Minimize the Loss of Retirement Income,
at the First One's Death
By Raymond L. Adams, CFP®, CLU, ChFC
IF HE DIES FIRST, WILL I HAVE ENOUGH MONEY TO LIVE ON?
If both spouses are retired, often one, or both, share a common concern: “Will I have enough money to live on?” You see, quite often the surviving spouse loses some or all of the deceased’s company and/or military retirement income. Additionally, always the smaller of the two Social Security checks will be discontinued.
Recently, a 72 year-old gentleman, with his wife, came to see me regarding a $100,000 inheritance he had received from a relative. A few years earlier, upon his retirement, he had elected a company pension option which included a larger monthly pension check ($3,500 a month) while he was alive, but a reduction in the pension check of 50% (to $1,750) should he predecease his wife. This now concerned both of them; hence, we set out together to find the best way to use this $100,000 inheritance to help make-up, as much as possible, his wife’s cash flow shortage should he indeed predecease her.
The Solution: A Modified Endowment Contract, which is a specific type of life insurance policy. Here is what we did: we submitted his health information to a number of different life insurance companies and received back various offers; ultimately, he chose to put the $100,000 inheritance into a onetime lump sum fixed Modified Endowment Contract, which he felt was the most favorable option for his circumstances. By doing so, he was able to create a $250,000 “nest egg” right away via an immediate future guaranteed* death benefit. His comment was similar to many others, “There is no other way I could multiply this money for my wife so quickly, at no risk.”
As it turned out, eight months later, he was in an auto accident, and passed away. Unquestionably, the loss of her husband was devastating to her, but she was grateful that it was not compounded by additional financial concerns. She received a check for $250,000, completely income tax-free, which helped offset the reduction in his company pension check.
A REVERSE CONCERN: HER FOR HIM
A lady, age 70, came to see me; she was concerned about providing sufficient finances for her husband’s care and well-being (as he was already in poor health), should she predecease him.
To prepare for such a unfavorable possibility, for several years they had carefully managed to live without $10,000 per year from their required minimum IRA distribution, and tucked it away into a savings account. Her question was, “Is there anything we could do better with the $10,000 per year?”
Ultimately, they were pleased to find out about an option of re-directing the same $10,000 a year that they were already setting aside, into a fixed $400,000 life insurance policy on her life for her husband’s benefit—guaranteed payable to him, if she passes away first.
Now, if by chance he passes away before she does, the life insurance policy provides an option for her to access a portion of the $400,000 death benefit for her own long term care needs—nursing home, assisted living facility, or home health care—should she need this type of assistance, or she could leave it to her children, or cash it in for its value.
HAVE YOU THOUGHT ABOUT A RETIREMENT INCOME REPLACEMENT PLAN?
These two different examples, and yet very much the same, and so many more I have help arrange over the last 30+ years, demonstrate that with advance planning there are a number of favorable methods to financially prepare for the surviving spouse.
Because these concepts are available for individuals through age 85, many retirees have re-positioned funds from savings accounts, CD’s, Savings Bonds, brokerage accounts, yearly IRA required minimum distributions (RMD), proceeds from the sale of a home, inheritances, etc., all in an effort to make up for a potential income loss to a surviving spouse.
TO FIND OUT MORE
To get together for a consultation to review your particular circumstances, contact me by phone (425) 827-9225
*Guarantees are subject to the claims paying ability of the underlying insurance company
Capital Enhancement Group, Inc. • 611 4th Ave. Suite A • Kirkland, WA 98033 • (425) 827-9225