bogle’s example, when taxes (averaging about 2%) are factored in, the real rate of return drops further to 5.1%, leaving only $12,026 of real value after 50 years.
Adding just a 1% management fee—typical for many investment accounts—reduces the overall return to 4.1% instead of the original 11.3%. Now the real value produced from the initial $1,000 investment after 50 years is just $7,457. That means 96.48% of projected growth has been lost due to the combined effects of market returns, inflation, taxes, and fees.
A common financial belief many Americans hold is that paying cash for purchases is the most financially responsible approach. “Avoid debt at all costs” has become a mantra for those seeking financial security. But is this always true?
Paying cash for purchases can actually become the most expensive option in the long run. Why? Because cash spent and never replaced suffers an endless compounding loss due to the interest it could have earned had it remained invested.
Consider this example: $200,000 spent today, which could have earned 4.1%, will effectively “cost” $298,908 after ten years in terms of opportunity cost. Meanwhile, borrowing money to finance that same $200,000 purchase at 4.1% interest will only cost $244,131 over the next 10 years. This demonstrates how paying cash can be more expensive than financing purchases.
What happens when someone makes a cash purchase but consciously works to replace that money, similar to making payments on a financed purchase? Using $2,034 per month (the equivalent of loan payments in our previous example) would recover the $200,000 in approximately 7 years. After this point, positive gains begin to compound. Once the $200,000 is recovered and continues earning 4.1% between years 7 and 10, the balance would grow to $225,622— turning what would have been a loss into a gain.
While market-based investments have their place in a diversified portfolio, they cannot provide the certainty many Americans need to overcome their financial anxieties. This is where dividend-paying whole life insurance enters the picture as a financial tool that offers guarantees against the four wealth destroyers.
Charlie Munger, Warren Buffett’s business partner, once advised, “First save $100,000, then you can take the gas off a little bit.” He said this in the 1990s; due to inflation, Munger’s $100,000 threshold would be closer to $240,000 today. Where can one save this amount without the problems of market volatility, compulsory fees, taxation, and restrictive government regulations? Dividend-paying whole life insurance offers a compelling solution.
Unlike term life insurance, which provides only a death benefit, or universal life insurance, which ties cash values to market performance or interest rates set by the insurance company, dividend-paying whole life insurance provides guarantees that can form the foundation of financial security.
These policies can be fully funded in 10 years, at which point the cash value often equals the premiums paid. Even if no further premiums are paid after year 10, the policy continues to grow through guaranteed interest and dividends, which provide additional death benefit coverage and increase the available cash values beyond the guaranteed amounts.
The key to understanding how whole life insurance builds sustainable wealth lies in its unique combination of features:
Unlike market-based investments that can lose value, the cash value in a whole life policy is guaranteed to grow according to the terms of the contract. This growth occurs regardless of market conditions.
While not guaranteed, dividends paid by mutual insurance companies have a remarkable track record of consistency. Many mutual insurance companies have paid yearly dividends for over a century, even through the Great Depression, the 2008 financial crisis, and the recent pandemic.
The growth of cash value within a whole life policy is tax-deferred. Policy loans can be taken tax-free, and the death benefit passes to beneficiaries income-tax-free in most cases.
The cash value becomes a pool of capital that policyholders can access through policy loans. These loans don’t remove money from the policy—instead, the insurance company lends money from its general fund, using the policy’s cash value as collateral. This means the policy grows as if the loan had never been taken.
Let’s examine how a dividend-paying whole life insurance policy can be used to finance purchases while building wealth:
Consider a well-designed whole life policy that has accumulated $200,000 in cash value. When this amount is borrowed through a policy loan, the cash values within the policy continue to grow annually, and dividends continue to purchase more insurance, increasing the cash values.
If the loan is repaid over 10 years (similar to a third-party loan), approximately $219,672 will have been paid in loan repayments. During this same period, the cash value will have grown to approximately $301,945.
This means that 100% of the loan repayments have been recovered, and an additional $82,273 has been added to the cash value—even though the total loan repayments were $24,459 less than what would have been required for a loan from a third-party lender.
The net benefit of using the whole life insurance policy instead of conventional financing is $106,732 ($82,273 in additional cash value plus $24,459 less paid in loan repayments). This represents a 4.369% return over those 10 years, independent of market performance, with no fees, taxes, or other government regulations diminishing those profits.
Once the loan is repaid, the $200,000 originally borrowed is again available to be leveraged for future opportunities, along with the additional $106,732 generated through this process.
Despite these advantages, whole life insurance is often misunderstood. Financial personalities frequently dismiss it as “expensive” or a “waste of money.” Several misconceptions need clarification:
While premium payments for whole life insurance are typically higher than for term insurance initially, they remain level for life, unlike term insurance premiums that increase dramatically upon renewal. These premiums build cash value that can be accessed during the policyholder’s lifetime, making the comparison to term insurance unfair. Term insurance offers no return if the insured outlives the policy.
This common argument fails to account for the certainty of whole life insurance versus the uncertainty of market-based investments. It also typically ignores the tax advantages, liquidity, and death benefit protection of whole life insurance.
When comparing returns, critics often focus solely on the Internal Rate of Return (IRR) on cash value growth, which might appear modest at 4-5%. This analysis fails to consider:
Not all whole life insurance policies are created equal. For maximum financial benefit, a policy should be:
Participating Whole life insurance should be viewed as part of a comprehensive financial strategy, not as the only solution. A balanced approach includes:
This layered approach provides both security and growth potential while minimizing exposure to the four wealth destroyers mentioned earlier.
How might this approach work in practice for typical Americans across different age groups?
Starting early with even modest premium payments allows for maximum growth over time. A 30-year-old might start with annual premiums of $6,000-12,000, building cash value by their mid-40s that could help finance major life expenses like children’s education, business opportunities, or real estate investments.
With higher income and greater financial responsibilities, this group can benefit from the certainty whole life insurance provides. Annual premiums of $12,000-36,000 can quickly build a cash value reserve while providing family protection.
Even with fewer years until retirement, this group can benefit from the tax advantages and guaranteed growth of whole life insurance. It can serve as a conservative component of their portfolio, providing legacy protection and potential supplemental retirement income through policy loans.
The greatest benefit of building financial security through guaranteed contracts like whole life insurance may be psychological rather than purely financial. By establishing a foundation that isn’t subject to market volatility, many find that their anxiety about money diminishes, allowing them to:
This psychological benefit addresses directly the “new fear” that has surpassed even the fear of death—the fear of not having enough money.
The fear of financial insecurity has become America’s new greatest fear, surpassing even the fear of death itself. This anxiety stems from legitimate concerns about the four wealth destroyers: market volatility, inflation, taxes, and fees, which erode saving and investment efforts.
Dividend-paying whole life insurance offers a time-tested solution that addresses these concerns through guaranteed growth, tax advantages, liquidity, and protection from market downturns. When properly designed and used as part of a financial strategy, it can provide the certainty many Americans are seeking.
The financial mechanics demonstrated in our examples show how this approach can preserve capital and build wealth through a disciplined process of funding policies, strategically using policy loans, and systematically repaying those loans.
For those who implement this approach successfully, the result can be freedom from the “new fear”—replaced by financial confidence and security that spans generations.
Rather than giving up on retirement or living in constant anxiety about money, Americans can use proven financial tools like dividend-paying whole life insurance to build a secure and sustainable financial future for themselves and their families. The path to overcoming this new fear lies not in abandoning hope, but in adopting financial strategies that provide guarantees in an uncertain world.
Tomas P. McFie DC PhD
Tom McFie is the founder of McFie Insurance and co-host of the WealthTalks podcast which helps people keep more of the money they make, so they can have financial peace of mind. He has reviewed 1000s of whole life insurance policies and has practiced the Infinite Banking Concept for nearly 20 years, making him one of the foremost experts on achieving financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.
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