How does taxable, savings and retirement calculate into life insurance planning?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
Sophia1884
Posts: 179
Joined: Mon Aug 05, 2013 10:23 pm

How does taxable, savings and retirement calculate into life insurance planning?

Post by Sophia1884 » Thu Aug 08, 2019 3:26 pm

Hi there,

Quick question as I work on our life insurance strategy: How do taxable, savings and retirement accts calculate into life insurance planning?

Thank you!
Last edited by Sophia1884 on Thu Aug 08, 2019 3:58 pm, edited 1 time in total.

Broken Man 1999
Posts: 3062
Joined: Wed Apr 08, 2015 11:31 am

Re: How does taxable, savings and retirement calculate into LI planning?

Post by Broken Man 1999 » Thu Aug 08, 2019 3:39 pm

What does LI stand for?

Is it perhaps lifecycle investing?

Thank you!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

sarabayo
Posts: 314
Joined: Fri Jun 29, 2018 6:59 pm

Re: How does taxable, savings and retirement calculate into LI planning?

Post by sarabayo » Thu Aug 08, 2019 3:42 pm

Broken Man 1999 wrote:
Thu Aug 08, 2019 3:39 pm
What does LI stand for?

Is it perhaps lifecycle investing?
I'd guess "Life Insurance", based on this earlier thread by the OP.

Topic Author
Sophia1884
Posts: 179
Joined: Mon Aug 05, 2013 10:23 pm

Re: How does taxable, savings and retirement calculate into LI planning?

Post by Sophia1884 » Thu Aug 08, 2019 3:59 pm

Broken Man 1999 wrote:
Thu Aug 08, 2019 3:39 pm
What does LI stand for?

Is it perhaps lifecycle investing?

Thank you!

Broken Man 1999
LI= Life insurance...I changed the title to reflect this. Although, now I'm curious as to what "life cycle investing" is. Google here I come :)

megabad
Posts: 2382
Joined: Fri Jun 01, 2018 4:00 pm

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by megabad » Thu Aug 08, 2019 6:45 pm

Sophia1884 wrote:
Thu Aug 08, 2019 3:26 pm
Hi there,

Quick question as I work on our life insurance strategy: How do taxable, savings and retirement accts calculate into life insurance planning?

Thank you!
I am assuming you are referring specifically to term life insurance. Each spouse's income as well as balances in taxable brokerage accts, savings accts, and retirements accounts could all potentially impact the decision on how much term insurance to acquire and term length. Building off your other thread, you would need to determine your liabilities and the degree that your existing assets might cover this given various death scenarios. If there is a gap (for most folks there is), the amount of life insurance you acquire should be sufficient to fill it.

Topic Author
Sophia1884
Posts: 179
Joined: Mon Aug 05, 2013 10:23 pm

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by Sophia1884 » Fri Aug 09, 2019 12:04 pm

megabad wrote:
Thu Aug 08, 2019 6:45 pm
Sophia1884 wrote:
Thu Aug 08, 2019 3:26 pm
Hi there,

Quick question as I work on our life insurance strategy: How do taxable, savings and retirement accts calculate into life insurance planning?

Thank you!
I am assuming you are referring specifically to term life insurance. Each spouse's income as well as balances in taxable brokerage accts, savings accts, and retirements accounts could all potentially impact the decision on how much term insurance to acquire and term length. Building off your other thread, you would need to determine your liabilities and the degree that your existing assets might cover this given various death scenarios. If there is a gap (for most folks there is), the amount of life insurance you acquire should be sufficient to fill it.
I understand filling the gap after seeing what the liabilities are. For us, the liability is the loss of the main income, future savings, investments. As we have done well saving and investing, my questions specifically is: what do I do with those totals when calculating lost income? For example...if the income was lost, should I get enough LI to do a 50/50 split between having the gap covered 50% from taxable/Roth acts and 50% from LI or should I leave all the taxable/retirement acts alone until I'm older and fund the gap entirely from LI for 5-10 years, drawing it down as my income hopefully increases?

Does that make sense?

Dottie57
Posts: 6729
Joined: Thu May 19, 2016 5:43 pm

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by Dottie57 » Fri Aug 09, 2019 5:29 pm

I would do LI for the full amount until near retirement. You are trying to fund the ability to sustain a given lifestyle even if you are gone. Retirement accounts are for retirement,

Of course as debt is paid off and kids leave home (and educated) the amount can go down.

Broken Man 1999
Posts: 3062
Joined: Wed Apr 08, 2015 11:31 am

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by Broken Man 1999 » Fri Aug 09, 2019 6:03 pm

Dottie57 wrote:
Fri Aug 09, 2019 5:29 pm
I would do LI for the full amount until near retirement. You are trying to fund the ability to sustain a given lifestyle even if you are gone. Retirement accounts are for retirement,

Of course as debt is paid off and kids leave home (and educated) the amount can go down.
This!

Maintain lifestyle with retirement money, then what do you do when retired?

When our children were in the home, I tried to have enough insurance for two things, closely related:
1. I wanted my children to have the same lifestyle as before my demise. DW had insurance as well for me as a widower, had she departed first, I would have needed funds to get everything done that she did.
2. I wanted DW to have the same lifestyle as before my demise. DW had a very good job, but my job was much better. For her to live on her earnings would have required a downgrade, and I felt that would have been an unacceptable outcome. So I insured appropriately for both reasons. It wasn't enough to just insure for the period of time the children would be in the house, I wanted it to last through her retirement.

DW left the labor force for 9-10 years to be a SAHM. She gave up a lot by doing so, and I thought she deserved to age in comfort, even if I was gone.

Now with all the children gone, we are at the point to where we could be OK as a single instead of a pair and be able to continue a comfortable retirement.

I still have a good bit of insurance on her, $200,000; mine is only $5,000-$10,000.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

megabad
Posts: 2382
Joined: Fri Jun 01, 2018 4:00 pm

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by megabad » Fri Aug 09, 2019 7:00 pm

Sophia1884 wrote:
Fri Aug 09, 2019 12:04 pm
I understand filling the gap after seeing what the liabilities are. For us, the liability is the loss of the main income, future savings, investments. As we have done well saving and investing, my questions specifically is: what do I do with those totals when calculating lost income? For example...if the income was lost, should I get enough LI to do a 50/50 split between having the gap covered 50% from taxable/Roth acts and 50% from LI or should I leave all the taxable/retirement acts alone until I'm older and fund the gap entirely from LI for 5-10 years, drawing it down as my income hopefully increases?

Does that make sense?
I personally agree with the other posters. By funding 50% from your investments and 50% from the insurance payout, you would, by definition, not be filling the gap in my view. If you don't view your investments/retirement savings as a relevant liability, than you could make the decision to not include this in your liabilities and shrink your policy accordingly. This is a personal decision. When it comes to term life insurance I am pretty risk averse since the cost is basically almost nothing. You can have millions in coverage for the cost of most people's cable bill as long as you are young and healthy.

Traveler
Posts: 795
Joined: Fri Aug 30, 2013 9:07 pm

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by Traveler » Fri Aug 09, 2019 8:50 pm

As or more important than life insurance is long term disability insurance

cbeck
Posts: 267
Joined: Sun Jun 24, 2012 1:28 am

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by cbeck » Sat Aug 10, 2019 7:57 pm

The best tool that I have found for estimating how much life insurance, and which is not just a sales tool, is Esplanner from esplanner.com. It takes into account all the variables you have mentioned plus a lot more and makes a series of recommendation, including how much insurance you need.

User avatar
Stinky
Posts: 1744
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by Stinky » Sat Aug 10, 2019 8:25 pm

Dottie57 wrote:
Fri Aug 09, 2019 5:29 pm
I would do LI for the full amount until near retirement. You are trying to fund the ability to sustain a given lifestyle even if you are gone. Retirement accounts are for retirement,

Of course as debt is paid off and kids leave home (and educated) the amount can go down.
I agree with this.

This is the approach that we used before my retirement. No need for life insurance now in retirement; investments have kicked in.
It's a GREAT day to be alive - Travis Tritt

Olemiss540
Posts: 1071
Joined: Fri Aug 18, 2017 8:46 pm

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by Olemiss540 » Sun Aug 11, 2019 7:27 am

With base expenses around 80k/yr, I bought a 1.5million term life insurance taking current assets into account to cover for existing expenses in the medium term. Given the risk of death to increase towards the later part of the term, and knowing our assets will grow substantially in the medium term I didnt feel the need to cover my full SALARY day 1.

I think as long as there is a multimillion dollar buffer, my spouse and family will be covered in any normal scenario. I didnt get any insurance to cover the lower earning spouse as I found the need to be minimal and the financial adjustment to be nothing compared to the psychological adjustment necessary if that worst case scenario would occur.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

MathIsMyWayr
Posts: 807
Joined: Mon Mar 27, 2017 10:47 pm
Location: CA

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by MathIsMyWayr » Sun Aug 11, 2019 8:59 am

The basic principle of insurance is to cover a loss or liability in the future. In the case of a life insurance, it will be the discounted current value of a lifetime income stream to maintain the current or expected life style. In the case of life style, besides the living costs, savings and the economic value of the benefits such as health insurance provided by employer should be included. For a non-wage earner, income should be replaced with the replacement cost. For example, how much will it cost to perform the household work of a SAHM/H? Ideally, the amount of insurance should decrease gradually over time, but I am not aware of such insurance products.

Topic Author
Sophia1884
Posts: 179
Joined: Mon Aug 05, 2013 10:23 pm

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by Sophia1884 » Mon Aug 12, 2019 10:49 am

Thank you so much for all the comments, I'll read through them and implement accordingly. It's great to get advice on this piece of the planning! I have one last question to clarify and then hopefully we'll be all set for the next 10 yrs with no need to use the plan :)

Topic Author
Sophia1884
Posts: 179
Joined: Mon Aug 05, 2013 10:23 pm

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by Sophia1884 » Mon Aug 12, 2019 11:02 am

Traveler wrote:
Fri Aug 09, 2019 8:50 pm
As or more important than life insurance is long term disability insurance
Thank you for the reminder, that's up next.
cbeck wrote:
Sat Aug 10, 2019 7:57 pm
The best tool that I have found for estimating how much life insurance, and which is not just a sales tool, is Esplanner from esplanner.com. It takes into account all the variables you have mentioned plus a lot more and makes a series of recommendation, including how much insurance you need.
This is the part I've been challenged with the most..."the number" and how to break it up into different term polices. I haven't seen this site yet, thank you!

cbeck
Posts: 267
Joined: Sun Jun 24, 2012 1:28 am

Re: How does taxable, savings and retirement calculate into life insurance planning?

Post by cbeck » Mon Aug 12, 2019 6:52 pm

Sophia1884 wrote:
Mon Aug 12, 2019 11:02 am
Traveler wrote:
Fri Aug 09, 2019 8:50 pm
As or more important than life insurance is long term disability insurance
Thank you for the reminder, that's up next.
cbeck wrote:
Sat Aug 10, 2019 7:57 pm
The best tool that I have found for estimating how much life insurance, and which is not just a sales tool, is Esplanner from esplanner.com. It takes into account all the variables you have mentioned plus a lot more and makes a series of recommendation, including how much insurance you need.
This is the part I've been challenged with the most..."the number" and how to break it up into different term polices. I haven't seen this site yet, thank you!
Esplanner has a learning curve. Feel free to PM me with questions.

Post Reply