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life insurance in retirement
Old 06-15-2015, 09:29 AM   #1
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life insurance in retirement

When I was involuntarily early retired from my job of 34 years at a Fortune 500 company, I had substantial life insurance on me. Now, retired age 59, those premiums are taking a bit bite of our roughly $5,000 a month income from a pension and investments. The premiums will grow over time as I age. I considered lowering the insurance coverage but it seems a shame since someone (wife, daughter) will receive $630,000 when I move on in 10-15 years, or maybe less, who knows? I have some health issues. Anyone have a suggestion or strategy on how to deal with this problem?
Thanks
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Old 06-15-2015, 09:41 AM   #2
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This has come up before on this forum and the answer will vary by family situation. In my case I would not buy life insurance since my DW (only real heir in my case) is already financially set. "To me" it sounds like in your case, it would depend on the entire net worth of your estate and what the cost if the insurance is.
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Old 06-15-2015, 09:43 AM   #3
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This has come up before on this forum and the answer will vary by family situation. In my case I would not buy life insurance since my DW (only real heir) is already financially set.
^This.

Will your DW be OK if you kick the bucket? If so, dump the insurance, you are wasting money. The insurance company almost ALWAYS wins this game..ALWAYS.
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Old 06-15-2015, 09:51 AM   #4
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When we have already paid a significant amount of money for something, we develop an attachment to it. Your past insurance premiums are a sunk cost. The best way to evaluate the insurance policy now is to imagine you were being offered it today for the first time. Based on the future premiums and the payback, would you buy the policy today?
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Old 06-15-2015, 01:01 PM   #5
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When we have already paid a significant amount of money for something, we develop an attachment to it. Your past insurance premiums are a sunk cost. The best way to evaluate the insurance policy now is to imagine you were being offered it today for the first time. Based on the future premiums and the payback, would you buy the policy today?
+1. Treat it as a new transaction going forward. The premiums will continue to go up, and some of these policies terminate at a certain age. If you've got a policy like that, you'd need to die in the coverage window for your wife/daughter to receive anything.
What's spent is spent--you received coverage in the past for what you paid, that is a closed transaction. Now, if your wife and/or daughter will need the money from the policy (e.g. the quality of life they've got now would be reduced if you died without it), then you should consider keeping it, especially if you've got health issues and couldn't replace the policy. Otherwise, spend that premium money on your family while you are alive.
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Old 06-15-2015, 04:00 PM   #6
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Originally Posted by Mark V View Post
When I was involuntarily early retired from my job of 34 years at a Fortune 500 company, I had substantial life insurance on me. Now, retired age 59, those premiums are taking a bit bite of our roughly $5,000 a month income from a pension and investments. The premiums will grow over time as I age. I considered lowering the insurance coverage but it seems a shame since someone (wife, daughter) will receive $630,000 when I move on in 10-15 years, or maybe less, who knows? I have some health issues. Anyone have a suggestion or strategy on how to deal with this problem?
Thanks
It is hard to say since you don't cite your premiums, but generally I think you would be better off letting the insurance go and using the money that would otherwise be paid in premiums to enjoy your retirement years and/or help your DD while you are still around.

Since premiums will grow as you age, I assume this is annually renewable term insurance. How does the future value of 10 years of premiums at say, 5% compare to the death benefit? 15 years? If the DB far exceeds the premiums, then perhaps you should keep it.
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Old 06-15-2015, 05:54 PM   #7
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Mark V,

I am in a similar situation; 59 RE this year, medical issues that look to limit lifespan. I will be using a term policy for at least the next 5 or 6 years to cover DW for the loss of
1. half my non-cola pension
2. get her to SS eligibility
3. protect the portfolio from severe withdrawals the first few years of retirement due
to medical or other issues.

I don't plan on keeping it forever, and will reevaluate at age 63 or so if the policy has not been used.
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Old 06-15-2015, 05:57 PM   #8
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When we have already paid a significant amount of money for something, we develop an attachment to it. Your past insurance premiums are a sunk cost. The best way to evaluate the insurance policy now is to imagine you were being offered it today for the first time. Based on the future premiums and the payback, would you buy the policy today?
Great way to look at it.

I carried term through my employer, when I retired, I retired the term insurance as well.
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Old 06-16-2015, 09:41 PM   #9
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When I retired at 58, mega-corp paid for a diminishing term policy on me. We were FI. It ended at 65. I had to pay income tax on the premium mc paid. Was it worth it? Not now, but it might have been. Since I paid the tax equivalent to about 30% of the premium, I thought it was ok. It also would have been a pita to get mc to stop that benefit and continue the others.

YMMV, of course.
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Old 06-17-2015, 07:44 AM   #10
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Originally Posted by Mark V View Post
When I was involuntarily early retired from my job of 34 years at a Fortune 500 company, I had substantial life insurance on me. Now, retired age 59, those premiums are taking a bit bite of our roughly $5,000 a month income from a pension and investments. The premiums will grow over time as I age. I considered lowering the insurance coverage but it seems a shame since someone (wife, daughter) will receive $630,000 when I move on in 10-15 years, or maybe less, who knows? I have some health issues. Anyone have a suggestion or strategy on how to deal with this problem?

Thanks

Whole life or term?


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Old 06-17-2015, 07:52 AM   #11
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Whole life or term?
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Originally Posted by Rick_Head View Post
When I retired at 58, mega-corp paid for a diminishing term policy on me.
...
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Old 06-17-2015, 08:24 AM   #12
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My dad just turned 90. He has a $60,000 Universal Life Policy he took out in 1984. A few short years ago it had a cash value of over $33,000. He's been making the monthly premiums of $300 a month. Last week he got a notice that the policy will expire in September. The cash value will be gone and it will take annual payments of over $15,000 to keep it alive this year, $18,000 the next year and over $20,000 the year after.

He's paid the face amount of this policy twice already, he'll pay it a third time if he keeps it in force. I'm telling him to let it go, even though I'm one of the beneficiaries.

For the last couple years he'd been worried sick that he'll outlive this policy. I don't want to live my last years hoping I die in time.

Bottom line is, you've got to have a huge pile of cash value in these policies that you'll never be able to use since you'll need all of it to pay the premiums if you live long enough, and even then they can collapse.

I've bought VUL's for DW and me about 20 years ago. They've actually grown nicely, but looking at the mortality cost when we get older they'll run out at age 85-90. My youngest kid graduated with enough in her 529 to send her to college, I'm going to cancel them both, cash them in and send the after tax amounts to Vanguard.

Should have bought term to age 55 instead. I'm getting out before it gets too expensive.
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Old 06-17-2015, 09:37 AM   #13
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While you are generating income, life insurance offers some level of income replacement for your family if you pass away. Once your income production ends (RE), the need for life insurance for income replacement purposes - IMO - is eliminated. Of course, this assumes you are OK with your family maintaining your current standard of living given your demise. It also assumes your pension has a survivor benefit component and your family has the wherewithal to manage your remaining investments.

If the idea of providing a bump in your family's standard of living or an additional financial legacy is appealing to you, then you'll have to weigh that against the impact of the premium payments to current income. Perhaps a reduced amount is a comfortable compromise?
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