Your clients, Joseph and Mary, are nearly ready to retire. He will be 62 in November, Mary just turned 61. They have planned and saved what they feel will be enough to live comfortably in retirement. They estimate expenses of $8000 a month with a 2.5% inflation rate.

Joseph recently left his employment but Mary plans to work a few more years until she is 65. Her salary is $70,000 a year. Both have a 401k plan with $350,000 each. Mary is contributing $1500 a month with a $500 match from her employer. Other investments total $300,000 with a $250,000 basis. They have other savings of $50,000. They conservatively estimate a return on their retirement assets of 4%.

Using Cash Flow Decisions, you find that your clients can afford to optimize their Social Security. Joseph will file and immediately suspending at his Full Retirement Age (FRA), 66 which allows his benefits to earn delay credits. Mary will also file at FRA, also age 66, and restrict her benefits to spousal only. At age 70 she also will receive her benefits with full credits for delay. You find that their cash flow is sufficient until Joseph is 84, Mary 83.

If Joseph dies at his life expectancy of 85, Mary has 6 years of survivorship until her assumed death at 90. They estimate Mary will need 80% of the current monthly expenses. Notice the information to the right of the graph (Figure 2). The value of the remaining needs at Joseph’s death (the life insurance need) is $368,655.

Life Insurance Tip

Figure 1

Purchasing a life policy to cover the life insurance need accomplishes two goals:

  1. assures that Mary has sufficient funds after Joseph dies (Figure 2); and
  2. reduces the remaining needs while both are living to just $18,797 in today’s dollars.
Life insurance covers survivor shortfall.

Figure 2

Retirement income planning can be complex. Life insurance offers a simple way to fund survivor needs and gives your clients peace of mind.

Cash Flow Decisions can show your clients not only their cash flow but also provide suggestions to improve their plan.

Posted September 29, 2015 filed under Articles.