How to Calculate the Necessary Nest Egg?

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WhyAmeriprise
Posts: 48
Joined: Fri Jan 05, 2018 2:52 pm

How to Calculate the Necessary Nest Egg?

Post by WhyAmeriprise » Tue Jun 12, 2018 10:09 am

I started the ball moving... moved a large chunk into ETFs where I don't pay for advisors, and in the process made my backdoor Roth IRA contribution for 2017 and 2018. Spouse also has a Fidelity IRA using their ETFs, 2017 and 2018 Backdoor Roth IRA.

At 48, I planned to just get $250k 20-year term because that's when the kids will both be finishing their undergraduate degree, figuring that $250k would provide the cash flow to sell the house, and then the equity of the house would go to my spouse and kids, roughly $400k, since my spouse doesn't want to keep the house anyway.

I have 16-ish year old VUL that is sitting at just below the cash value, so I can take the money and do whatever I want. Performing the 1035-B transfer/exchange is an option to over-fund a WL/UL policy.

The first agent pushed me to go for $1m, because it's the same underwriting, and we can always lower it later. It made sense. That $1m policy is in force as 20-year level term / convertible. The calls are already coming in to convert a "portion" to their Whole Life Insurance option as a form of permanent insurance.

Because agent #1 doesn't underwrite Long Term Disability, going through their agent #2's underwriting means you fill out two forms and they also present a proposal for insurance. Instead of whole life, their recommendation is Universal Life, or Indexed Universal Life.

Bright side, I qualified for super/select preferred, so I'm at the lower end of their fee structure. I see the 5% charge on premiums, and from my previous experience with VUL, there are a slew of other administrative charges that I only find out about if I use subtraction.

I still have ~$100k of student loans at ~6.5% APR.
I have about $150k in 401ks/Roth IRAs. Spouse has about $70k in their employer's 401k, plus $11k Roth IRA because we had to start somewhere.

The big question is how much of a nest egg do I need to leave for my spouse and kids? Ideally there's some sort of calculator that would show how the cash requirements taper off. My salary is around $150k, and my spouse is around $80k. My impression is that my spouse will stop working if I were to die, and probably never return to work.

My spouse brought up the kids will need braces, which I know I can self-insure by having $10k and dental insurance, so some of the expenses don't scare me. My philosophy is not the same as much of today's society because my parents never paid for car, car insurance, education... they didn't have it, so it was on me to make my own way. Today's kids think that parents now have to support them until 25 or 26 with whatever they can negotiate in terms of parent-paid car, tuition, healthcare, etc. (unless parent gets lucky and child wants to be on their own)

Are there any good calculators that would show the kind of detail of how much money I would need for the next 15 years, 20 years, and presumably how big of a nest egg I need to have saved up at the end of 20-years? I would really rather just find suitable investments and build up savings that way, rather than buy WL/UL insurance where the company profits if I outlast the policy.

Is a $30k 1035B that large of a deal that I shouldn't just pocket the money from the old VUL, and sit on my insurance conversion options for a few years?

dbr
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Re: How to Calculate the Necessary Nest Egg?

Post by dbr » Tue Jun 12, 2018 10:29 am

If you want to project how large a portfolio is required to sustain a certain level of income, given various other income and expenses, then indeed there are calculators that do that. A starting place might be www.firecalc.com or www.cfiresim.com or the Vanguard or Fidelity calculators, portfolio optimizer, and iORP.

JoeRetire
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Re: How to Calculate the Necessary Nest Egg?

Post by JoeRetire » Tue Jun 12, 2018 11:01 am

WhyAmeriprise wrote:
Tue Jun 12, 2018 10:09 am
My philosophy is not the same as much of today's society because my parents never paid for car, car insurance, education... they didn't have it, so it was on me to make my own way. Today's kids think that parents now have to support them until 25 or 26 with whatever they can negotiate in terms of parent-paid car, tuition, healthcare, etc. (unless parent gets lucky and child wants to be on their own)
You haven't indicated what your philosophy is.

Are you planning on following your parents' lead, even though you probably do have it?

NotWhoYouThink
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Re: How to Calculate the Necessary Nest Egg?

Post by NotWhoYouThink » Tue Jun 12, 2018 11:05 am

Is your spouse insured? What is your plan for child care and other expenses if your spouse dies first?

WhyAmeriprise
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Re: How to Calculate the Necessary Nest Egg?

Post by WhyAmeriprise » Tue Jun 12, 2018 11:15 am

Spouse is 42; has about $560k insurance through their employer. Spouse resumed smoking, and BMI is higher than mine, which makes the life insurance rather expensive.

That's another reason to put retirement savings in both of our names. IRA for me, IRA for spouse. My understanding was that we could only do $5500 non-deductible per year for each of us, so we both put in $5500 for 2017 and 2018, then converted each $11k IRA as a backdoor Roth IRA. We might qualify for Roth IRAs directly; I need to run those numbers.

WhyAmeriprise
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Re: How to Calculate the Necessary Nest Egg?

Post by WhyAmeriprise » Tue Jun 12, 2018 11:20 am

JoeRetire wrote:
Tue Jun 12, 2018 11:01 am
Are you planning on following your parents' lead, even though you probably do have it?
I don't feel the need to push or overly stretch myself to give children what I didn't have. I'm OK with kids having student loans. My spouse is not on board with that philosophy. I'm concerned with the FAFSA process where "they" decide how much I can safely contribute. In NJ, we now have to pay for auto insurance for anyone in the house 16 years or older, whether they have a license or not, a contrast to when my parents insurance stayed the same as long as I acquired my own policy. (and I wanted my freedom, so I just saw paying for the car and insurance premium as what was required to get freedom)

JoeRetire
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Re: How to Calculate the Necessary Nest Egg?

Post by JoeRetire » Tue Jun 12, 2018 1:07 pm

WhyAmeriprise wrote:
Tue Jun 12, 2018 11:20 am
JoeRetire wrote:
Tue Jun 12, 2018 11:01 am
Are you planning on following your parents' lead, even though you probably do have it?
I don't feel the need to push or overly stretch myself to give children what I didn't have.
That's certainly your choice to make.
My spouse is not on board with that philosophy.
That's certainly her choice to make.
I'm concerned with the FAFSA process where "they" decide how much I can safely contribute.
There is nothing to say you need to take part in the "FAFSA process".
In NJ, we now have to pay for auto insurance for anyone in the house 16 years or older, whether they have a license or not, a contrast to when my parents insurance stayed the same as long as I acquired my own policy. (and I wanted my freedom, so I just saw paying for the car and insurance premium as what was required to get freedom)
Not all states have that law.

delamer
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Re: How to Calculate the Necessary Nest Egg?

Post by delamer » Tue Jun 12, 2018 4:06 pm

Are you concerned about how much life insurance you need if you drop dead tomorrow?

Or are you concerned about how much money you need to have saved in 20 years?

Or both?

You talked about eveything from orthodontist bills to variable life annuities to your wife not working if you die (how does she plan to get health insurance in that case?).

Why do you need cash flow to sell the house?

The bottom line for life insurance or for retirement is that you need to figure out your expenses before you can determine the appropriate nest egg.

WhyAmeriprise
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Re: How to Calculate the Necessary Nest Egg?

Post by WhyAmeriprise » Wed Jun 13, 2018 8:02 am

delamer wrote:
Tue Jun 12, 2018 4:06 pm
Are you concerned about how much life insurance you need if you drop dead tomorrow?
Or are you concerned about how much money you need to have saved in 20 years?
Or both?
Both. I have $1m 20-year term now, and if I get a second policy I could add another $1m of 20-year term.

I'm being pushed to sign up for WL and UL policies for "permanent" needs beyond the initial 20-year term. My gut says that whatever the WL or UL policy does, that if I invest it properly, I should be able to get close to, or even better performance. I love looking at the Merrill Edge and seeing that the account is already up 3.68% in two months. (the needle is moving in the right direction, finally)
delamer wrote:
Tue Jun 12, 2018 4:06 pm
You talked about eveything from orthodontist bills to variable life annuities to your wife not working if you die (how does she plan to get health insurance in that case?).
My spouse was the one that was rationalizing WL/UL because she would need cash for braces. My spouse does not track finances because there are too many pieces to keep track of the house versus an apartment. Seeing it in writing it seems ludicrous that the braces would be a new thing when the kids were in their 20s. There are health insurance policies that can be purchased... last time I needed one of those it was about $3k for a "family" policy. I should add that number to the mix...
delamer wrote:
Tue Jun 12, 2018 4:06 pm
Why do you need cash flow to sell the house?
The house is 30 years old, and will need a bit of work to satisfy today's buyer. We've been doing some of it, but there's still some that will need to be done. There's still a bit of carpets in the house, and most of the house could stand to be repainted. The last time I tried to sell the house, during the downturn, I still shelled out quite a bit back in '08 for a buyer who didn't even make it to the closing table... $6k for a new chimney because old one didn't meet code, $1.5k for water testing and remediation, $1k for septic service/upgrades that I wouldn't have had to do if I wasn't selling, plus the extra services that the realtor said I needed to sign up for because if the property doesn't look it's best, buyers won't consider it - lawn services ($250/wk), replace landscaping($6k last time), cleaning services.
delamer wrote:
Tue Jun 12, 2018 4:06 pm
The bottom line for life insurance or for retirement is that you need to figure out your expenses before you can determine the appropriate nest egg.
I'm going to check out the calculators (posted earlier in this thread) to try to find some targets. I can't trust the insurance agents to tell me how much I need because they really don't do a proper needs analysis...

Jack FFR1846
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Re: How to Calculate the Necessary Nest Egg?

Post by Jack FFR1846 » Wed Jun 13, 2018 9:02 am

You seem very conflicted on a lot of things. Some simplistic comments:

FAFSA figures out how much above the poverty line you are. Anything above is put into calculations to figure out what your family should be able to afford for college. Anything you get is going to be loans anyways, so who cares what numbers they give you? They aren't low interest loans either and for example, Stafford loans have a 1% origination fee. From what I've seen, other "student" loans are parent loans because you'll have to cosign.

All these WL, VUL policies are outrageously expensive. It's like saying that since you're paying through the nose in New Jersey, you might as well buy a Porsche turbo and really pay through the nose. Unless these permanent policies are somehow cheaper than term, dump them, take the cash value and buy term.
Bogle: Smart Beta is stupid

NotWhoYouThink
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Re: How to Calculate the Necessary Nest Egg?

Post by NotWhoYouThink » Wed Jun 13, 2018 9:21 am

I'm being pushed to sign up for WL and UL policies for "permanent" needs beyond the initial 20-year term.
So salesmen are pushing you to buy what they are selling? Are you also pushed to buy cars and furniture and iPhones? Given your user name, is a particular company involved? If so, the easy answer is to cut off communication with them

Almost no one ever needs WL/UL. Many people sell or are sold it, because the sellers get rich on the premiums so they are motivated to sell. If you have a family and you want them to be able to continue their lifestyle if you get hit by a bus tomorrow you need term life insurance. If your kids need or may need braces you need some savings and some dental insurance.

The general idea for the term insurance is that you buy it early in your work life when you have mostly personal capital and not so much money saved up. As you earn and save and invest, you are more and more able to support yourself in retirement and have less and less need for life insurance. By the time your kids are launched you may not need life insurance at all, maybe your spouse could live on current savings plus pension and SS, if any.

So how much will your family need to replace the income lost if you get hit by a bus tomorrow? How much will your investments grow over the next 10-10-20 years?

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Sandtrap
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Re: How to Calculate the Necessary Nest Egg?

Post by Sandtrap » Wed Jun 13, 2018 9:26 am

Welcome.
Consider posting a portfolio review request vs a narrative for more comprehensive suggestions.
Format:
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

This may be helpful for you.
ONLINE FINANCIAL TOOLS
PORFOLIO VISUALIZERS, PROJECTIONS, AND ANALYSIS
https://www.portfoliovisualizer.com
Firecalc. Retirement. How long will your money last?
https://www.firecalc.com
Morningstar Instant Xray
https://members.morningstar.com/Registe ... L100&vUrl=

Search the forum for "25x" and browse the threads and posts on the subject.

aloha
j

WhyAmeriprise
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Re: How to Calculate the Necessary Nest Egg?

Post by WhyAmeriprise » Wed Jun 13, 2018 12:03 pm

Sandtrap wrote:
Wed Jun 13, 2018 9:26 am
Search the forum for "25x" and browse the threads and posts on the subject.

aloha
j
There we go; I can get my mind around a calculator! 25x and a few customizations in the calculator(s) should drive the plan.

I didn't ask for a portfolio review because I just moved $125k from Ameriprise to Merrill Edge, in a Bogle-Style mix. There are a few other small accounts I can consolidate, but we have a game plan there to be sure the AA is right.

Old VUL is at Ameriprise... going to likely cash it out to pay off a chunk of student loans, guaranteed 6.5% return.

25x means I may need to get a second term policy in case I get hit by a bus tomorrow... but I could also do a shorter 10-year level term also. Then, I need to put both of us on a savings plan to that both of us will have enough combined to be at 25x by year 20.

soccerrules
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Re: How to Calculate the Necessary Nest Egg?

Post by soccerrules » Wed Jun 13, 2018 1:35 pm

WhyAmeriprise wrote:
Wed Jun 13, 2018 12:03 pm
Sandtrap wrote:
Wed Jun 13, 2018 9:26 am
Search the forum for "25x" and browse the threads and posts on the subject.

aloha
j
There we go; I can get my mind around a calculator! 25x and a few customizations in the calculator(s) should drive the plan.

I didn't ask for a portfolio review because I just moved $125k from Ameriprise to Merrill Edge, in a Bogle-Style mix. There are a few other small accounts I can consolidate, but we have a game plan there to be sure the AA is right.

Old VUL is at Ameriprise... going to likely cash it out to pay off a chunk of student loans, guaranteed 6.5% return.

25x means I may need to get a second term policy in case I get hit by a bus tomorrow... but I could also do a shorter 10-year level term also. Then, I need to put both of us on a savings plan to that both of us will have enough combined to be at 25x by year 20.
Why-
It seems like you might have enough information to be dangerous to yourself, family and financial future. But not enough information to really execute a plan and be helpful. You are asking the right questions and looking into important topics (insurance,savings).
I would suggest you slow down and take the next 30 days - READ. Read the Wiki, browse the forum and read several of the commonly recommended books. Then come back and layout your whole financial situation for others to help give you guidance.
You have some life insurance now --so you are at least covered.
The best thing you can do for yourself, spouse, family and financial future is to become more educated.
BH is awesome. I have learned more in the last 12 months about financial matters than in my entire 30 years of adulthood.
Don't let your outflow exceed your income or your upkeep will be your downfall.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: How to Calculate the Necessary Nest Egg?

Post by delamer » Wed Jun 13, 2018 2:10 pm

soccerrules wrote:
Wed Jun 13, 2018 1:35 pm
WhyAmeriprise wrote:
Wed Jun 13, 2018 12:03 pm
Sandtrap wrote:
Wed Jun 13, 2018 9:26 am
Search the forum for "25x" and browse the threads and posts on the subject.

aloha
j
There we go; I can get my mind around a calculator! 25x and a few customizations in the calculator(s) should drive the plan.

I didn't ask for a portfolio review because I just moved $125k from Ameriprise to Merrill Edge, in a Bogle-Style mix. There are a few other small accounts I can consolidate, but we have a game plan there to be sure the AA is right.

Old VUL is at Ameriprise... going to likely cash it out to pay off a chunk of student loans, guaranteed 6.5% return.

25x means I may need to get a second term policy in case I get hit by a bus tomorrow... but I could also do a shorter 10-year level term also. Then, I need to put both of us on a savings plan to that both of us will have enough combined to be at 25x by year 20.
Why-
It seems like you might have enough information to be dangerous to yourself, family and financial future. But not enough information to really execute a plan and be helpful. You are asking the right questions and looking into important topics (insurance,savings).
I would suggest you slow down and take the next 30 days - READ. Read the Wiki, browse the forum and read several of the commonly recommended books. Then come back and layout your whole financial situation for others to help give you guidance.
You have some life insurance now --so you are at least covered.
The best thing you can do for yourself, spouse, family and financial future is to become more educated.
BH is awesome. I have learned more in the last 12 months about financial matters than in my entire 30 years of adulthood.
Agreed.

You also should use the 30 days to get an accurate estimate of your current expenses and then figure out what will and won’t change 1) if you die before your kids are raised and 2) when you retire.

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Sandtrap
Posts: 5100
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii😀 Northern AZ.😳 Retired.

Re: How to Calculate the Necessary Nest Egg?

Post by Sandtrap » Wed Jun 13, 2018 4:11 pm

delamer wrote:
Wed Jun 13, 2018 2:10 pm
soccerrules wrote:
Wed Jun 13, 2018 1:35 pm
WhyAmeriprise wrote:
Wed Jun 13, 2018 12:03 pm
Sandtrap wrote:
Wed Jun 13, 2018 9:26 am
Search the forum for "25x" and browse the threads and posts on the subject.

aloha
j
There we go; I can get my mind around a calculator! 25x and a few customizations in the calculator(s) should drive the plan.

I didn't ask for a portfolio review because I just moved $125k from Ameriprise to Merrill Edge, in a Bogle-Style mix. There are a few other small accounts I can consolidate, but we have a game plan there to be sure the AA is right.

Old VUL is at Ameriprise... going to likely cash it out to pay off a chunk of student loans, guaranteed 6.5% return.

25x means I may need to get a second term policy in case I get hit by a bus tomorrow... but I could also do a shorter 10-year level term also. Then, I need to put both of us on a savings plan to that both of us will have enough combined to be at 25x by year 20.
Why-
It seems like you might have enough information to be dangerous to yourself, family and financial future. But not enough information to really execute a plan and be helpful. You are asking the right questions and looking into important topics (insurance,savings).
I would suggest you slow down and take the next 30 days - READ. Read the Wiki, browse the forum and read several of the commonly recommended books. Then come back and layout your whole financial situation for others to help give you guidance.
You have some life insurance now --so you are at least covered.
The best thing you can do for yourself, spouse, family and financial future is to become more educated.
BH is awesome. I have learned more in the last 12 months about financial matters than in my entire 30 years of adulthood.
Agreed.

You also should use the 30 days to get an accurate estimate of your current expenses and then figure out what will and won’t change 1) if you die before your kids are raised and 2) when you retire.
+++1
Patience, education. . . . baby steps. . . . . read, learn, read, learn. . .(take at least 3 months).
j

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