Deciding whether to lease or buy is a thorny question that never seems to go away. Purchasers assume, reasonably, if they just understood the complete, real, total difference between leasing and buying, they’d have the secret to getting the cheapest price for a vehicle. And then they’d be happy.

But it’s not that simple. The problem is that leasing is all about risk – not risk to the buyer, risk to the seller. It may seem odd to think about car companies being worried by leasing, but it’s the truth. Manufacturers are irresistibly drawn to leasing. Leasing is so useful at stimulating sales, it’s impossible for companies to ignore it. But it’s also very dangerous for the companies because of the repurchase guarantee they’re forced to make.

When you lease a car from a manufacturer, the company promises to buy it back from you at a set price. That means the manufacturer has to guess what the car will be worth three or four years in the future. It has to make that guess, a bet really since money is involved, without knowing if safety or reliability problems will emerge – or even if gasoline prices will make its fleet less valuable. A serious mistake in estimating future values might imperil the future of the company. This wager is hugely risky to the manufacturer. And at the same time it’s informative to the buyer.

“This is a frustrating time for us,” Raymond O’Brien said. “We seem to be in a sweet spot in our business, and yet we’re not able to exploit it properly.” Ray was CEO of Glendon Consulting Engineers, a company he and three other York University graduates started thirty years ago. Now it’s a successful firm with a professional staff of twenty. “Before tax and bonuses,” Ray said, “the company earns about $1.3 million.

Typically, we bonus out $1 million to the four partners. That leaves us retained earnings of $300,000. After tax that’s about $240,000 – and its not enough to allow our business to grow.” I said, “Some firms ask partners to lend the after-tax amounts of their bonuses back to the company. If you did that, the company would receive advances of about $500,000 back from the founders.”

“We did that for several years. The problem is that nowadays we’re likely to have personal cash needs that make it difficult to lend all the money back. Dave had a divorce settlement a couple of years ago that has left him strapped. Arnie has a son with a disability – and that costs a lot of money. And Fred, well you know about Fred don’t you?”

I was enjoying a quiet dinner with my old friend Sam Taylor when he suddenly asked me how I was going to fund my retirement.

“It’s not an easy question,” I said. “I plan to work until I’m 65. Since I’m in pretty good health, I assume I’ll have to fund about 15 years of retirement.”

“You expect to live to 80?”

“My actuarial life expectation is 75 – but I’m planning for longer. I don’t want to run out of cash before I run out of years.”

“And Julie should outlive you,” Sam said.

“I think she will. She’s 6 years younger than me and her life expectancy is five years more than mine. That means that after I’m gone, she should have 11 years of life left – which means I’m planning for 26 years of retirement in all.”

Sam shook his head. “Sounds like a lot of money.”

Life insurance is a very important part of financial planning and yet most of us don’t understand it very well. The terminology can be baffling and even misleading – and the resulting confusion can lead you to buy more insurance than you need or to pay too much for it. So here’s a brief primer on the subject.

Whole life or term?

Term insurance deals with a defined period, usually five years. A term policy might include the right to renew without the need for a new medical exam. Since life insurance is an attempt to reduce risk, most people wisely choose the low risk option and purchase renewable term. Renewable term comes in two flavours. The basic vanilla version has a price that that increases with each renewal. A more sophisticated version is permanently renewable at a fixed price agreed upon with the first purchase.

The life insurance industry promotes the idea that it sells two types of insurance, whole life and term.The idea behind whole life insurance is that it provides protection for your whole life. Term insurance (as its name indicates) is a product designed to have a limited life span. It is aimed at people who need large amounts of insurance immediately – usually for income protection. It was not created to provide an estate asset once the owner has reached the age of retirement, but it’s great for protecting your family if the breadwinner dies prematurely.

Roger McGuinn is one of the brightest people I know. He was a math major in university. Then he studied engineering and ultimately founded his own firm. I was having my second cup of coffee with him when he said, “I’m planning on retiring in about three years.”

“That’s great, Roger.”

“I’m not so sure,” he said. “I’m worried about money.”

“I thought you’ve done okay.”

“The company’s fine. It’s my investments that I’ve been losing sleep over. A few years ago my brokerage firm sent me a retirement calculator. According to their guidelines, I should be in clover.”

“What’s a retirement calculator?”

“You dial in three numbers: (1) the expected rate of return of the portfolio, (2) how much I want to withdraw each year and (3) how many years I expect to live after I retire. Based on those parameters, the calculator tells you how long your money will last. If you take out what you earn or less, you should never run out of money. My advisor tells me I should be able to earn 8% on my on my capital. Therefore if I withdraw 8% or less of my capital, the calculator concludes I’ll never run out of money. “