How much do YOU think YOU need to retire? ...and at what age will you (and spouse) retire? (Part 1)

Parents Forum Parent Cafe
14681

Not to spend too much time on this but the “buy term and invest the difference”, Is settled science.

If the common financial goal is to cover periods of low asset base but Hugh income needs for your family.

Term is what you need.

Choose the term period to match the time of need. Say through college graduation for your youngest child, as an example, that may be 5, 10 or 20 years.

The have products to match the term.

When the term expires you will not be able to or want to pay the extremely high rates they climb to each and every year afterward.

When the asset base exists or the economic need is gone, you no longer have this financial blind spot. Which is cover income needs in case of a premature death.

However, some people have permanent insurance needs for estate planning and other situations. potentially special needs children who will need more than the average level of care and associated costs. The accumulation of assets may not be enough.

And some folks like the death benefit roi, “insurance as an asset class”, as they say.

Of course the great investment returns of the death benefit vs total costs over time — only work for those who receive the funds after your death.

The marketing of insurance as an investment product to enhance your own portfolio, during your own lifetime, is a fallacy.

But if you are really concerned with a legacy and understand that the returns don’t help you, it’s for the beneficiaries, permanent insurance can work.

Term insurance becomes unaffordable later in life. Permanent insurance has the same premium forever and they have to pay. It’s much more expensive but lasts forever. Also you may be uninsurable much earlier than you think.

The vast majority of people should buy as much term insurance as they need for the exact length of time where it is of maximum benefit for the family. Not a penny more, or a day longer.

Insurance is simply a tool. And it comes with different fittings depending on what you are trying to build. Tell someone your goal and the tool becomes obvious.

14682

Wouldn’t life insurance properly be thought of as labor insurance? I.e. insurance of the earnings of your labor for those financially dependent on you? Note that “labor” in this case includes the value caregiving to children or people with disabilities, or other services provided to others in your family. It could also include income that depends on your living existence (e.g. annuitized pension income) if others depend on it.

14683

Yes. Income is both earned and labor. Replacement costs for the services provided to a family by a stay home mom or dad or as a caregiver— is extremely high.

You have to figure out what those costs to replace these necessities are for a family.

A million dollars of insurance and invested for a five percent return is 50k a year. Is that enough?.

You have to look at all the replacement costs.

There are many approaches to this, but I believe the income approach works best for planning purposes.

Including the income needed for valuable services lost.

14684

@deb922 - I agree. We have friends whose children are 30. Now with two children of their own. Still helping them. I think grandchildren complicate things. The adult children have not made the wisest decisions. I’m much more in favor of paying for schooling. It’s the whole teach a person to fish v giving them a fish sort of thing.

14685

Excellent post, pb.

Just one extra tweak: consider a ladder of term policies, with them expiring when the expected need goes away. For example, one term to cover the kids thru college (their age 22/23) should the primary earner not make it that far; 2) another term which goes a few more years, say to age 60/62…

No need for life insurance when retired. (absent any special needs children.)

14686

I had term insurance to cover the offspring thru grad school. Regarding not a moment longer than needed…get it a bit longer, and then it is easy to just drop the policy, which I did a few years earlier than expected. Not sure if this is still relevant, but I used to read that whole life was a tax shelter for those of means. I had a policy purchased when married, that I cashed in when the payments became odious. It helped me buy a car at a cash strapped point.

14687

My kids take care of themselves and have no debt. But I’m starting to think, why not give them some money now instead of saving it forever until we die in our nineties (hopefully), and then they win the lottery? I feel like I want to start passing it to them now, instead of when they’re retired…I do want them to struggle for awhile to appreciate the difficulties of taking care of themselves and paying attention to their money (though that will never happen to our oldest, he has always made far more than he needed). It’s a tough call, though, when or if you are going to give money to grown children.

14688

We have opted to give some money to our grown kids, though it is a judgment call. We are certain that we will be comfortable throughout our life and old age and it makes us happy to give our kids money to allow them to have a more comfortable life.

So far, no regrets. :slight_smile:

14689

We shared a chunk of an inheritence with each of our kids. They each got enough money for 20% down payment on a modest house - but the money had no strings attached and could be used for whatever they wanted. One bought a house and one stashed it in the bank while he finishes up a doctoral program. Both were debt-free, but would need a boost to get into a house AND avoid paying PMI. I received a similar boost from my parents, and it made all the difference in the world to our lives. We gained the confidence with that money to buy a house. I am all for sharing money at critical junctions.

14690

I have been partially funding ROTH IRAs during my kid’s “start-up” years. We paid for college, and a new car for each (one picked a nicer used car). I do not plan to pay for extravagant weddings. I do have an amount set aside to help each kid at some point in life. Could be a down payment, could be a return to grad school, etc. they don’t know of this money, and I won’t tell them until I’m thinking about giving it to them. If my situation changes, the funding options might change also.
I know some people may disagree with me, but I do think it’s good for young adults to live through some “salad years” instead of being handed everything from parents or whatever. If I see them being frugal, it makes me more inclined to help. If I see them stopping at Starbucks every day, going to happy hour multiple times a week, buying things often, but then complaining of no money, I am not inclined to help.

14691

@1214mom , that’s the rub. The kid who said he didn’t need a new hockey stick even when he had grown 3” during the summer will be a good steward of our gifts until he needs them for a good purpose. The other one, well, that’s who trusts were invented for. :))

14692

Our son will be a good steward of his own money and will make his way in the world on his own, just as we did. He is our only child, and he knows he will inherit whatever is left when we’re gone, but we’re enjoying that money and working to ensure there’s not much left beyond the roof over our heads. Our last financial gift to him was his education which will serve him well every day of his life.

14693

Perhaps they may appreciate it more when their kids are about to start college (who knows how expensive it will be then).

14694

Except one has no idea if they will have grandchildren in the future. One can hope, but you can’t sit around waiting for that.

14695

Like many of you, we taught our kids about sensible financial decision-making and they routinely ask me questions. My nurse practitioner daughter is after a couple of years, following the course of action we discussed: putting all spending into Mint and saving 10% off the top of her income. Since she graduated school with no debt, I explained to her that if she sved 10% of her income going forward, relative to taking out debt and going to med school and working at lower wages as an intern/resident for a number of years, she will have accumulated as much as many doctors when she is 60 or 65. No need to worry about my son. Although he lives in an expensive area, he is relatively frugal. He’s started one company (his net worth on paper from that is several million and could jump in a few months into the double digits) plus he has a stake in two other startups and has been asked to manage some venture money.

We agree with both points of view. I want to help at a point when the kids will really appreciate it and not when they are retiring, should we live that long. We helped our D buy a used car when she started her first job. Down payments could well be an issue. But, it was hard to predict that both kids would be financially responsible.

The way we handled this was the establishment of a trust whose beneficiaries are ShawWife and me, our kids and our progeny generally in the unlikely event we have so much money left over. The trust is instructed to look after the health, welfare, education, housing and quality of life of the beneficiaries. The idea is that this trust will pay for our retirement (should we ever need to stop working) and for our kids. So, down payments are already funded. My mother paid for Hebrew day school for grandkids who were sent there (ours were not). I will try to replenish the 529 plans we set up for the kids to handle grandkids college education if I can.

14696

The trust enabled us to give to kids who could handle it but not if a kid couldn’t.

There is also another interesting question. Both kids have SOs. If they want to buy a house/condo before getting married (I think ShawSon’s GF may have such an interest), how do you deal with a breakup. We could create a trust for the purchase of the property, but that could be awkward. It would be kind of like a pre-nup before getting married. Have any of you dealt with that?

14697

I have thought about that issue, dealing with a breakup after giving a decent sum of money to someone. I have seen many divorces on my husband’s side of the family, and people that I truly liked are some that I have never seen again after those breakups. Situations that I’ve never thought would happen.

I am wondering if the best thing to do, if you are uncertain about this, is give money to someone that is only in their name. For example, paying off student loans might be the first thing to do, if the loans are just in their name. I also wonder about putting money in a Roth or IRA, perhaps that would stay with them only. I’m not really sure, though, and am curious to hear what others think.

14698

Love that idea.

14699

Can parents directly fund a child’s Roth?

14700

what do you mean by “directly fund” a child’s Roth?