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No. of Recommendations: 2
OK, so I don't really have a financial adviser. However, our company just started offering 401Ks, and along with it we got a bunch of investment recommendations from the same company. Not sure which parts they get commission for. I went with most of his advice (401K allocation for example) but not sure about life insurance. He made it sound like the perfect strategy, but most everyone says life insurance is a bad idea. I did go through the health assessment - mostly because it's a free check-up, and I got the highest rating. But before I make a big mistake, I was wondering if I could get some overall input on my current and potential future investments.

About me: Single, 40-ish, no kids, renting and not planning on buying any real estate (personal choice), 100% debt-free, I live in a large metropolitan/expensive area and make $70,000-ish/year, I should inherit a nice house that I have to split with one sibling, and probably some other financial assets of unknown proportions.

Here is how the financial adviser summarized my situation, any input is greatly appreciated!

Our firm acts as the fiduciary advisory group on your company's 401k plan. We monitor the portfolio (add/change funds) as well as provide recommendations based on a participants risk tolerance. When we first met and completed your risk tolerance, you were a growth orientated investor followed by the completion of your 401k enrollment which you are contributing 5% (with a 4% employer match) of your salary. The growth allocation provides diversification at approximately 70% equities both domestic and international with 30% in fixed income/conservative investments.

Your 401k has earned 1.5% which may seem low at first glance but if compared to the Dow Jones Index of -.85% from the last full month March-April your account is performing terrifically. Moreover your account grew more than 2% over the Dow Index which many individuals refer to as the "US Market.” We also diversified your rollover IRA into similar allocations as before it was sitting in a single mutual fund whereas this allocation aims to give you a better chance to capture growth while minimizing your risk. You still have your stock portfolio account which we wanted to keep separate as this will be more of an aggressive investment account as well as a side “fun” account.

When we met you mentioned with your current situation you didn’t need a specific amount of life insurance to cover items such as mortgage, child's college tuition, household income/expenses but wanted a benefit for your beneficiaries at the least to cover funeral/administrative expenses. Since you were mostly interested in planning for retirement I recommended an insurance policy that will provide your beneficiaries a 100k death benefit but would also allow you to take the money that the policy earns for retirement income. The policy is a Annual Indexed credited Universal Insurance policy that builds cash value, which you have access to just like regular income in retirement. Meaning that every year the index (such as the S&P 500) is positive your cash value will be credited with that growth, but your cash value does not lose value in years where the index is negative. In the example I showed you, using actual real returns for the S&P 500 for the last 30 years if you saved $100/mo you would have a 100k death benefit and at age 70 you would be able to draw $15,500 worth of income per year. This way you are completing both needs, you have a death benefit for your family and you are planning for your personal retirement. And the Income is tax free, which could be similar to a $30,000 pension income stream if taxes go up to an expected 50% tax rate.

The carrier is North American Life and Health Insurance a AA rated company. We choose them because all of their policies are 100% convertible meaning we can change your policy at anytime, they offer over loan protection and a protected death benefit. With the convertibility, if in ten years you want to have an increased death benefit to cover a mortgage etc. we can use your same excellent health rating and change the policy using the initial rating. North American Life and Health Insurance is online and feel free to look them up, unfortunately there is not a website where you can go to look at your exact policy because we have not put it in force yet but I would be more than happy to provide you this same printed illustration that the carrier issued. I do think it would be very beneficial to go over it together to fully understand but if we are not able to connect I also have a book that goes over the strategy that I can mail/lend to you which is a short read (100pgs) and details the strategy if you prefer.
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No. of Recommendations: 47
Here's one person's knee-jerk reaction...

That is a sleazy proposal. A few reasons why this is not good:

1) He talks about a 1-month performance. Really? If he is trying to educate you, he should be emphasizing long term returns and ignoring the short term noise. If the 1-month performance did not look OK, you can be sure he would have picked a different timeframe that looked better.
2) He uses the Dow Jones Index as his benchmark. This is NOT a great proxy for the US total stock market in modern times; it only contains 30 stocks. A better proxy would be the S&P 500, and even better than that would be one of the total market indices which are readily available today. He surely knows this. He picked the Dow because it underperformed the S&P during the timeframe in question, so it makes his results look better.
3) Universal life? I am no expert on these ridiculously complex products, but then few people are. Therein lies the rub: the endless small print and the many ways in which your fees and contributions will benefit the life insurance company (and him, the salesman who gets a commission) rather than you. If you want life insurance to cover your final costs, get a small level term life policy which will be dirt cheap. Invest any extra you would have spent on universal life into broad market index funds and you will likely do MUCH better over time.
4) Predicted 50% tax rate? When? On what? Scare tactics so you will fear future taxes and favor his universal life proposal.
5) Funniest part: he has a SHORT BOOK detailing the universal life policy - only 100 pages!!! Hilarious. 100 pages of legalese BS designed to protect the insurance company, separate you from your money, and dress everything up to appear as if it's in your favor.

About the only reasonable thing he mentioned was a 70%/30% division between stocks and fixed income. I am 40 and fairly aggressive and I use an 80/20 allocation. But this needs to be tailored to risk tolerance, and 70/30 is reasonable.

You can do this yourself. It's easy. Buy low cost index funds across a few diversified market areas to achieve your desired asset allocation and STAY THE COURSE through market gyrations. Keep contributing as much as you can. You will be in good shape.

-progmtl.
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No. of Recommendations: 7
You don't need life insurance.

...Annual Indexed credited Universal Insurance ...
Did he hold his nose and wave away the stink when he proposed this? Did he even have the courtesy to act embarrassed that he was trying to sell you a P.O.S.?

An IUL is just about the worst "investment" you can make. If you truly need life insurance, then just buy a LIFE insurance policy. Term.

a book that goes over the strategy that I can mail/lend to you which is a short read (100pgs) and details the strategy
I guarantee that that "short" book will be full of dazzling and complicated charts and graphs --- but won't say one little thing about how they rob you blind.

"We choose them because all of their policies" ... pay us a high commission. But I bet he didn't verbalise that last bit.

provides diversification at approximately 70% equities both domestic and international with 30% in fixed income/conservative investments.

At 40, you don't need any fixed income stuff. You should be 100% equities -- diversified, of course.
In a 401k, yuor best choice is usually index funds. Whole market if they offer that, S&P500 index fund otherwise.
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No. of Recommendations: 1
valeraxy:   "When we met you mentioned with your current situation you didn’t need a specific amount of life insurance to cover items such as mortgage, child's college tuition, household income/expenses but wanted a benefit for your beneficiaries at the least to cover funeral/administrative expenses."

If that is the only reason you want life insurance, then a small, permanent policy may make sense instead of term.  

Term could still make sense if by the end of the term you feel confident that you will have assets at least in the amount of policy amount you were intending to carry. 

Also, do not ignore inflation; given that you are 40ish.  You could easily live another 40+ years; even low 2% inflation would chop the value of the policy amount by more than 50% in 40+ years.  And higher inflation rates would devalue the face amount even more.

I will address the Annual Indexed credited Universal Insurance policy suggestion is a subsequent post.

Regards, JAFO
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No. of Recommendations: 2
In my view Life insurance for you is a waste of money. Put the same dollars in Life insurance or in the S&P500 for any 30 year period and compare the results.

Many people need life insurance - I had it for at one time -- I am not one of those Wing Nuts who thinks there is no value or use for the product.
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No. of Recommendations: 2
valeraxy: "The policy is a Annual Indexed credited Universal Insurance policy that builds cash value, which you have access to just like regular income in retirement."

There is far too little information of anyone to give you any appropriate advice that you can be sure would fit YOUR personal situation.

For example:

What about a Roth IRA or other tax benefitted retirement accounts? You do not appear to be maximzing 401k deposits, and in a few years the catch-up provisions will also allow you to funder it even more.
How long do you want to have life insurance?
What is your [and your spouse's] health history like?
How important is additional tax deferred growth to you?
Where are all your other assets?
Are you prepared to highly over fund such a policy and able to stay committed to following through with it?
[What are you plans for your kids college education?]
Do you have an adequate Emergency Fund in place?
What is your risk tolerance?
What is your asset allocation model like?
When do you plan to retire?
Just how are you going to use your retirement assets during retirement?
What are your plans for passing on any estate to your heirs?
What are the chances you're be receiving an inheritance and if so, about how big might that be?
What are your future carrier and income prospects like?
Do you receive bonuses? If so, in what form?
Are you aware of the caveats of using such a policy for “a tax-protected means of wealth accumulation”? (the main one being that the policy MUST stay in force your entire lifetime)

Well, I think you get the idea. If your “financial advisor” hasn't covered these and more issues with you [AND your spouse], then it's probable that the recommendation towards “a tax-protected means of wealth accumulation” may not be a good fit for you're comprehensive financial plan.

Most of my notes were assembled when VULs were the rage, but most of the issues remain similar for Indexed Universal Life policies.

See post 16123 Insurance for a composite summary:

http://boards.fool.com/Message.asp?mid=26289304&bid=1001...

I will also note that Indexed Universal Life policies retain the dividends and usually contain caps (which I see no mention of) that can really constrain the benefits you obtain from S&P 500 growth, that I find your advisor's description of retirement income both lacking and misleading.

It is not all clear to me that you are a good candidate for an Indexed Universal Life policy.

IIRC, Ray has addressed this issue previously and elsewhere on TMF.

Regards, JAFO
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No. of Recommendations: 0
I'm confused. You don't have an adviser, but:

"We also diversified your rollover IRA into similar allocations as before it was sitting in a single mutual fund whereas this allocation aims to give you a better chance to capture growth while minimizing your risk."

"You still have your stock portfolio account which we wanted to keep separate as this will be more of an aggressive investment account as well as a side “fun” account."

Hmm...

b
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Thanks everyone, this is pretty much exactly what I needed to hear. I'm clearly not very well-versed when it comes to investing, but always suspicious and especially the life insurance sounded fishy. Thanks for confirming this!

Just a few notes - the reason why he used only 1 month for returns is because we just started this, so there isn't any longer time period available yet.

And we did re-adjust my IRA although he confirmed that he is not making any commission off that - I don't think he would lie about that. I need to find out where I can get a list of all my allocations (bunch of new accounts/logins/etc., feeling a bit overwhelmed, but will get to it today).

My stocks he looked at and had some sort of opinion but I didn't care because that's just for me to mess around with and not really part of retirement, investing, a strategy that absolutely has to pan out etc.

I didn't consider him "my financial adviser" since this is more or less a one-time deal that happened because we just all got a 401K.
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No. of Recommendations: 1
Unless the 401K is at Vanguard the adviser is being paid percentage of assets inside the 401K. Your employer could be picking up all the costs but that's not likely.

He may not be making "commissions" from the rollover IRA but I guessing he's getting a 12B-1 fee. Google "C" shares.

b
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No. of Recommendations: 9
One of the things I didn't see addressed was disability insurance. As a "single, 40-ish, no kids, renting and not planning on buying any real estate (personal choice), 100% debt-free" person your most pressing need for insurance (IMHO) is protecting against loss of income due to having an accident/getting a disabling disease or some other event that would prevent you from working before you have the means to retire. You may be covered by some policy at work but may have to evaluate if that would be enough for your needs and how else to supplement that coverage.

- zol
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The disability insurance is actually something I had thought about some time ago but somehow never followed through.
We do have term life insurance through work, although I'm not sure if that would kick in at all if I just got injured.
And probably useless if anything happens to me unrelated to work. I'll definitely look into this, thanks for bringing this up!

I am also investigating the IRA details, thanks! You guys/gals are all a wealth of knowledge.
I thought I covered my bases when I asked about commission.

Thanks everyone for helping me sort through this!
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No. of Recommendations: 3
I'm not quite the hater on the Universal Life that some of the others are here. Granted, I'm married with two kids, so my situation is much different that yours. If I was in your shoes and just needed some insurance for admin and burial expenses, then $100k sounds like too much. That being said, I keep my Universal policy, which is tied to the returns of the S&P, as my "conservative" investment while simultaneously providing some of my total life insurance. I over-fund it in order to build up a larger cash position faster. I'll have access these funds tax free upon retirement and can "borrow" against it before then. I go into it with open eyes that a few dollars of my monthly premium are commission and that there is a cap of 11.75%. Also, I also get a multiplier (1.4) which magnifies the return of the S&P up to the cap limit. Ask your "adviser" for multiple projections of return at the $25k, $50k, and $75k levels. He/she should be able to provide you with a year by year projection of investment growth once you tell him how much you want to over fund the policy. Make sure the rate quoted on the projections is not over 7%.

For the record I have a much cheaper term policy that makes up the bulk of my life insurance to protect my family in case of my untimely demise. And, I keep a separate stock portfolio where I intend to get my largest returns for the remainder of my working years (I'm 40).

Good Luck!!!

Victor
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No. of Recommendations: 2
I just wanted to reiterate what zol mentioned up-thread.

The primary insurance I would look at would be disability coverage - most group plans, while a good start, do not adequately cover.

I actually sell insurance (life, disability, LTC) for a living, and I handle securities as well. I'm affiliated with the broker-dealer at a large mutual life insurer - so I have to state I am NOT soliciting in any way!

Most here at the fool will lean towards the "invest everything on your own" philosophy - and for someone with the desire to do so, that's fine....and the fact that you ended up here in the first place likely means you are far more likely than the average person to fall into that category.

But there is a difference between "investing" and "planning your financial future". The latter can realistically include everything - in addition to your investments, it can include your savings, real estate, whole/universal/variable life insurance, disability insurance, long-term-care insurance, annuities (fixed, variable, income), trusts, debt structure, etc.... Everything you do in each of these areas can affect other areas, in many cases multiple other areas.

I personally would lean more towards a guaranteed paid-up participating whole life policy than an indexed universal life - you get better guarantees (generally) and can have a policy guaranteed to never need additional premiums to keep it in force. Of course, the downside is that you give up some of the upside potential. I am definitely biased against indexed universal life policies - not because they don't have a place, but because of how they are marketed, and they are unproven. But I don't want to start anything and hijack this thread, if anyone is interested in discussing in more detail let me know :)

If you have group term through work, and no need for a large death benefit, but just want something permanent for down the road, then additional term insurance right now probably isn't worth it.

One other note - someone up-thread said you ought to be 100% in equities. I would absolutely disagree with that, I don't believe anyone ought be 100% in equities. Any analysis of long-term returns (including on fool.com) has shown that spreading out investments between multiple asset classes, with regular rebalancing, will deliver results superior to an all-equities portfolio with less downside.

That being said, being 100% equities in ONE account is not necessarily wrong - it's important to look at ALL assets/investments across all accounts.

This got a little longer than intended. The overall point, I believe, is that you ought to be wary of any advice that tries to make something absolute either/or, 100% - most of the time, there is a lot more to it, and doing some of both might make sense.

Dan
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No. of Recommendations: 9
dansblum writes,

One other note - someone up-thread said you ought to be 100% in equities. I would absolutely disagree with that, I don't believe anyone ought be 100% in equities.

Even someone with 100% of their retirement portfolio in equities still has substantial fixed income investments. The average Social Security check of $1,300 month would cost $312,000 in the form of an inflation-adjusted life annuity purchased from a private insurer. Someone who paid maximum FICA for 35 years would get a monthly benefit of $2,400 at age 65 worth about $575,000. That's plenty of fixed income exposure for anybody.

intercst
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No. of Recommendations: 1
In terms of income, potentially. But in real life things happen, and having all long term investments in equities is great until the unexpected happens, and $$ is needed in a lump sum. Being spread across asset classes means there will always be something available if needed, without having to sell temporarily out-of-favor investments at an in opportune time.

Dan
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No. of Recommendations: 9
Even someone with 100% of their retirement portfolio in equities still has substantial fixed income investments. The average Social Security check of $1,300 month would cost $312,000 in the form of an inflation-adjusted life annuity purchased from a private insurer. Someone who paid maximum FICA for 35 years would get a monthly benefit of $2,400 at age 65 worth about $575,000. That's plenty of fixed income exposure for anybody.

I finally figured this out last year. I was dutifully keeping 30%-40% in bonds, but when I looked at the whole picture, I realized that with Social Security, my small pension, and my rental house, I could increase the equity side. It's paying off pretty nicely at the moment.
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I understand interest's rationale, and I do a ratio of our holdings using that rationale as well as the more standard stock/bond ratio, yet I think a function of bonds in a portfolio is to lower the volatility of its value. Of course, on the upside that means giving away growth, but on the downside it means reducing loss. My observation has been that losses are usually recovered within a few years, nevertheless I hedge my bet with about 40% in bonds. If you rely on your portfolio for income, I think stabilizing its valuation is desirable. BTW, we don't rely on our portfolio for income, except to take RMDs. Maybe I should revisit the thinking behind that 40%.

db
In 23rd year of retirement at 78
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I think a function of bonds in a portfolio is to lower the volatility

Not "a function". "The" function. For most people, anyway.

If you rely on your portfolio for income, I think stabilizing its valuation is desirable.
Yes.
Of course, in the current interest rate environment this may not be a given. There's a large possibility that bonds will have a long period of losses when the Fed & Euro version of the Fed takes their thumb from the scale and rates rise up.
If that happens, then bonds will get crushed.

BTW, we don't rely on our portfolio for income,

In which case, why have much or anything in bonds at all? If you can stomach the volatility of stocks why accept the lower returns of bonds?
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I think there is a great deal of wisdom in having a traditionally balanced portfolio in the range of 60/40. But one point many people fail to consider is social security. That can be viewed as an annuity stream from fixed income. Today the 30 year bond is paying about 3.4%. So if a person has a social security payment of $1,000 a month, that can be view as having bonds equivalent to $353,000 -- (12,000 divided by 0.034) For most people the idea of adding $350K makes a significant change in a portfolio allocation.
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This is pretty standard sales fare. This is no more "advice" than used car sales is transportation consultation. The only ones who quote the "DOW" are the media and those trying to sell you something. Bottom line, you don't want anything from this person.

BruceM
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No. of Recommendations: 2
GWPotter
In my view Life insurance for you is a waste of money. Put the same dollars in Life insurance or in the S&P500 for any 30 year period and compare the results.

Many people need life insurance - I had it for at one time -- I am not one of those Wing Nuts who thinks there is no value or use for the product.


I cancelled my term life policy on Jan 1 of this year. My last kid is a Sophomore in college and the rest is paid for. We handily surpassed the 1 million mark in 2013 in our investments and DW could live debt free on everything if something happened to me.

My insurance agent called me to ask why I cancelled. He was baffled at my response that LI is no longer a product I need.

LI is a useful product, especially if you are young and have children. But single? Financially independent? Why bother!!

Even for funeral cost. I have enough money in my checking account to bury me if something happens.

Metal
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LI is a useful product, especially if you are young and have children. But single? Financially independent? Why bother!!

It can be a tax advantageous way to pass an inheritance on to your kids if that is a goal. Having provided our kids an early inheritance with a fully paid college education, leaving them money after our death is not a goal for me. I agree with your POV, but it is an effort to get DH to see things the same way. Due to pre-existing conditions as a kid which would limit his ability to get life insurance later at decent rates, he's had whole life policies since he was a teen, and has built up a large cash balance. I've earmarked that for year one's expenses, and continue to assure him that the probability of our needing life insurance is about as probable as the insurance company we go with failing financially and not paying out. He does not shift gears easily though.

I typically don't buy insurance for things I can afford to deal with on my own, and have even self-insured for long term care by setting aside a bucket of assets to grow untouched in the event it is needed.

IP
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Having provided our kids an early inheritance with a fully paid college education, leaving them money after our death is not a goal for me. I agree with your POV, but it is an effort to get DH to see things the same way.

Similar situation here. I've been telling DH for years that we could cancel our term life insurance once the kids got out of college as we have the same philosophy you do, but he wanted to just wait until 2019 when the term ran out. When we visited our financial planner this year, the FP recommended that we cancel the term policy now because we don't need it anymore, and that's when DH finally agreed to it.

I just stopped paying on those policies, and so we can put that money to another use - like adding it to the retirement savings!

I typically don't buy insurance for things I can afford to deal with on my own, and have even self-insured for long term care by setting aside a bucket of assets to grow untouched in the event it is needed.

This is actually an area where we do have insurance, and it is my preference. I am concerned about leaving an impoverished spouse, and for the money we pay for the policies, I'd rather have the insurance than not.

I do recommend that people consider LTC, and then decide based on their own needs. For us, it seemed to make sense, and so we have it, but the life insurance no longer makes sense.

Every situation is different, and there is no one-size-fits-all.
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Similar situation here. I've been telling DH for years that we could cancel our term life insurance once the kids got out of college as we have the same philosophy you do, but he wanted to just wait until 2019 when the term ran out. When we visited our financial planner this year, the FP recommended that we cancel the term policy now because we don't need it anymore, and that's when DH finally agreed to it.

I just stopped paying on those policies, and so we can put that money to another use - like adding it to the retirement savings!


I have 20 year term life insurance. I'm going to keep paying until the term runs out like your DH wanted to do. There will only be a couple years required to do that. The cost barely registers in the budget, accounting for less than 0.2% of income. Adding it to retirement savings may buy a few nights at a vacation resort.

PSU
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We cancelled both our policies immediately after we retired.

The cost barely registered in the budget, but we couldn't think of a good reason why we wanted to give $100/mo to the insurance company.
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This is actually an area where we do have insurance, and it is my preference. I am concerned about leaving an impoverished spouse, and for the money we pay for the policies, I'd rather have the insurance than not.

I do recommend that people consider LTC, and then decide based on their own needs


I agree it is not a part of preparing for retirement that should be ignored, and I did consider it.

I am not a big fan of those policies that no one can really explain to me as to what would be covered and what wouldn't. There were so many ifs ands and buts to the verbiage that my eyes glazed over...this from someone who reads 30+ page real estate purchase and sale agreements word for word, so that's saying something. And then there is the experience I had with Dad, who up and cancelled his long term care policy in his early 80's, only after having paid in over $70K in premiums for him and Mom. He had the experience of using it briefly when he was recovering from surgery, and had a bitter taste in his mouth from the repeated battle that had to be done to get a few pennies sent his way. I pointed out the wisdom of continuing to pay the premiums at a time when he was much more likely to need it, given he had already paid dearly during healthier times, but too late...it was done. And Mom had passed by then, so perhaps he just didn't see the point.

I did talk to my FA about a type of policy that you pay upfront. For $50K each, we would have a multi-use policy that acted as a LT care insurance, life insurance giving back at least your original premium if not used as LTC, or the ability to cancel at any time and get back your original investment without interest. It seemed to me, however, that the potential for one of us to need LTC was much greater than both of us, and that this approach diluted our ability to pay in half, since each individual had to be insured separately.

I ran the original $100K investment at various reasonable rates of return and quickly became comfortable with simply isolating that $100K from our income stream, letting it accrue for future needs. While this approach does not help out if one of us gets a debilitating illness at a young age, something I don't credit as terribly likely, at a 7% rate if return by our early 70's it provided about the same amount of money to use that the other individual plans combined would have provided...and we could use this double value for either of us. And if we died, we kept the whole account to pass on...ditto if we decided to use it for something else.

So we are insured...it's just that we are our own insurers.

IP
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When my employer (Motorola) hald sessions on the LTC policies offered, the insurance company presenters got a lot of detailed questions that were different than they usually got --- sense we were a bunch of engineers and not typical office workers.

After working through a lot of numbers, it came out that the magic number was about $1 million. If you had that you'd be best off by self-insuring.

And you would get to $1M a lot quicker if you put the premium into your own account rather than give it to the ins co.

I don't recall what the premiums were at that time, but recall that when we added up the premiums for 20-30 years it came to a hefty number.
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After working through a lot of numbers, it came out that the magic number was about $1 million. If you had that you'd be best off by self-insuring.

How can there be one "magic number"? I would expect that number to vary significantly from person to person and couple to couple depending upon a lot of factors such as their health, life expectancy, total assets, amount needed to sustain their lifestyle through their expected lifetime, cost of living in their area, just to name a few.

We need more than $1 million to be able to sustain the lifestyle we plan to have in retirement for the number of years we expect to live in the area in which we currently live, and so that number most certainly doesn't work in our case.

We've had this discussion before on this board, and it seems to me that folks sometimes only look at what happens for one person, but to me, the thing I am insuring against is leaving an impoverished spouse. It costs us around $3600 per year to insure both DH and me for LTC. FIL spent about 2 years in a nursing home, and his estate owes Medicaid close to $200,000 to pay for that, so the numbers get large in a hurry, and seem beyond what I wish to self-insure.

My step-mother's first husband was in a nursing home for over 10 years because of Alzheimer's, and she ended up with nothing after paying for his expenses after he died, and that included having to sell the house to pay for his expenses.

I'd rather pay for the LTC insurance instead of having to save enough to pay for one of us to have adequate nursing home care and not leave the survivor impoverished.

Other folks will make different choices based on their own situations, but I don't expect there to be one solution for everyone.
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The cost barely registered in the budget, but we couldn't think of a good reason why we wanted to give $100/mo to the insurance company.

Well, I'm paying less than $400 per year. I guess I'll call it my wife's lottery ticket for the 2 to 3 years left to pay.

PSU
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We've had this discussion before on this board, and it seems to me that folks sometimes only look at what happens for one person, but to me, the thing I am insuring against is leaving an impoverished spouse. It costs us around $3600 per year to insure both DH and me for LTC. FIL spent about 2 years in a nursing home, and his estate owes Medicaid close to $200,000 to pay for that, so the numbers get large in a hurry, and seem beyond what I wish to self-insure.

You are right that each needs to look at it through their own filters. And if what you need to sleep at night is an official policy, then go for it. Though I could certainly be misinterpreting, I read a lot of fear of the unknown in your post. That is not irrational, given that we don't know what we will face after we give up our paycheck. Insurance salesmen love fear. Sadly for them my fear is that as I age I will become my own worst enemy and shoot myself in the foot by doing something like Dad and cancel my LTC policy after paying a small fortune.

Do you have lifetime caps on your insurance? Are rates locked in for life, is the company financially poised to handle the onslaught of Boomers? The policy we looked at was capped at $200K per person, and it only took about 10 years of earning 7% and letting it ride for our $100K investment to make $200K. That brings us to our mid to low 60's, still a time of very low risk for LTC. And we typically do much better than 7% after fees, so there is a good chance our self-insured funds will grow much faster. It is tempting to grab certainty in the face of the unknown. For me that certainty is that these insurers are not in the business of tilting things in our favor. That is up to me.

There are many ways to leave an impoverished spouse behind. For me, the best way to avoid it is to hold on to my own nest egg and retain the ability to use it for anything that absolutely needs it, rather than have multiple insurance policies for everything that could possibly go wrong.

My biggest fear is that I forgot to consider something. What we've put on the table so far, double checked by our FA, has us tripling our assets by the time we die rather than depleting it. We have good income streams besides our assets, and being very low maintenance people, are pretty happy spending little. The things we like to do best are free. So unless we figure out how to spend more, a challenge I look forward to in a few years when I am more confident we have all the necessary data in these spreadsheets, we should be more than OK. We definitely have room to self insure.

IP,
appreciating a good value and simply not much of a spender
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I guess I'll call it my wife's lottery ticket for the 2 to 3 years left to pay.

Heh. For a while there DH was actually talking about adding more insurance. I asked why he would want to tempt me like that. ;-)

We are so programmed to max out income and save, save, save. Probably comes from having parents that were Depression Babies.

IP
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We've had this discussion before on this board, and it seems to me that folks sometimes only look at what happens for one person, but to me, the thing I am insuring against is leaving an impoverished spouse.

Amen. It definitely looks different when you are the only one to worry about. It's even a bit easier if the one left is the one who managed the finances.
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2gifts analyzes,

It costs us around $3600 per year to insure both DH and me for LTC. FIL spent about 2 years in a nursing home, and his estate owes Medicaid close to $200,000 to pay for that,

</snip>


Then again, if you invest that $3600/yr at an 8% return over 30 years, you get $408,000. You could reimburse Medicaid with enough left over to buy a boat or an airplane.

intercst
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How can there be one "magic number"?
By considering alternatives.
* If you have only a little money, you need LTCI for protection.
* If you have a lot of money, you can easily pay for LTC out of pocket.

Some other considerations:
* All LTCI policies come with caps, both per-day and per-year(life?). Those caps seemed pretty low compared to the premium.
* Premimums are not fixed. Premiums can go up a lot, and you have no control over it.
* I read that "the average private nursing home room costs $87,000 a year" -- 1,000,000 / 87,000 = 11 years.
When my Mom went into an Alheimers unit it cost $5000/mo. $1,000,000 / ($5000 * 12) = 17 years.
And if your health is so poor that you need to go into a nursing home, you are unlikely to live 11 or 17 years.
* You can't afford to insure for every possible worst case -- the premiums would be unaffordable.

A figure around $1M or $2M seemed to be the crossover point.


We need more than $1 million to be able to sustain the lifestyle we plan to have in retirement for the number of years we expect to live in the area in which we currently live, and so that number most certainly doesn't work in our case.
You are mixing two different issues. Sustaining the lifestyle to which you are accustomed is a _preference_ issue.
If one of you has to go into LTC facility, that's _emergency_ mode. When you have an emergency situation, prefererences go out the window.

in a nursing home for over 10 years because of Alzheimer's, and she ended up with nothing after paying for his expenses after he died...
Would LTCI even cover this? Did they start with $1M?

I found this from a 2012 article:
"The American Association for Long-Term Care Insurance says people should expect to pay an average of $3,335 per year to cover a couple of healthy 60-year-olds on a plan that pays out a $150 daily benefit ($4500/mo) for up to three years."

That's the kind of math we engineers ran through.
$5000/mo for 36 mo = $180,000
Everything after the 3rd year has to come from your pocket, the insurance has paid everything it will.

So what you are insuring for is just $180,000. Why bother? If you have $1M, the total hit of $180K is minor.
It's only the first $180K that you have to worry about --- everything over $180K has to be paid for out of your own pocket anyway. I would submit that there is no substantive difference between $1,000,000 and $820,000 -- especially considering that the total premiums you paid are likely to be a large fraction of the $180K. You are not so much buying insurance as pre-paying for the LTC.

We were around 40 when they held these sessions. The premiums at 40 are a lot less than at 60, so say our premiums would have been $150/mo or $1800/yr.
40 to 65 is 25 years. If you save & invest that $150/mo and earn 9% for 25 years you'd have $169K.
But a LTC claim is more likely to be age 75 than 65, so after 35 years you'd have $445K.

After considering all that, this is why we decided to forego LTCI and focus on saving & investing to get to a $1M portfolio.
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Then again, if you invest that $3600/yr at an 8% return over 30 years, you get $408,000. You could reimburse Medicaid with enough left over to buy a boat or an airplane.

Well, that $200k I talked about was only for FIL, and only for 2 years. It was much more for step-mother's first husband who stayed in a nursing home for closer to 10 years. I guess my risk tolerance is such that I'd rather insure in this instance than self-insure, particularly since I do have a spouse and am not just planning for me.

We're all different, and have different planning criteria and risk tolerances. I'm not saying my choice is right for everyone, but it only needs to be right for me.

I thought it was worthwhile to toss my thoughts out there in case it helped someone else to make their own decision, whether to buy LTC or not.
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Rayvt writes,


That's the kind of math we engineers ran through.
$5000/mo for 36 mo = $180,000
Everything after the 3rd year has to come from your pocket, the insurance has paid everything it will.

</snip>


LTC is a tough sell if the customer is an engineer.

My brother is an insurance actuary -- he just laughs if you mention LTC.

intercst
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* If you have only a little money, you need LTCI for protection.
* If you have a lot of money, you can easily pay for LTC out of pocket.


I've typically seen it phrased that if you have little money, you do not need LTCI because there are no assets to protect, and Medicaid will pay for your care. If you have a lot of money, you can easily pay for LTC out of pocket. It's the folks in the middle, which is where I am, that may need to insure for LTC.

* I read that "the average private nursing home room costs $87,000 a year" -- 1,000,000 / 87,000 = 11 years.
When my Mom went into an Alheimers unit it cost $5000/mo. $1,000,000 / ($5000 * 12) = 17 years.
And if your health is so poor that you need to go into a nursing home, you are unlikely to live 11 or 17 years.


Unless you have Alzheimer's, in which case the stay is in the higher number of years, and so you do live for those 11 years. And if you leave a spouse, you don't want them to have to use all the assets to pay for your care leaving nothing for them to live on after you are gone.

"The American Association for Long-Term Care Insurance says people should expect to pay an average of $3,335 per year to cover a couple of healthy 60-year-olds on a plan that pays out a $150 daily benefit ($4500/mo) for up to three years."

We're paying $3600 for both of us for $150/day for an unlimited amount of days. I think that's a bit better benefit than what you have quoted.

So what you are insuring for is just $180,000. Why bother? If you have $1M, the total hit of $180K is minor.
It's only the first $180K that you have to worry about --- everything over $180K has to be paid for out of your own pocket anyway. I would submit that there is no substantive difference between $1,000,000 and $820,000 -- especially considering that the total premiums you paid are likely to be a large fraction of the $180K. You are not so much buying insurance as pre-paying for the LTC.


Because my policy will pay for longer than those 3 years, and if we need a 10-year stay, then that would be $600k, and that's a big hit. Even your $180k hit from that $1m portfolio is 18%, and from a board that often decries paying a financial planner a 1-2% fee, I'm surprised you think using 18% of the assets for one spouse is OK. I think that's a high percentage, and have decided to pay for insurance.

After considering all that, this is why we decided to forego LTCI and focus on saving & investing to get to a $1M portfolio.

And for your situation, I'm sure this is a good decision. For my situation, however, I felt the best decision for us was to have the LTCI.

As always, YMMV, and folks should make their decision based on their own particulars.
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$150/day for an unlimited amount of days.

Our experience with this industry is they are big on promises but fight pay outs tooth and nail. Even with Sis, a nurse who knew the system taking care of the forms, it was a prolonged fight to get payout, and it was less than promised. I realize that this is one data point among many, but I feel so much better keeping control of my own funds.

Unless of course I am that Alzheimers patient, in which case I have a separate insurance policy of my own devising. Been there, dealt with that...not doing it to my kids. Life is only precious to me if I know who I am and that my underwear does not go on my head.

IP,
jokingly telling Eldest that when the time comes put me in a kayak with ankle weights and send me down a class 5 rapid
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Our experience with this industry is they are big on promises but fight pay outs tooth and nail.

I hope to actually never find out how they are at paying out.

I think of LTCI similar to how I think about home owner's insurance. I have it to protect against the house burning down, and I really hope that it is wasted money and I never have to collect.

As my home owner's insurance isn't that much less than my LTCI, I think that's a reasonable analogy. And that brings up a curious question - for those of you who are saying I am paying too much for LTCI, do you no longer carry home owner's insurance once the house has no mortgage and self-insure against it burning down? Seems the amount of cash layout would be similar in the event of a disaster.
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So unless we figure out how to spend more

Grandkids!
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for those of you who are saying I am paying too much for LTCI,

Has anyone actually said this? I guess I missed it.

WRT homeowners, I self insure to a certain extent in that I carry the highest deductible. Ditto for cars and umbrella. And for our vacation/future retirement home, I don't carry flood insurance, so yes, I self-insure for that. But with 300' of riverfront and kids who seem to love to ignore boundaries, you bet we carry insurance....particularly liability. Arrived one day to find our best rope swing was missing. Turns out that a kid visiting next door decided to swing over the very swollen river without permission and it broke, sending him into the drink. Kid is lucky he didn't drown. We cut the other rope down immediately and won't put one back up. Our other neighbor is chasing kids out monthly. Can't wait to take up residence.

IP
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LTC is a tough sell if the customer is an engineer.

ROFLMAO and at least one poster knows why.
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Unless of course I am that Alzheimers patient, in which case I have a separate insurance policy of my own devising. Been there, dealt with that...not doing it to my kids. Life is only precious to me if I know who I am and that my underwear does not go on my head.

What's your policy? Mine is skydiving without a parachute.

PSU
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Grandkids!

Heh. We have a few years and then some before we have that option...or so I pray. Our kids are still teens.

I am looking forward to some adventure travel. There is a lot of whitewater out there that needs experiencing. And looking forward to spending winters elsewhere. I am done with the cold. But we have a separate bucket set aside for travel, so that doesn't come out of our "retirement funds" anyway.

I like the separate bucket approach, particularly for travel and other discretionary expenses. If the bucket gets high we can play hard, and if it's been a less than stellar year, we kayak out the back yard and hike the local waterfalls. And to bring it back to the subject, my FA had nothing to do with it. Wouldn't mind finding someone who was a bit more well rounded than simply investing, but the returns are good and I can certainly do the rest, so motivation for change is low.

IP
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"Unless of course I am that Alzheimers patient, in which case I have a separate insurance policy of my own devising. "
...
What's your policy?


We have a policy, too. Devised after seeing a close relative go through Alzheimer's.

At first onset, we'll develop as terrible sleeping disorder and need strong sleeping pills, prescribed by as many doctors as we can see in a short period of time. It shouldn't take very long to have a large enough supply and take tham all at once. Less messy than driving into a bridge abutment at 100 MPH.

Oddly enough, when we hinted at this with our doctor, she just said to be sure to look up the symptoms so we could accurately describe the neccessary sleep disorder.
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IP,
jokingly telling Eldest that when the time comes put me in a kayak with ankle weights and send me down a class 5 rapid


lol. I'm the same way. I just want to start walking in the Rocky's and get lost and never be found.

Metal
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DIY exit at home may become a popular thing in my community. Our community hospital has just announced its sale to a Catholic hospital company. In addition to prohibiting abortions and contraceptive procedures in the hospital, they, reportedly, also do not honor advanced directives. So once you're admitted you'll be doped up on painkillers and kept alive for as long as modern science and machines can manage.
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...in the hospital, they, reportedly, also do not honor advanced directives.

It is not mandatory for your spouse to do so either, at least in some states, so get on the same page with your significant other. When Mom had her stroke, Dad overrode her wishes to avoid extreme measures, telling the doctors to do whatever they had to do to keep her alive. It didn't matter that she had documents to the contrary on file.

She lived for over 10 years in a severely compromised state, slowly getting worse with time as her circulation declined. A proud accomplished woman, she was at first devastated at her physical and mental state, until her mental state declined to the point where she didn't seem to be aware of her condition having changed from a better state.

DH was shocked and appalled when I told him of my intent. I plan on sending him to help his sister with their mom when her time comes. He will no longer have the work excuse and really needs that education in order to judge my preferences.

IP
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