There are many types of leverage, but they typically involve achieving maximum outcome with limited effort or resources. A mechanical lever, for example, allows you to move a heavy object with minimal force. Other types of leverage can help you multiply the results of your financial security plan.
When you’re looking for return on any investment of time or resources, it helps to focus on areas that help you attain the best results. When you are building financial security, you can speed progress toward your goals by taking advantage of opportunities available through particular financial vehicles and approaches. Here are some options for you to gain more leverage in your financial plan:
- Benefit from Life Insurance
The amount you pay in life insurance premium relative to the death benefit provided, especially when such benefits are generally income-tax free, can provide significant financial leverage versus the alternative of funding an equivalent amount through personal savings or investments. Permanent life insurance policies also offer leverage during your lifetime by accumulating cash value that can be used for other financial needs, such as funding education or paying long-term care insurance premiums.
- Defer Taxes
Financial vehicles such as 529 educational savings accounts, qualified Individual Retirement Accounts (IRAs), employer-funded 401(k) accounts and variable annuities offer leverage by deferring taxes and allowing funds to grow tax-free over time.
- Guarantee Income
An annuity is a tool for generating a steady source of income for a specified period of time, and can be leveraged to guarantee income for life if you so choose. Some individuals use annuities to cover their fixed monthly expenses in retirement, allowing non-essential expenses to be paid by other sources of income.
- Invest Early
Time offers the ultimate financial leverage because the longer investments are left to grow, the larger the ultimate return. Consider Investor A, who invested $2,000 each year in stocks from 1991 to 2000 and made no additional contributions for the next 10 years. His $20,000 outlay grew to $60,858 over 20 years. Investor B invested $4,000 in stocks each year beginning in 2000, and in 10 years the $40,000 outlay had grown to $48,881. By taking advantage of compounding over 10 years, Investor A accumulated $11,977 more than Investor B while investing $20,000 less.
- Leverage Mutuality
The dividend mechanism in mutual companies allows them to pass the benefit of their experience on to policyowners to provide insurance at the lowest possible cost. As a mutual company, Northwestern Mutual has no stockholders that share in any profits, but instead shares its results by providing dividends to policyowners. Dividends represent an allocation of surplus that results when the company’s actual experience on investments, mortality (life insurance claims) or morbidity (disability insurance and long term care claims), and expenses is better than that originally assumed. Northwestern Mutual has a long history of excellent experience in all of these areas, and has paid more than $82 billion in dividends to its policyowners since the company was founded over 150 years ago. These dividends can be used to decrease premiums, increase cash value or be disbursed directly to the policyowner.
- Network with Experts
The knowledge of specialists who can advise you in financial matters offers you powerful leverage through access to insights and tools you might not otherwise know. Through your financial representative, you can tap a wealth of expertise at Northwestern Mutual in areas including insurance, investments, estate and business planning, employee benefits and retirement planning.
- Plan for Your Legacy
An effective estate plan can help you use available legal structures and financial options to your advantage, allowing you to transfer assets to your heirs with the least tax impact. A financial representative and estate planning advisors at Northwestern Mutual can help you develop a plan to leverage options such as irrevocable trusts, life insurance and gifting plans to protect your legacy.
- Rebalance Your Portfolio
An annual review of your portfolio helps to ensure your asset allocation strategy accurately reflects your risk tolerance, time horizon and goals within the realities of the current market. A financial representative can meet with you to discuss any updates and arrange for this periodic review.