Survivor Benefits When Buying Life Insurance

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Topic Author
berg
Posts: 465
Joined: Mon Mar 18, 2013 8:43 pm

Survivor Benefits When Buying Life Insurance

Post by berg »

I recently started a thread on term life insurance, so thanks to those who shared their thoughts. The quick recap is that my wife and I have been approved for 30 year terms. $1 million for her and $1.5 million for me. Due to a health condition mine is $2600 per year, hers is $980. Our broker advised us to apply for the most we would want and we can reduce it when we actually sign, so right now I'm looking at all my options including a lower amount and a reduced term.

Right now for myself, according the the SS website, my survivor benefits would be $49k per year. So assuming a 4% withdrawal rate, isn't this the equivalent of already having $1.2 million? This makes me wonder if $1 million for me might be enough instead of the $1.5. which would save me about $860 per year. On the other hand, $1 million today won't be as valuable in 20 to 30 years from now. But I wonder if given the SS benefits and $1 million, if my family would be fine. They'd at least be able to pay off the mortgage and afford to continue to live fairly well. I suppose the big difference might be paying for college or not if we end up having 3 kids. Right now we are only on our first (who is 2 months old).

My wife on the other hand is a public school teacher in Mass. She doesn't pay SS. Her survivor benefits grow each year. Right now, her benefits would only be worth $4k per year. So all the more to get her insured. However, her plan rapidly become more valuable between ages 50 and 58 (when she would reach max benefits). For her, I'm considering keeping the amount at $1 million, since the benefits are so little for her until she gets older (for example, 17 years from now at age 46 her benefit would pay out only $20k per year). However, I'm considering reducing her term from 30 to 20 to save $400 per year. 20 years from now when she is 49 we will likely have a 20 year old child, a 17-18 year old and then maybe one more teenager if we decide to go for three. At this point her benefit would grow like this:
  • Age 50 - $24.5k - 4% withdrawal equivalent - $611k
    Age 51 - $25.6k annually - 4% withdrawal equivalent - $640k
    Age 52 - $26.8k annually - 4% withdrawal equivalent - $670k
    Age 53 - $35.5k annually - 4% withdrawal equivalent - $886k
    Age 54 - $38k annually - 4% withdrawal equivalent - $950k
    Age 55 - $40.6k annually - 4% withdrawal equivalent - $1 million
    Age 56 - $45.4k annually - 4% withdrawal equivalent - $1.13 million
    Age 57 - $50.3k annually - 4% withdrawal equivalent - $1.26 million
    Age 58 - $52.3k annually - 4% withdrawal equivalent - $1.31 million
Given her benefit, I'm wondering if $1 million is needed for her from age 49 to age 59. If something were to happen to her at this point, I'd hope we'd have some level of self insurance throughs savings, plus the benefits of her pension. For me, I'm still leaning toward the 30 year, as my income is much greater than hers and given minor my health condition (which shouldn't be sentencing me to an early death between ages 50 and 60, but of course makes me more likely than the average joe).

So I guess my questions are, based on the survivor info I've found, would it make sense to reduce my own benefit amount or my wife's term? Of course the wild card in my view is the cost of college and if I can convince my wife to only have two kids vs. the three she wants. :D

Thanks for taking the time to read and offer help! My wife is ready for me to move on from this morbid topic!
2stepsbehind
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Joined: Wed Jun 20, 2007 10:03 am

Re: Survivor Benefits When Buying Life Insurance

Post by 2stepsbehind »

How much are your current expenses and how much would it cost to pay off the house? Do you get any insurance from your place of employment?
pshonore
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Joined: Sun Jun 28, 2009 2:21 pm

Re: Survivor Benefits When Buying Life Insurance

Post by pshonore »

Will your SS survivor benefits be 49K if your wife continues to work?
bluemarlin08
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Joined: Wed Aug 29, 2007 12:18 pm

Re: Survivor Benefits When Buying Life Insurance

Post by bluemarlin08 »

Do each of you have personal disability insurance?
Topic Author
berg
Posts: 465
Joined: Mon Mar 18, 2013 8:43 pm

Re: Survivor Benefits When Buying Life Insurance

Post by berg »

2stepsbehind wrote:How much are your current expenses and how much would it cost to pay off the house? Do you get any insurance from your place of employment?
Mortgage is payment is $2400 per month (including tax and insurance). On average we spend about $10k per month. But this includes our vacations, dining out, etc. Things that certainly would be reduced if one of us weren't around anymore.

We have about $350k left on the mortgage, though hope to put on an addition or upgrade at some point. Though we are saving for this, so I don't ever see that going higher than $500k.

I do get 1.5x salary though work, but didn't calculate that for the long term because that isn't guaranteed. Right now though that would be an additional $201k.
Topic Author
berg
Posts: 465
Joined: Mon Mar 18, 2013 8:43 pm

Re: Survivor Benefits When Buying Life Insurance

Post by berg »

pshonore wrote:Will your SS survivor benefits be 49K if your wife continues to work?
I'm not sure of this. I just read on the site when I logged in, if you died today you would get X. It said $2037 for my child and $2037 per month for my spouse. Is there more I need to know? Does her work affect the spousal benefit? :D
Topic Author
berg
Posts: 465
Joined: Mon Mar 18, 2013 8:43 pm

Re: Survivor Benefits When Buying Life Insurance

Post by berg »

bluemarlin08 wrote:Do each of you have personal disability insurance?
Yes. We both have 60% through our employers in addition to what SS or her pension plan will pay out for a disability.
pshonore
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Joined: Sun Jun 28, 2009 2:21 pm

Re: Survivor Benefits When Buying Life Insurance

Post by pshonore »

berg wrote:
pshonore wrote:Will your SS survivor benefits be 49K if your wife continues to work?
I'm not sure of this. I just read on the site when I logged in, if you died today you would get X. It said $2037 for my child and $2037 per month for my spouse. Is there more I need to know? Does her work affect the spousal benefit? :D
Unfortunately yes, for each $2 she earns above $15480/yr, $1 would be subtracted from her benefit. And you might also not be aware that she will probably not be eligible for an SS benefit (spousal or survivor) based on your earnings once she starts collecting her teachers pension because of something called the GPO (Govt Pension offset) which applies to folks who collect a pension from a job where they did not pay into SS.
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