Q: My husband and I are both retired, ages 63 and 66. I still do some consulting work as a CPA. We have an investment portfolio of $700,000. Our children are grown and not dependent on us for living expenses. I had always heard that, when no one is counting on you for income, there is no need for life insurance. However, we are still carrying life insurance and trying to decide whether we should drop it. Some of the literature from the insurance industry says you should keep it. Suze Orman says you should drop it.
We are conservative and not sure what to do. Could you provide some insight? We have long-term-care insurance and are both in good health, although we have some health conditions that are under control. — R.V., by e-mail
A: You're right— most of us should "outgrow" our need for life insurance as we approach retirement. Research has shown that young couples are usually underinsured, while couples in their 50s and older are overinsured.
One of the better uses for a life insurance policy that is no longer needed as life insurance is as a substitute for long-term-care insurance— while the money is not available until the person needing long-term care dies, a life insurance death benefit can help replace assets lost while caring for the spouse in long-term care. It can also be used to replace some of an inheritance that has been lost to long-term-care expenses.
You, however, already have long-term-care insurance, so it's hard to make a case for retaining the life insurance policy. While the accumulated cash value in a policy may be earning at an attractive rate, most of the earnings are likely to be absorbed by the ongoing cost of the life insurance. So you are probably better off taking the cash value in the policy and investing it— or viewing it as a "life dividend" and doing something you enjoy.
Q: My wife and I are retired federal employees, receiving civil service pensions. She retired in January 2008. I retired in January 2009. Our house and vehicles are paid for and we are managing fine on our pensions.
Just before my wife retired, she rolled over her TSP funds of about $79,500 into a Flexible Premium Indexed Deferred Annuity with American Investors Life (now called Aviva Life and Annuity Co.) The company added a first-year premium bonus of about $4,000. We don't really understand how or when she can get her money, but know there will be penalties if she takes anything during at least the first 10 years. Since reading several of your articles, it appears that this type of investment may have been a mistake.
When I retired, I left my TSP account intact. I currently have $83,000 invested in the G fund only, as I am very conservative. I don't know how to invest it, or if I should take an annuity, or just let it continue to remain in the TSP for now. What would you suggest? — P.H., Jarrell, Texas
Q: Leave it in the TSP! Think about putting some portion, however small, into one of the equity options. With annual expenses of only 0.03 percent, the Thrift Savings Plan is the most efficient retirement savings plan there is. There is virtually no reason on earth that any government employee would want to move his or her money into any other fund or investment product. Since most government employees will also receive a federal pension— an income guaranteed for life— your other savings should be in vehicles that are liquid, flexible, and without withdrawal fees or penalties.
People who don't have pensions from their work will often benefit from creating a personal pension by purchasing a traditional life annuity. A traditional life annuity has fewer gimmicks than indexed annuities and is very likely to provide a higher lifetime income. To read more on products of this type, please visit my website and read a collection of columns in PDF format: http://assetbuilder.com/downloads/living_benefits.pdf.
The salespeople for indexed annuity products get big commissions for making this kind of sale. You will find that most derive 100 percent of their income from commissions on a limited variety of products. They are a hammer. You are their nail.