U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Retirement
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 10-02-2016, 03:37 AM
 
72,134 posts, read 72,094,203 times
Reputation: 49649

Advertisements

Whole life is leveraged in the sense that you get back more than you pay in . Depending on age you can put in very little after tax dollars or even at 70 you can put in quite a bit less than you get out.much of what funds the policy is not your premium ,it is decades of the compounding interest the policy compounds tax free along with any dividends too.so your after tax dollars can be pretty small compared to the benefit depending on zge

That is just how whole life works since very few actually end up dying and getting paid off. It is almost a bargain in that respect. Rather they buy these policy'which are only worth it if you die and cash them in for a refund.

They end up paying for the expectation of 100% pay off and then cancel and get back a refund .

It is like taking a gym membership and cancelling and getting a refund less fees and restocking and being charged a higher monthly rate for what you used.

As far as drawing a saferhigher income . Sequence risk is the biggest killer in retirement. The exact same average return can see a 15 year difference in how long the money will last.

So withdrawal methods like the 4% safe withdrawal rate have to keep a lot of money unspent in reserve for poor outcomes.

Social security, spia's and life insurance have zero sequence risk so they allow you more cash flow since you have that much less to allow for in poor outcomes.

The balances were all over the map ranging from just a little better balance to a whole lot under worst case scenario's for markets and rates.

Because retirement income is linked to so much other stuff like what you pay for medicaid , the use of zero % tax brackets for capital gains , the effects of rmd's and all kinds of surcharges now that tax free money to a spouse is very powerful.

Realize a widow now files single ,loses an ss check and also if they sell the house lose 1/2 the tax free exclusion too.

They may be able to avoid having their ss check taxed with that tax free life insurance.

The problem with those who only think in terms of btid is they only look at the bigger balance btid gives you up to retirement.

They have no way of doing the 10,000 different scenarios that can play out after that point. They never go much beyond the tip of their nose.

If they did they would see the advantages of an integrated plan today.

Low real return rates and high valuations never happened to retirees before at the same time . These are unconventional times and they may call for unconventional investing.

Last edited by mathjak107; 10-02-2016 at 04:28 AM..
Reply With Quote Quick reply to this message

 
Old 10-02-2016, 04:10 AM
 
72,134 posts, read 72,094,203 times
Reputation: 49649
One other advantage is that whole life can be over funded up to the point they are no longer considered life insurance by the irs but modified endowment policy's.

Why do that ? Because the insurer is not allowed to charge expenses or fees on any over funded amount. Instead of holding cash at less than 1% in a bank you can put it in your whole life policy which so many had 4% minimum rates .

That money you are holding as cash or emergency fund money could have gotten 4% compounded and be borrowed out at retirement tax free and never paid back . It just gets subtracted off the death benefit.

4% tax free compounding would have been a pretty great deal the last 16 years for any extra cash you wanted to hold.

For someone retiring at 62 today like ourselves who are delaying taking ss and need medical insurance the more tax free income you have the greater an aca subsidy is.

Had i known all the things i know now years ago i would be living off cash , roths and over funded life insurance now and getting nice subsidy's worth thousands of dollars on my insurance until medicare.

But of course all i heard is buy term and invest the rest and now it is biting my butt.

Any older money i had invested saw below average growth since 2000 and only new money really grew nicely so the balance i anticipated back in 2000 did not materialize either as those charts showed.

I really should have my wife tell you her side since she posts on cd from time to time since she was a widow once already and had a pile of investments dumped in her lap which in 2000 became 1/2 a pile of investments when it evaporated based on the advice she got.

While 80% of all married men die married , 80% of all married women die alone.

You really have to consider her wishes too , bogleheads have a hard time understanding this fact. Many women want the pay check in the mail box monthly, not the whims of mr market once they are alone.

Last edited by mathjak107; 10-02-2016 at 04:31 AM..
Reply With Quote Quick reply to this message
 
Old 10-02-2016, 04:25 AM
 
72,134 posts, read 72,094,203 times
Reputation: 49649
Let me just add , NO I DON'T SELL INSURANCE NOR DID I EVER WORK IN THE FINANCIAL FIELD.

but what i did do is believe my own bull about all these products being bad and the more i learned and followed modern day research the more i learned i shot myself in the foot beliving my own bull.

Now that i just retired most of the stuff i could have done or should have done i can't .

To many people think that because they can buy a total maket fund and a total bond fund they know all they need to know about having a comprehensive retirement plan, especially if a spouse is involved and they are quite wrong in their thinking just as i found out i was
Reply With Quote Quick reply to this message
 
Old 10-02-2016, 05:12 AM
 
677 posts, read 844,675 times
Reputation: 1196
Years ago we took out 2 policies on my husband. The larger payout ends at age 65 and the smaller one at age 70. They are term policies and are fairly low cost. I have a small one on me and there is no end date and payment will never go up. When we took these out 65 &70 seemed so far away! Of course now I wish I had a policy on him like I have on me! At the time I was more concerned with replacing the money should he pass since he was the main breadwinner.
Reply With Quote Quick reply to this message
 
Old 10-02-2016, 05:30 AM
 
72,134 posts, read 72,094,203 times
Reputation: 49649
Like i said , we never realize the power these guarantees have until way later . Especially when the rules of the game change like going from the accumulation stage to decumulation.
Now things like sequence risk and taxes become the key players.

Perhaps concerns shift from growing richer being a priority to no longer growing poorer as a priority.

One thing seems apparent. The conditions we are retiring in to are anything but what generations before us had.

Low real return rates and high valuations in equity's were never bedfellows before. Even the rates back in the early days around the great depression at 1 and 2% were very nice because the cpi fell 18%
Reply With Quote Quick reply to this message
 
Old 10-02-2016, 05:58 AM
 
Location: Central Massachusetts
4,800 posts, read 4,866,680 times
Reputation: 6379
Quote:
Originally Posted by WVNomad View Post
So I believe you regarding the results of the study, but don't understand the "tax free money to your spouse". If I pay for life insurance with after tax dollars, the death benefits paid out would be tax free. It would be interesting to know how much bigger the balance was the 67% of the time it was indeed larger...a lot bigger or just marginally so. Also, what do you/he mean re a "safer" income? Thanks.
I am sure you understood much of what mathjak said in reply to this. In terms of income and income streams if the two plans were followed exclusive of one another BTID and SPIA and at X point in the future DH dies DW is left with the income stream. The BTID is going to be taxed from the pre-taxed savings and if large enough could trigger SS to be taxed at a higher rate as well. The SPIA will not do either.

Quote:
Originally Posted by saralvr View Post
Years ago we took out 2 policies on my husband. The larger payout ends at age 65 and the smaller one at age 70. They are term policies and are fairly low cost. I have a small one on me and there is no end date and payment will never go up. When we took these out 65 &70 seemed so far away! Of course now I wish I had a policy on him like I have on me! At the time I was more concerned with replacing the money should he pass since he was the main breadwinner.
I can offer this in reply. There are so many ways to skin a cat that trying to second guess yourself after the fact is just going to make you feel bad. I am positive that you did the right thing. In real terms though you covered your husbands stream of income is much better than putting money into a whole life policy that would not have made a dent in your spending at the loss of his income. If you had tried to cover it with straight whole life you would not have had any extra income for the little things you did in life with family.

Yes there are and were products out there that might do better. But in terms of simplicity and effectiveness BTID is an easier concept to grasp. Most of us in retirement and just entering retirement didn't have those other options. Hell IRA's only came to be in the 70s. 401k's became a thing in the 80s. Roth's in the late 90's. So the first group of retirees that had access to those products have just begun to retire.
Reply With Quote Quick reply to this message
 
Old 10-02-2016, 06:10 AM
 
72,134 posts, read 72,094,203 times
Reputation: 49649
It isn't the spia that creates the tax advantage to the surviving spouse. It is the fact that being left the life insurance instead of taxable investments is the big advantage.

A single annuity instead of a joint annuity pays out more. So if you use a single annuity with life insurance instead, the tax free life insurance usually tips the scales.

Had we had roths early on in my career today i would be paying near zero taxes , taking advantage of zero capital gains brackets and medical insurance subsidy's as well as tax free social security. All that assumes tax brackets do not even change a dime.

I like bernsteins idea of using insurance products to lock in your liability's and the portfolio for growth , inflation protection and the wants in life. He calls it a LMP OR LIABILITY MATCHED PORTFOLIO
Reply With Quote Quick reply to this message
 
Old 10-02-2016, 06:27 AM
 
Location: Central Massachusetts
4,800 posts, read 4,866,680 times
Reputation: 6379
Quote:
Originally Posted by mathjak107 View Post
It isn't the spia that creates the tax advantage to the surviving spouse. It is the fact that being left the life insurance instead of taxable investments is the big advantage.

A single annuity instead of a joint annuity pays out more. So if you use a single annuity with life insurance instead, the tax free life insurance usually tips the scales.

Had we had roths early on in my career today i would be paying near zero taxes , taking advantage of zero capital gains brackets and medical insurance subsidy's as well as tax free social security. All that assumes tax brackets do not even change a dime

Yes understood on the annuity aspect. I probably should have said that in the reply but the point is the income stream from an insurance company payout over time is going to be more tax favorable than an income stream from a pension, tIRA, t401k.

I completely agree that if Roth's were available when I started putting money into 401k I too would not be looking at the income tax rate I am looking at. Still and this is in answer to anyone that don't have the same problem because their income is less than mine. I am thankful to have that. I am grateful that my wife and I made enough in our lives to enjoy family and fun. To be able to take vacations and start businesses that we had over the years. To then also retire with an income stream high enough to continue and even do things we have wanted to do like be world travelers. DW and I were born half a world apart so we are international at heart. So to be able to explore together is something we are blessed to be able to do.
Reply With Quote Quick reply to this message
 
Old 10-02-2016, 06:57 AM
 
72,134 posts, read 72,094,203 times
Reputation: 49649
I agree all things being equal give me the money and i will gladley pay the taxes.

But never forget our fair share of taxes is what ever the lowest amount is that we can achieve using the tools and laws available to us
Reply With Quote Quick reply to this message
 
Old 10-02-2016, 10:04 AM
 
Location: Saint John, IN
11,043 posts, read 4,022,334 times
Reputation: 13561
If sell insurance including life products. I don't push it, but I do try to inform and educate my clients on the seriousness of the subject. The number one reason I hear from people for not getting life insurance is that they can't afford it. But can you really afford not to get it? Of course term is the cheapest and there are so many variations it can get quite confusing, but ask anyone who had a spouse pass at any age that didn't have any and they will tell you it was a major mistake. Even if you are retired, there are many expenses that come with ones passing. I truly believe that insurance and financial education in general should be taught at the high school level. It amazes me the number of individuals that just don't understand it.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Retirement
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top