Join host Al Smith as he highlights the importance of considering life insurance even in the golden years. With a focus on maximizing pension plans, Al provides insights into leveraging life insurance to protect assets and enhance estate planning. Through examples and expert advice, this episode sheds light on how retirees can navigate the complexities of financial planning and make informed decisions to safeguard their legacy. Al also takes a moment to reflect on market trends following recent elections and shares compelling strategies for a fulfilling retirement.
Welcome to Retirement Unpacked with Al Smith, owner of Golden Eagle Financial. You want a retirement plan that alleviates your fears about the future so you know your money will last. As a chartered financial consultant, Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now, here’s your host, Al Smith.
SPEAKER 01 :
Welcome to another program of Retirement Unpacked. I want to thank you for tuning in. Last week we spoke, we talked a little bit about some of the history of elections in this country, and I found that to be quite interesting. I looked up some good information myself. And the other thing is we… who are pleased with the results and everything. One of the things that’s pleasing is the markets seem to be responding positively. They’ve gone up considerably since the results of the election. And those of you who are moving toward retirement and wanting your resources to grow, I can’t predict the future, but it looks like a good time to be in equities because most of the stock market is growing. The NASDAQ, the S&P, the Dow Jones, the Russell, most of these indices have been growing. And that is nothing but helpful as we plan and move toward retirement because I think we’re going to get a better control of inflation. But if we look at the past four years, it has been a bit brutal, to say the least. So we want to make certain that our resources are growing not only for our longevity, which is a lot longer than it used to be years ago, but also to stay ahead of inflation. If you have some concerns about if you’re on track, if you have an adequate amount for retirement, if you can retire on the target date that you’re hoping for but you’re a little uncertain, call my office at 303-744-1128. And when you come in, we’ll get to know one another, take a look at what you want your retirement to look like, both in terms of the money you’re going to need and the things that you’re going to do in retirement, because I also talk a lot about finding your purpose in retirement. Having adequate financial resources is clearly important, but in order to have fulfillment and joy in your retirement, That needs a plan also, and that’s something I often talk to people about. Again, if you want to come into the office for a conversation, 303-744-1128. Today, I’m going to be talking about something that you may think, well, gee, why would we be talking about that? And it is life insurance in retirement. And you’re probably thinking, well, if you’ve done well enough and if you’ve accumulated a nest egg, if you have a pension plus Social Security and maybe a 401K, why would you be concerned about life insurance and retirement? Primarily, we think of life insurance as when you are growing in your family and when you buy a house and you have a mortgage, you have children, your wife may stay at home, mom. And you should be carrying a considerable amount under those circumstances. And usually term insurance is adequate under those circumstances. And if we’re talking about replacing income and also paying off a mortgage and so forth, these days a million dollars of life insurance is not at all unusual for people to be carrying. And if the mortgage is high and someone’s income is is substantial, then more than that makes sense. But you’re probably thinking, well, why would anyone want to carry life insurance in retirement? Well, there’s a lot of reasons and I’ll cover some of those. If, for example, someone or a couple has not done terribly well in accumulating a nest egg, and they really don’t have a lot of resources, then some people get life insurance to take care of final expenses. That way, it’s taken care of ahead of time, even if you haven’t done the funeral home and that sort of thing. It would provide money for that funeral. purpose when someone passes on and so under those circumstances it’s pretty obvious so that those loved ones would not be burdened with funeral and final expenses and that sort of thing and that’s normally for people who either haven’t planned for that or don’t have the necessary resources for that One of the most common places where life insurance can be extremely useful in retirement is what we call pension maximization. And you’re probably thinking, well, what’s that? Well, when someone works for a company that offers a pension, and there’s a lot of those, the federal government, for example, has what they call FERS, Federal Employee Retirement System, and people who work for the state. They have PERA, and PERA has both a 401K and a pension system. And basically a pension is you receive a lifetime income for as long as you live. And the formulas for that vary, but they’re usually based on how long you worked, what your income was and what is your age at retirement, and they have these various formulas and so forth. And as people get close to retirement, those who have a pension, they are faced with a choice. For example, let’s say if someone worked for a company, Xcel Energy is a good example. They have a pension. Nearly all of the governmental entities have also have a pension. But let’s say someone after working for a certain period of time has a pension and they’re going to be collecting or he or she is going to be collecting $5,000 a month. Now, if this person is married, then he or she can select a survivor benefit. And the survivor benefit is based on quite a few different factors, not the least of which is the spouse’s age. And whether the survivor benefit selection is the best or not, we would have to have a crystal ball to know how long the primary worker is going to live, how long the spouse is going to live, and so forth. But the bottom line is this. Hypothetically, let’s say if someone was anticipating $5,000 a month in his or her pension, and he or she chooses, well, I’m going to have my pension reduced to $4,000 a month so that my spouse can get two-thirds of my normal pension. So if 5,000 is the normal pension, two-thirds of that is like $3,700. So it’s almost as much as the primary would be getting. Or it could be two-thirds of what the spouse would receive. Two-thirds of 4,000 then is around $2,500, $2,600. Or there may be a reduction in the pension so that the spouse will get half. Now, basically how that works is if the primary pensioner, the primary worker, decides to have his or her pension reduced to, let’s say, $4,000 a month, and let’s say that reduction will permit his or her spouse to to get $2,000 a month for as long as he or she lives, whether that is a good deal or not, not that you should look at it as a good deal, but it will provide that support for the spouse when the primary person dies. Now, there’s quite a few questions to ask, mainly if you’re having your pension reduced by $1,000 a month, and if you’re in good health, How much life insurance could you purchase for $1,000 a month? And also, what kind of life insurance could you purchase for $1,000 a month? Or it may be that you wouldn’t need to spend that amount because a lot of factors enter into this. Let’s say, for example… that a pensioner who was expecting $5,000 a month has a spouse, and this spouse is going to inherit a significant amount of money when his or her parents pass on. But let’s say the parents are in their upper 80s. But they’re in reasonably good health right at the present time. And that inheritance obviously doesn’t happen until the parents pass. But if there’s a reasonable certainty of that happening, then the pension could be replaced with term insurance, maybe 20-year term insurance. The idea being that within that 20 years, if the primary worker would die, his wife would receive that death benefit, but if the primary pensioner died after 20 years, by then the spouse’s parents would have died and he or she would have inherited the amount that he or she was… Now, the reason that this life insurance for pension maximization makes sense is let’s take a look at one scenario. Let’s say that the pension were reduced from $5,000 to $4,000 a month. so that the spouse would get $2,000 a month for the balance of his or her life. And let’s say they both live for 20 years, and then they die within six months of one another. Well, then basically someone would be collecting $2,000 a month for only six months. That, if my math is right, that’s about $12,000. But there would have been a reduction of $240,000 over that 20-year period in order for a survivor to collect $12,000. Now, we don’t have a crystal ball and we don’t know if the primary pensioner might have died within a short time and then the survivor might have collected the $2,000 a month for a 20-year period. That’s something we don’t know. But what we do know for certain is that if we use life insurance in replacement of the pension reduction, then someone in the family will receive those proceeds. So, for example, if the $1,000 a month is used to buy some form of permanent income, insurance, then we know for certain that as long as that premium is paid, and we can structure that to make certain that it would be paid, then that death benefit would go either to the spouse, or in the case if the spouse predeceased the primary worker, then the proceeds of that life insurance would go to the contingent beneficiaries, which are normally children or grandchildren. So with pension maximization, life insurance can make certain that the spouse of someone collecting a pension would be adequately compensated, and we wouldn’t have to depend on, well, who is going to live longer, how is this going to work, and so forth. So that is one of… the uses of life insurance that’s extremely important in retirement. And there’s some other good examples that we’ll talk about after the break.
SPEAKER 02 :
Al Smith of Golden Eagle Financial believes that retirement planning must be relational, not transactional. You need a retirement advisor who understands what you want out of retirement and Al Smith will help you achieve the retirement of your dreams. In order for Al to do that, he has to get to know you. There are no systematic ways to ensure your dreams come true in retirement. That’s why he draws on decades of experience to set you on your path to success. Sure, he’ll give you details and charts with analysis and all of the necessary things. But he also knows that you’re more than a financial spreadsheet. You’re a person with hopes and dreams who has a picture of what you want your retirement to look like. When you’re ready to get started creating a strategy that puts you on the right path towards those hopes and dreams. You need to contact Al Smith of Golden Eagle Financial for a free consultation. Just go to klzradio.com and click on advertisers to get in touch. Investment advisory services offered through Brookstone Capital Management LLC, a registered investment advisor. BCM and Golden Eagle Financial Limited are independent of each other. Insurance products and services are not offered through BCM, but offered and sold through individually licensed and appointed agents.
SPEAKER 01 :
Welcome back to Retirement Unpacked, and we’re talking about life insurance in retirement. And as I said at the beginning of the show, people often think of, well, if you’ve accumulated a nest egg, why would you need life insurance in retirement? Well, there are some purposes that really make sense in spite of how large your nest egg is. Now, if someone’s nest egg is not quite as large as they might like, and they may still have a mortgage remaining on their home. And I have met people who, although they’re nearing retirement, still have student loans and substantial credit card debt. And if that individual or if that couple are in good health, I would recommend a game plan to pay off that debt. And in the meantime, let’s say if the plan is to pay off that debt within a 10-year period, you can get 10-year term insurance for a relatively low cost, assuming that you’re in good health. And if you’re in your 50s or 60s, it won’t be terribly expensive, but you could get $100,000, $300,000 of term insurance for for a modest cost. And if something were to happen during that time frame, those debts can be paid off, making it much easier for a surviving spouse to go forward under those circumstances so that the rest of the assets that you have, IRA, 401k, pension, whatever those are, don’t need to be used to pay off debt. And obviously debt is not a good thing to have as you go into retirement, but it’s not really at all that uncommon. Another example where life insurance can prove to be important, let’s say if both a husband and a wife worked during their lifetimes, and let’s say each of them have a Social Security benefit or each has a Social Security benefit of $3,000 a month, and they may not have enormous additional assets, but $6,000 a month if it’s tax-free, which Social Security is if you don’t have a lot of other taxable income with it. And that can be the subject of another radio show because I do planning that will help people’s Social Security be in a very low tax bracket or be completely tax-free. But the point being is If this couple is used to living comfortably on $6,000 a month and one of the two should die, then the survivor only gets the larger of the two Social Security benefits. So those benefits are basically cut in half. Now, I don’t know if you’ve ever crunched the numbers, but if you have a household, let’s say with a home, Your real estate taxes, they don’t get cut in half. Your maintenance expenses on your home, they don’t get cut in half. Your homeowner’s insurance doesn’t get cut in half. And your automobile insurance will probably be less. But it would be highly unlikely that it would be as much as half. It’s more likely one person would be paying two-thirds of the amount of two people on automobile insurance. And I live by myself and I know what it’s like buying food. Food for one person is not 50% of what it is for two people because it’s difficult to shop for one person alone. without having some waste and that sort of thing. But the whole bottom line is the cost of one person living in the same residence under the same circumstances as two people. It’s not 50% of those costs. It’s more like 70% or even 80%. So that’s an example where life insurance on each of those two can help the surviving spouse make up the difference of having half of that Social Security just drop right off when the first of two people dies. should pass. Some other examples that I’ve talked to people about, I’ve met some people who have been good savers and have accumulated a considerable size of a nest egg, and often that nest egg is in an IRA. And if it’s in a very healthy IRA with a lot of zeros after it, and it has not been converted to Roth, then that is a very healthy taxable inheritance. Now, if someone chooses to, they could withdraw a small amount of that. By small, I mean relatively small, and use that to purchase life insurance. Life insurance proceeds are tax-free. To give you an example, these are really rough numbers, but let’s say if someone around age 70 looked at his circumstances and he and I or she and I had a visit and realized that he had or the person or the couple had substantially more than they needed in their nest egg and their resources, that individual could set aside $10,000 from his IRA and purchase life insurance, and someone around age 70 could get a quarter million dollars of life insurance for about $10,000 a year. These are really rough numbers, and they depend on people being in good health. But the point being, by setting aside $10,000 a year, you’ve moved $250,000 into your estate that passes on tax-free. Now, if it’s a couple and it’s comfortable for each of them to set aside about that amount of money and it’s cheaper for women, then that would put a half a million dollars passing into their estate completely tax-free. So this is a strategy of moving taxable money into a tax-free inheritance. And this isn’t necessarily a great idea for everyone. If you’re going to need that money to live on, then it’s not terribly attractive. On the other hand, if you know for certain that you’re going to leave assets to your heirs, If you leave them in the form of an IRA or even in a Roth, then your heirs, those who inherit that IRA, they have to follow all of these IRS guidelines, the guidelines of inheriting an IRA. And they’re different depending on if it’s a spouse inheriting it or if it’s a grandchild inheriting it. And even if it’s in a trust… then those proceeds, they fall into that category of you have to take these IRA proceeds over a 10-year period. And then the question comes up, well, do you have to take it uniformly over 10 years, or can you wait in nine years and 11 1⁄2 months takes a whole thing? Well, these are a little complicated. On the other hand, if in that example of setting aside money into life insurance, then those proceeds can be paid. And how that money is used is entirely up to the beneficiary Or if it’s left in a trust, it can be left up to the instructions in a trust, but they don’t have to follow any kind of IRS guidelines. So once people make a choice like this, they can take a lot more control over that segment of their estate rather than just leaving IRA funds to beneficiaries, which is certainly nice. It’s nice to inherit money. But the money comes with a lot of rules and the proceeds of life insurance. If it’s just a named beneficiary, there are no rules. You can spend it all in a week or you could make it last over 30 or 40 years. That’s up to the beneficiary. And again, if those proceeds are in a trust. then that trust can determine how those proceeds would be distributed over what period of time and under what circumstances, and they would not have to follow IRS guidelines. Another big use of life insurance in retirement that’s very similar to this is using life insurance to pay for long-term care. The example I just gave, a 70-year-old setting aside $10,000, well, that’s not too much different than what long-term care costs at that age, except for the fact that women pay almost 35% more for long-term care than men do, whereas they pay less for life insurance. And under that scenario, if someone became chronically ill, which is the language they use in long-term care insurance, meaning there’s two of the six activities of daily living they can’t do, then they would qualify for a ballpark benefit of about $4,000 worldwide. And I’m not saying that’s going to be enough to pay for care. Clearly it’s not, but it would put a big enough dent in it that it can preserve a lot more of their other assets. And let’s say if that individual collected $100,000 in long-term care benefits… and then passed on, the balance of that, the other $150,000, would go to their beneficiaries. If you would like more information about how life insurance can be a useful tool in retirement, call my office at 303-744-1128. God bless you for listening. And let’s pray for the success of our country following the recent election. And let’s also pray for those folks, our friends in Israel. Again, God bless you. Thank you for listening. Hopefully you’ll be here next Wednesday.
SPEAKER 03 :
But are offered and sold through individually licensed and appointed agents.
