Leaving A Legacy Case Study
One of the biggest questions that we hear from clients is “How can I leave something for my family without having to sacrifice my savings that I need to pay expenses during my retirement years?”
This question can be answered in a multitude of ways, but let’s look at one very simple example outlined below:
Mrs. Jones has just retired at age 65 and has income coming in from social security and from her retirement plan.
At the moment, this amount currently covers all of her expenses and she has money left over each month that she puts into savings.
In addition, Mrs. Jones currently has $45,000 in her savings account.
Mrs. Jones wants to leave her daughter the house which is paid off, but also some additional money as a cash inheritance.
In her mind she is hoping that she does not need to use any of the $45,000 and can leave the full amount to her daughter.
Will Mrs. Jones be able to do this?
Maybe ‘yes’…maybe ‘no’. It would be great if we could all see the future, but the best we can do is properly plan.
A very simple plan that could be used is moving only $20,000 out of her savings account and depositing that into a single premium whole life plan that will allow her to leave a guaranteed inheritance to her daughter in the amount of $37,100 income tax free.
By using a single premium whole life plan, Mrs. Jones does not have to worry about paying monthly premiums since the plan will be completely paid up.
This means that Mrs. Jones will still have access to the remaining $25,000 in her savings account that she can use if needed.
If Mrs. Jones uses all but $7,900 of the remaining $25,000 then she will still be leaving her daughter a total of $45,000 between the life insurance and the remaining $7,900 in her savings account.
If she ends up not needing any of the money from her savings account she will have increased the amount she leaves to her daughter from $45,000 to $62,100.
All Mrs. Jones has done is LEVERAGE her existing money to make it work harder for her.
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Financial Adjustment Period
In retirement the majority of married couples count on two Social Security checks to cover a large portion of their monthly bills.
What many couples don’t think about is the financial adjustment period that comes after one spouse has passed away.
Often we hear on TV or the radio advertisements for final expense insurance which most simply understand as life insurance that pays for the funeral.
While many retirees have adequate life insurance to pay for their funeral, they often times overlook the adjustment period that the surviving spouse will go thru with a loss of monthly income that will take place.
To make this easier to understand, let’s take a look at a married couple who are in their late 60s.
Financial Adjustment Case Study
For the example we are going to say that the husband has a monthly social security check of $1,700 and his wife gets $1,200 from social security as well.
This means that this couple is accustomed to receiving just under $3,000 per month from social security each month to help cover their living expenses.
Since men typically have an average life span that is shorter than women, we are going to say that in this example the husband passes away first.
This means that his wife will receive a survivor benefit that is the greater of the two.
In this case, the husband has the greater of the two monthly social security checks, so she will start receiving his $1,700 per month, but she will now also lose the $1,200 benefit she was receiving each month prior to his death.
In total, the surviving spouse is going to lose 41% of the total social security benefits that were coming in just before her husband passed away.
Another way to think about that number is to relate back to when you were working full time and ask yourself if you went into work one day and found out that you were immediately going to lose 41% of what you were earning each month, how would that affect you?
For the majority of us, it would be financially devastating.
This is what many of today’s retirees face without proper planning. For the men who are reading this right now, the same scenario would apply to you if in the example the wife had passed away first.
The husband would keep his $1,700 per month benefit, but would lose his wife’s $1,200 per month benefit.
With proper planning we can help couples provide a financial adjustment period that can be as short as a few months to the rest of the surviving spouse’s life.
See the infographic below…