Barbara, your first question is best answered by an estate planning attorney who looks at the picture of the investor in question. In general the CLT pays an annuity to the charitable beneficiary and the remainder to the non-charitable beneficiary and the CRUT pays a fixed percentage of the fair market value of the trust assets to noncharitable beneficiaries.
seb, it depends on what purpose the life insurance is serving. Is it to meant to take care of the needs of your spouse once you pass? Is it meant to pay estate taxes owed at your death?
SEB - I agree with you that one of the many things that is abhorrent about using insurance and annuities as investments in retirement is... that they make your investment more risky than is appropriate! Think about the costs involved in adding an insurance wrapper over an investment portfolio, and often times you have costs of 1-2% more that you have to overcome. How do you overcome costs? By putting your retirement at risk! If you don't have a need for insurance, I would look at ways of getting that money out of the product and into a portfolio where you don't have to overcome high costs with volatile investments.
Seb, life insurance may be an excellent part of your financial planning. It is not an 'investment' - we know this because investments are registered with the SEC. What was the original purpose of the UVL? That's important in case your needs have changed. If it was sold to you as an 'investment' is isn't, it's insurance.
seb - a lot of people find that they don't need life insurance in retirement. I'm not going to tell you to cancel it because I don't know enough about you but I do think you could really benefit from sitting down with a professional financial advisor who does not sell insurance or anything else. Personally, I think there are better products for investment than life insurance or UVL or VA's.
pm, that's a good question. It depends on what your risk tolerance is and what your investment policy statement says. What did you discuss when your portfolio was developed?
PM - there is no average. Income is based on prevailing interest rates, inflation expectations, expectations from growth, etc. In periods of rising rates a diverse mix of stocks and bonds performed the same as during periods of declining rates... however... that return came more from stocks during the periods of rising rates! So, if you're counting on bonds and other income generators, the answer is... are we in a time of rising rates, and what is your allocation?
PM - I did a quick calculation that at 5% you could draw about $8,000 for thirty years. But, it's a lot more complicated than that. If you invested that $1.5 M and you lost money in the early years, the number changes for the worse. If you had big gains, it gets better. You have $1.5 M. Do yourself a big favor by engaging in some professional help with a fee only advisor who can gauge the risks and opportunities and fold them into a holistic financial plan. See the previous posts from my colleagues.
Seb, it sounds like it may have been purchased as an estate planning tool and you are correct, life insurance is received by heirs tax free.
Nancy, risk is a funny thing and individual every time. What did an in depth risk profile (risk tolerance, risk capacity and risk required) reveal? Haven't done one? I highly recommend it to understand monte carlo analysis and the potential outcomes to understand what your real comfort level is.
Nancy, I agree with you that you should tie your investments to your time horizon. If you don't have a need for investments, you should have them structured for growth. However, I don't agree that junk bonds pay for the risk that you take. You may do better IMHO by owning a diverse mix of equities for any money that is meant for 10+ years out, and keeping the rest in safer, though diverse bonds. Keep in mind though if you don't spend your money someone else will... and if it's the plan to leave money to others, then, yes, you can be riskier with it if you have enough set-up safely for yourself.
seb - you're correct that your beneficiary receives the death benefits tax free, but are you still paying premiums? If so, it may not be the best use of your $$. I'd recommend having your current policy reviewed by an independent agent. You may be able to do a 1035 exchange (if you are still insurable) into another policy or may be able to stop paying premiums, etc. Look at all of your options with the current policy.
Hi Nancy - Being aggressive is one thing but I think you may be crossing the line. When you reach age 70 1/2 you will need to start taking Required distributions. You don't want to find yourself in a situation where your investments are getting clobbered and you have to sell them to take a distribution. I would stick with a traditional balanced portfolio for my IRA's and maybe have some fun with the taxable account when I turn 70. That said, we all have different comfort levels and yours may be a lot higher than mine. If you want to invest in the securities that you mention, siphon off an amount that you don't mind losing and go for it while sticking with more traditional investments for your core monies.
Frank- another option to consider is that if your wife has longevity in her family, it might make sense to delay claiming her benefit and letting it grow instead of starting at age 62. I know you mentioned starting at 62 and investing the benefit, so it sounds like you don't need the $ to live on. Consider having your wife wait until full retirement age and collecting a larger monthly benefit.
Hi Frank - My name is Frank too! The way I see this is that your wife's benefit at her full retirement age is going to $1,050. She will receive a benefit based on her work record and if that is less than half of your benefit, it will be elevated to come to 50% of your benefit. If you leave her a widow, she would collect your full benefit. This all assumes that she files at age 66. if she files early, she will get a 25% reduction in her benefit and it lasts forever. I would encourage you to hold off on her filing until she reaches the full retirement age.
Julie, I'm not opposed to your thoughts, provided you've done your homework on what you'll be paying in the future. I do find many with pensions will be paying 25% going forward. That's assuming rates don't change, or deductions and credits decrease. So, as long as you know what you're paying, I think it may be OK if you've checked, but I would certainly check your plan with your tax or financial advisor.
Julia - look at your tax bracket now and what you think it will be when you need to take your RMD's. If it is lower now, conversions may make sense. Convert enough to fill up the 28% bracket. Understand that this could backfire if tax rates change. Not all of your Social Security is taxed and a lot of states don't tax it at all. My advice is to have a professional run some numbers for you to see if it makes sense.
Julie - you are smart to be thinking about income taxes in relation to RMDs and social security. It is good planning to "fill up" the tax bracket as much as you can without lopping over into the next higher bracket. Your CPA can run scenarios for you and give you an estimate of how much he/she thinks you can convert each year (provided tax brackets don't change).
Julie, I'm also very cautious about the 28% bracket because that's where deductions and credits are often phased out. I read your post as doing up to the top of the 25% bracket, not the top of the 28% bracket. Either may require running projections though to know if it's worthwhile.
The Doc, your question reveals the challenge "Is it a good time?" - timing is ill-advised from my perspective, period.
The Doc, it depends on what your portfolio needs to keep it in balance. What does your asset allocation need, more bonds or more equities and you can answer your own question.
The Doc - addendum to my answer - I love dividend paying stocks and dividend stock funds because they can add 40-42% as a share of the total return.
The Doc - pick you poison. I don't think this is a great time to buy bonds but I think bonds are useful in almost everybody's situation. Like Bonnie, I don't think market timing is smart. Look at your overall allocation. If you are too light on bonds, consider shorter term bond ETF's. They are less volatile than intermediate or long term bond ETF's.
BC - 4% is very high risk for today, but then again, why would you want to get 4% over 20 years if inflation is 6-10%, or higher like it was in the 1980's? I think you are looking at a lot of risk in terms of loss of principal, inflation, etc. I would never go so long with a bond, every statistic is against the outcome being favorable to you that I've ever come across, and I certainly would not do it in a municipal bond. Not in today's climate of unfunded government obligations, not a chance.
BC - I believe that we are not supposed to make specific recommendations and I wouldn't anyway but what you need to do is research the muni funds that are out there and pick one that is well diversified and well managed. I'm not excited about 20 year durations in this interest environment. I suggest you stick with something more intermediate. There are some good no load funds out there. Morningstar is a good source for filtering such funds.
Ken- the easiest way is to purchase funds with different durations - i.e. short duration, intermediate-term. As Frank recommended in a previous question, Morningstar is a good source for research.
Hi Ken, by definition, a ladder is individual bonds stacked by maturities.
Hi Jerry, after 30 years, they stop earning interest - for what purpose are you holding them? Has that purpose changed?
Jerry- you can look up their value online, but given their age I suspect most have matured and are no longer earning interest. Cash those in!
Barbara, your first question is best answered by an estate planning attorney who looks at the picture of the investor in question. In general the CLT pays an annuity to the charitable beneficiary and the remainder to the non-charitable beneficiary and the CRUT pays a fixed percentage of the fair market value of the trust assets to noncharitable beneficiaries.
SEB - I agree with you that one of the many things that is abhorrent about using insurance and annuities as investments in retirement is... that they make your investment more risky than is appropriate! Think about the costs involved in adding an insurance wrapper over an investment portfolio, and often times you have costs of 1-2% more that you have to overcome. How do you overcome costs? By putting your retirement at risk! If you don't have a need for insurance, I would look at ways of getting that money out of the product and into a portfolio where you don't have to overcome high costs with volatile investments.
seb - a lot of people find that they don't need life insurance in retirement. I'm not going to tell you to cancel it because I don't know enough about you but I do think you could really benefit from sitting down with a professional financial advisor who does not sell insurance or anything else. Personally, I think there are better products for investment than life insurance or UVL or VA's.
On Social Security survivor benefits:
