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PSprig posted..

"My husband is 51 and he is going to retire in 1 year. He will receive a generous monthly income from his sheet metal workers pension. Should we take a $400.00 reduced monthly pension in order to have 50% survivor benefit or buy a $500,000 20 year term life insurance policy.This is approx. $1,100 or 1,200 anually. "

There are as many ways to look at these two alternatives as there are people.

I have ran some very basic numbers that may help.

I have assumed that you do not take the $400/mo cut and invest it in the life insurance policy and stocks so that at the end of 20 years if hubby is still kicking that you can let the life insurance policy lapse because your investments equal $500,000.

This mean that you get $4,800 more per year and with 20% tax (State and Fed) this leaves $3,840 and after $1,100 for term insurance, you can invest $2,740 yearly and if there were no taxes on the gains, you would need a yearly return for 20 years of 19.8%. This is very, very unlikely.

If you used an agressive but realistic return of 12% over 20 year (no taxes on gains), you might have $197,423.69. If you were lucky and got 15% return over the 20 years (also very unlikely but still possible.) You might end up with $280,695.42.

You do not mention what half of the pension would be but if hubby were to die with a $500,000 policy, you should be able to take a 5% withdrawal safely so that $500,000 would generate about $25,000 yearly which should be adjustable for inflation.

Notice that in this scenario, you do not get to spend any of the additional $400 for 20 years.
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