No, I’m not suggesting that. I’m saying you don’t get the step up because it’s inside an IRA.
But years ago, way before I retired, I did read an article from that that very wealthy folks used life insurance to transfer wealth to the next generation, but I forgot the specifics.
I do not agree with 'White Coat Investor" on this point (if that is where you got the quote about avoiding annuities 99% of the time).
SPIA - the ‘good annuity’. Fine that there is a ‘niche market’ for SPIA.
I’m honestly curious why a retired person would have life insurance. Are there reasons other than leaving money to heirs (potentially tax free). I’ve found that lots of people have policies in their 60s and 70’s and even 80’s, why?
Is it that they didn’t save for retirement, want to leave $$ to heirs or other reasons? I’d just imagine that it’s costly and they don’t need the money at that point. Or maybe they bought whole life as an investment vehicle and just keep paying? Really curious.
I remember reading back in either 2010-2014, rich wealthy folks used life insurance to pass up to $20million to their heirs, back then this is not a small sum either. I just can’t find the article anymore, but this link says something to the same effect, more than the maximum estate allowed.
We didn’t buy any life insurance past early 40’s - and we bought H’s term insurance due to sole earner and he didn’t have enough life insurance on him. Young children (born at our ages of 38 and 40).
I am talking about in our 20’s and 30’s when we bought most of the life insurance.
Even at early 40’s and in good health, got decent coverage for the premiums on the term insurance.
SIL purchased 20 year term insurance, but their kids will only be entering college at that time - and he needed 30 year insurance (which was the policy we got to cover him, with DD as beneficiary and owner of the policy).
For wealthy people, as mentioned, to pay taxes - some of their estate will pass to their intended w/o tax but over a certain threshold there are taxes.
So as soon as we retire we should ‘dump’ our life insurance? “Why would a retired person have life insurance”.
These are all good reasons I’ve never thought of. Something to think about.
We dumped term life insurance( husband) in our early 60s. Premium was getting very high , house was paid off, husband was only working part time ,easing into retirement. Our retirement portfolio was more then adequate for more then 30yrs of retirement. Husband also had disability insurance earlier in his career that had been canceled.
The simple answer is, ‘if there is no longer a need, yes, dump it’ *.
The more complex answer:
yes, terminate term, or if it was a fixed policy for a number of years, maintain it until it finishes up the term (say, 20 or 30 years), but do not renew.
each whole life policy needs to be examined by itself. Online calculators can be used to see whether it makes sense to keep or dump.
But those are different issues as to why one would purchase an Annuity with more life insurance, when the annuity is supposed to provide income in retirement. (Yes, the death benefit is a nice-to-have for the heirs, but one is giving up some monthly ‘retirement’ cash today for what is in essence more life insurance in retirement.)
@Htas, we had term life in an Irrevocable Life Insurance Trust. It was something called a Crummey Trust named after someone whose name was John Crummey. It enabled me to fund insurance without it being a gift (or something like that). At a certain point, we concluded that we didn’t need life insurance for insurance purposes.
Years ago, @DrGoogle123, I looked very hard at putting investments like hedge funds into a life insurance wrapper. The income would not be taxed as it was part of a life insurance policy and would pay out, I think, without tax exposure to the kids. It was complex and the fees were pretty high with economies of scale. I didn’t think it made sense for me.
Later, my mother put a little cash in to set up a dynasty trust and I was able to set things up to accumulate income inside (a but complex to explain here). I still pay tax on the income, but it all transfers to the beneficiaries without any estate or gift tax issues when they need money.
I had originally set up a defined benefit plan that included whole life insurance and an annuity. I think the tax code provision It fell under was subject to lobbying from the insurance industry and so it was a particularly favorable way to do things for a while. When the DB plan hit a maximum size, I had to roll it into a 401k and had to terminate the annuity and the insurance, but they were pretty good investments. I would have kept them if I could.
Since it’s in a Roth and there are no tax consequences, why don’t you just put it all into Vanguard Total Stock Index ETF (VTI) if you want to approximate the Total US stock index or VOO (index 500 ETF) or Vanguard Total World Index ETF (VT) if you want to include international at global weighting (although international has lagged US for a long time now. )
Just rip off the bandaid and do it all at once. Then don’t look for a couple of months, because I promise you that if you check every day you will find that you could have done better by doing some different timing that it’s possible to know only in retrospect. Your older you will be happy to have more simplicity.
I’m not a financial advisor, though, and I only recently started simplifying our own 401Ks and Roths. I also have some Wellington in my Roth because it’s about 1/3 bonds, even though some would advise keeping all stocks in never-taxable Roths and putting bonds into Taxable IRAs/401ks instead.
Vanguard offers a personal advising service that I believe is relatively inexpensive and it might be worth a consultation with them if you want to simplify but aren’t sure which funds to go to.
I’m familiar with the Vanguard personal advisor deal, and I don’t think it’s for me. They use a formula, and don’t allow you to give an opinion on what you do or do not want, just your risk tolerance.
I think I might try to play with the account a little bit (as far as when to sell), as the advisor thought all the stocks were good at this time, so there’s nothing he’s unhappy with. If I get annoyed or stressed, I’ll rip off that bandaid and do it at once. There is enough cash in there that I can buy without selling at the same time. Definitely VOO or VTI sound like the way to go.
I have a 20 year term policy, and I am retired. I’m “superstitious” (or something like that-don’t want to cancel it and die the next day) about canceling it, and it’s pretty inexpensive, so I will keep paying for 3 years, when it runs out. I will not renew or get new life insurance.
ILIT (irrevocable life insurance trust) can be a great vehicle to pass $$ to heirs outside of one’s estate (and not subject to estate taxes which can be steep at state levels)… BUT these trusts are tricky to set up because if there is even a remote whiff of the grantor retaining any interest in the policy, the IRS will rip this set up apart. One needs to use a lawyer well versed in such trusts to draw the documents, and there is also a 3 year look back rule for existing insurance policies placed into such trust. A “Crummey trust” is a setup that allows adding $$ to the ILIT (for example, to pay insurance premiums out of the $16k annual gift exclusion). Here is a decent summary:
Again… use the Internet to do background info lookup, but to set up a trust, talk to a reputable estate attorney in your state.
Wouldn’t the insurance value* of life (and disability) insurance be as insurance on the financial value of your labor (or sometimes your existence if there is a pension that ends when you die) that others financially depend on? Note that labor can include unpaid household labor (e.g. grandchild day care) that would otherwise have to be hired out.
*As opposed to any use for tax or estate planning purposes, or bundled investment value of pre-existing products other than simple term life insurance.
We dropped most of our life insurance (some of it just by the act of retiring.). But we each still have Universal policies from decades ago. They premium no longer self-funding from the dividend, but the cash-out value grows by more than we put into it. We get about 3% growth in addition to the life insurance benefit. For now we’ve kept it, since the premium is locked (does not go up as we age). But we recently asked financial advisors to look at the illustrations we ordered up to consider the other payment options.
for those that are comfortable with spreadsheets, WCI has an example on how to evaluate current life policies.
I am sure there are people on this thread that are ‘thinking ahead’ about how to structure investments (including involvement with a Financial Advisor if choosing to do so) and all other things in their life - current and future expenses, how to live life between now and retirement etc.
We began with our FA in 2013 - we first took a two evening class (we paid for materials) - it was given by our FA at local college; The Financial Educators Network soft cover books “Retirement Planning Today” Session 1 and Session 2 was the material. If you find someone providing this presentation in your area, it is worthwhile for info presented. We attended again in 2021 to see updates and also as DH has become more financially savvy (and each meeting he learns more and more) – it was a good review for us.
We liked FA and set up individual appointments starting in 2013 (we were both 57 at the time, and needed to have some consolidation and also adjust our portfolio to reduce risk) - and proceeded along, slowly consolidating our Sar-Sep, various IRAs and Roth IRAs into the fiduciary groups – so moving things/simplifying things. We attended a few more free dinners by his work group (at the time they had 3 professionals, now they have more) - our FA is founder and President of the company. Along the years, while the business has grown, we also have lower rates with our overall fiduciary charges (they now are through TD Ameritrade). We have excellent access to data, and FA has a very well run business. He has some sessions offered that give us insight - he looks to what his clients need – for example a session Feb 2022 that was “How Tax Planning Changes Through Four Stages of Retirement”.
We keep our large 401k separate, but have spin funds from there into annuity products between 2015 and last year, as well as from my IRA into an annuity.
Now we have our stream of retirement income set up through FA (drawing off our annuities), and also converting some money into Roth IRA based on schedule for RMD at age 72 and during our ‘low income years’. DH retired Nov 2020 and I retired Oct 2021.
Our FA is 15 years younger than us, so also feel good about continuing services with him - but also he has others working with him that we could go to if something were to happen to our FA.
Another not uncommon use is for a family with a large real estate portfolio, it can be nice to have a smaller policy (under $500k) just to cover the liquidity needs should the owners die in a down market. We have friends who spent decades investing in apartments and wanted to be sure their kids would not need to sell if they died during a recession, that there would be enough money to cover running things for a while.
Also, any small business person might want a policy, like if you have a farm and one kid works on the farm, you have a policy that pays the other kids so Joe gets the farm & does not need to take a loan to pay off Mary for her share.
My dad owned his own business. In his 40’s, a friend of theirs that was in insurance told dad their rates were going to go up for smokers and it was a good time to get in with lower premiums. Dad got two different policies - and he was so glad he had them. Having that boost of liquidity also boosted mom’s confidence (she died 15 years after dad). Parents had a A/B Trust and when mom died the trust was dissolved after assets were handled - the beneficiaries were the 5 children. Dad died of cancer 2 days before he was to turn 64 - however he had sold his business prior to being sick, and the apartment buildings continued under mom and brother management until one building was sold a year before mom died because of a ready buyer at a good price.
Mom took out 2 small life insurance policies to benefit the grandkids - and it did. They each got almost $18K right during or before college years.
That has not been my experience with Vanguard Personal Advisory Service.