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.
I'm sure many people have been around for the Buy Term Invest The Difference days. For those who may not remember or know, BTID was basically replace a whole life policy with a term for more coverage at a lower premium and save the difference in cost in a investment vehicle. That way when the term runs out the person has a nest egg and basically becomes self insured. Whew that was a boatload.
Well anyway here's my question especially for those who had a spouse pass or from a financial perspective fear a passing of a spouse in the later season of life. Do you still see a need for Life Insurance after retirement? If you let a policy lapse do you regret doing so?
Btid rarely works well since while raising a family that money never seems to get invested.
While btid generally has a higher balance by retirement compared to an integrated strategy of an spia/ your own investing / whole life and the tax freeness of the insurance it usually lags.
In 100% of 10,000 scenario's run by dr pafau the integrated strategy allowed higher income.
In 2/3's of the scenario's it left a bigger balance for a spouse or heirs. It took only the best outcomes with just your own investing to beat the integrated strategy.
Tax free money to a spouse can be a real benefit.
When it comes to the fact a spouse will now file single , lose one ss check and have rmd's, tax free life insurance can be a winner most of the time.
So many things in retirement are linked to income that is taxable.
Just commenting on life insurance after retirement, not the BTID v. Whole Life angle: I don't know that whether or not you're retired is the determinative issue. I think you also have to consider your obligations (still have a mortgage? Still have college tuitions you're contributing to?). Is one spouse significantly younger?
We have a 20-year term policy on my husband that will term when he hits 70. He retired at 62 and is 64 now. I'm 51. It's not an excessively large policy, but it will be enough to pay off the house and put a little in the bank if he passes in the next six years. Although I'll get 60% of his pensions if he were to pass, and probably some sort of SS widow benefit, I'd still have about $2,500 less coming in (I still work). Being able to get rid of the mortgage payment would mean there wouldn't be that much change in position for me.
We won't have insurance on him after 70 because of the cost, and because we're on schedule to have the house paid off right about then.
Don't forget that for a surviving spouse receiving a pile of never taxable money can make quite a difference compared to having a pile of forever taxed volatile investments dropped on her.
Those rmd's can get ss taxed, can get premium increases on medicare and trigger all kinds of nasty's.
If i take some of my ira money and buy a single premium life policy my wife gets 100% tax free money. That policy even at my age is leveraged and won't cost any near what it pays out
What ever is left the kids can inherit and pay the taxes over their lifetime.
I take life insurance very seriously because depending upon how someone dies it can be very expensive and have very far-reaching consequences. An illness can deplete savings rapidly. An accident may not only kill my spouse but may seriously injure me to the point where I can no longer live on my own... and what happens if that accident kills my child who I was planning to depend on?
As was mentioned before, when one of us dies the other is going to lose SS benefits, have reduced pension, and expenses may increase rather than decrease.
To that end I made sure that I have enough life insurance on my husband that if he dies, the life insurance can be annuitized to cover my anticipated cost of living.
It makes me feel a little safer in an uncertain world.
Btid rarely works well since while raising a family that money never seems to get invested.
While btid generally has a higher balance by retirement compared to an integrated strategy of an spia/ your own investing / whole life and the tax freeness of the insurance it usually lags.
In 100% of 10,000 scenario's run by dr pafau the integrated strategy allowed higher income.
In 2/3's of the scenario's it left a bigger balance for a spouse or heirs. It took only the best outcomes with just your own investing to beat the integrated strategy.
Tax free money to a spouse can be a real benefit.
When it comes to the fact a spouse will now file single , lose one ss check and have rmd's, tax free life insurance can be a winner most of the time.
So many things in retirement are linked to income that is taxable.
Apologies, but not following your point entirely.....are you basically saying that in most cases there are more financially attractive options than buying term and investing the difference? I am not aware of any academic studies that confirm this, nor am I aware of any academic studies that state the contrary, e.g. buying term and investing the difference is financially superior. I just relied on what I would characterize as conventional wisdom, and my father's advice many years ago and purchased term insurance to protect my family in the event of my untimely demise. For me it seems to have worked out well...I had adequate coverage to protect my family while the kids grew until they graduated from college, and ensured the mortgage would be paid if I died. I am 55 now, and no longer have those needs, and am actually in the process of canceling my term policies as we have adequate resources to cover my wife's living expenses should I drop dead tomorrow. I suppose it is possible that I would have more if I had purchased a whole life policy or adopting some combination of what you described above, but I am pretty happy financially with how things worked out in terms of my insurance coverage. One thing I really like about buying term and investing the difference is that it is simple, understandable, and intuitively, it makes sense that it is an economical way to protect one's family and build wealth. I have recommended to my kids they take the same path.
Buy term and invest the rest only worked out better 1/3 of 10,000 different scenario's run by dr wade pfau compared to an integrated strategy of spia ,your own investing and whole life.
The big difference was tax free money to your spouse , as well as it only worked out better under the best outcomes for buy term invest the rest once you were in to retirement. The spia and whole life coupled with you own investing had a larger safer income 100% of the time and a bigger balance 67% of the time.
It took dying young or the best sequences on your own to beat the integrated strategy
I am on my nook so i can't link but you can google dr wade pfau integrated strategy and see the study
I'm sure many people have been around for the Buy Term Invest The Difference days. For those who may not remember or know, BTID was basically replace a whole life policy with a term for more coverage at a lower premium and save the difference in cost in a investment vehicle. That way when the term runs out the person has a nest egg and basically becomes self insured. Whew that was a boatload.
Well anyway here's my question especially for those who had a spouse pass or from a financial perspective fear a passing of a spouse in the later season of life. Do you still see a need for Life Insurance after retirement? If you let a policy lapse do you regret doing so?
I became a part of that company that coined that phrase. A L Williams. I completely agree with the concept though I didn't agree with their product. What I learned while taking my broker's license then was enough keep me from selling life insurance and financial products.
In answer to your question though for us is a firm no. It is my experience that life insurance is to protect income. In our case our income is protected already so there is no need. I do see a need if a persons income is going to come from sources that will go away when one spouse passes then it is important.
Quote:
Originally Posted by mathjak107
Btid rarely works well since while raising a family that money never seems to get invested.
While btid generally has a higher balance by retirement compared to an integrated strategy of an spia/ your own investing / whole life and the tax freeness of the insurance it usually lags.
In 100% of 10,000 scenario's run by dr pafau the integrated strategy allowed higher income.
In 2/3's of the scenario's it left a bigger balance for a spouse or heirs. It took only the best outcomes with just your own investing to beat the integrated strategy.
Tax free money to a spouse can be a real benefit.
When it comes to the fact a spouse will now file single , lose one ss check and have rmd's, tax free life insurance can be a winner most of the time.
So many things in retirement are linked to income that is taxable.
In terms of pure finance I do agree with you. As I said in my opening on this post though I agreed with the concept. I didn't learn much about SPIAs until I started reading the posts here. In terms of tax hits I am sure they do much better. In terms of straight outcome I would want to say it is close to a wash. I could be wrong but there have been some pure fortunes made without a SPIA involved.
Spia's were not really needed when rates were higher. Today an spia can generate a 6% cash flow.
You trying to draw even 4% from your cash and bond buckets would have them going to zero and needing stocks to be sold far quicker to refill.
That is where the spia gains the lead. It allows the equity's to grow longer early on. Don 't forget each year you spend down cash and bonds you produce less income off it the following year. The spia gets no such reduction.
Spia's and life insurance have no sequence risk as well so they need less powder kept dry and more can be put in to equity's.
The totally tax free life life insurance to a spouse can be priceless because of all the things linked to it at a time the spouse has to file single.
It is a hard combo to beat when rates are so low and valuations high . To much dependancy on markets and rates can be terrible for our spouses . Not everyone has an interest in investing and stomaching volatility after losing a spouse and ss check.
But the study and the running of 10'000 outcomes showed that the odds were pretty good not only would you have far less volatility and market dependency but more often a bigger income and balance
Last edited by mathjak107; 10-01-2016 at 04:46 PM..
Reason: volatility
Buy term and invest the rest only worked out better 1/3 of 10,000 different scenario's run by dr wade pfau compared to an integrated strategy of spia ,your own investing and whole life.
The big difference was tax free money to your spouse , as well as it only worked out better under the best outcomes for buy term invest the rest once you were in to retirement. The spia and whole life coupled with you own investing had a larger safer income 100% of the time and a bigger balance 67% of the time.
It took dying young or the best sequences on your own to beat the integrated strategy
I am on my nook so i can't link but you can google dr wade pfau integrated strategy and see the study
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.
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.
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.
