Quote:
Originally Posted by philfree
So I'm 63 years old and I have a life insurance policy for $250,000.00 that's costing me $300.00 a month. Let's say I have over a $million with no mortgage or car payment. I going to live off dividends. I drained my insurance policy a couple time some years ago so there's only about $5,000.00 in it. I'm looking to cut my expenses so I'm thinking about cashing out my policy, paying some bills and lowering my expenses that $300.00 a month. With the value of my house and the money I have I think they'll be plenty to leave for the kids and If I were to die unexpectedly everything is covered for the wife so I'm thinking I don't need life insurance.
What does the Oracle that is Chiefs Planet think?
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Most of the "will it be enough?" questions are way too dependent on you to answer.
If you're planning on living off dividends, that can be tricky depending on what you have. For instance if you have $1M in like VOO Which is an S&P index fund, that's only like
15K a year in dividends.
Something like JEPQ has a pretty big dividend which $1M would get you close to 90K (this year), but it has historically a
negative dividend growth rate, so in future years you wouldn't be getting as much in dividends. Add in inflation, and you'd better be living well below that 90K a year and hanging onto the extra.
If you leave it in higher returning stocks, you can fund retirement through sales of your positions, which leaves much higher growth potential, but you're eating your capital. Most things I've read suggest a 4% withdrawl rate is pretty safe. At $1M that puts you at 40K a year.
Dave Ramsey says you're good to go at an 8% withdrawl rate, which is the historic return of the S&P (I think that's where he's getting that), meaning that your returns would replace what you take out, but in down years, I think that would substantially eat into capital, then when the market has positive returns you'd be dealing with a materially smaller capital position. I'd probably get jittery in a down year if I was taking 8% out.
I tried to do some modeling a year or so ago. I'm 41, so it's exacerbated, but trying to genuinely forecast what I'm going to need to have in 40 years is pretty tough. Like impossibly tough.
For instance, inflation over the long term is almost unfathomable. The fed after this recent fiasco is consistent that it wants to hit a 2% inflation number. Well, 40K compounded at 2% (presuming the fed hits their target perfectly) for 30 years (it's not unreasonable you'll live to 93) is $71,033. Now who knows how it will manifest itself, for instance TVs are way cheaper than they were 20 years ago, but protein is not. It's impossible to know how cost structures will look in the future, but throughout your retirement you won't be completely unaffected by inflation.
So to the "will it be enough?", I give you a hearty "**** if I know."
If the question is what would Buehler445 do?
Buehler445 would cash out the insurance, take that 300 and stick it in your brokerage to bolster it. All the better if you can take the 5K of cash value and put it in there too. You'd be dollar cost averaging that extra 300 into your plan and put yourself in a better position to live off the income and keep your capital intact if you're intending the residual value to act as life insurance proceeds.
The return on life insurance is pretty low. Last time I looked at any it was capitalizing at like 4% or something. While it is nice to think about your survivors getting a check, from a financial perspective, you're better off investing it yourself. Just make sure your beneficiaries are set right on your investment account and you'll end up in a better place, provided you can keep your capital intact.
Good luck. When I started pushing numbers out for retirement I got real uncomfortable real quick. I'm probably overly pessimistic, but my grandpa just passed and his rest home bill was almost 8K a month. Comparatively, in 08 when my other grandpa passed his rest home bill was like 2K a month so I was staring that down, and realizing that shit can get really out of control really quick while nobody is paying attention.
Hope all that rambling helps.