1 Reply Latest reply on Aug 19, 2009 1:05 PM by jkom51

    Life Insurance Retire Income Alternative

    Reed

      ALSO CALLED A LIRIA:  I'm part of the CalPers retirement system and am about to retire. My wife is 14 years younger than myself and so my retirement income, if I provide for her after my death, is reduced by about 20%. My insurance guy has proposed a plan that is basically what I understand to be whole life policy that provides for a life annuity for her.

      Anybody have any experience with such a policy?

        • Re: Life Insurance Retire Income Alternative
          jkom51

          My DH is also part of CalPERS. The survivorship benefit is one of the most incredible retirement benefits available to us. Consider the latest stat making the rounds of financial planners - if a couple retires in reasonably good health at the age of 65 (and of course, under CalPERS we can retire 10 yrs earlier than that), at what age does the SECOND spouse die?

          Answer: age 92

          That's quite a long time for one's portfolio to last! I figure my DH's pension is worth approx. $1.8 million if I assumed a 4% distribution from a retirement account. So taking a small percentage hit for a spousal benefit is worth it to us.

          I personally am not a big believer in whole life. Having worked in life insurance long ago, I noticed all the execs had term insurance, LOL. I wasn't too familiar with the newer universal life policies which have sprung up, so recently I asked an independent CFP about them. He said in certain circumstances they can be appropriate, but what a lot of consumers don't realize is that these newer products have variable management fees and agent's commissions. Apparently the default, when an agent quotes you a policy, is automatically set to generate the highest company fee and agent commissions. You have to specifically request they change the defaults to get a policy that is advantageous to the consumer, not to the agent/company! This was a big surprise for me - 'back in the days' when I worked for a famous carrier, flexible fees and commissions were unheard of.

          You should probably compare the cost of this hybrid product against a straight term life policy along with an immediate annuity. Remember that it's usually recommended that no more than 20% of your total portfolio be invested in annuities. Also, should the carrier go under while paying you benefits, there is often a cap on their liability for annuity products, so check it out carefully.

          As a member of CalPERS you should have access to a a certified financial planner (CFP). Call one for an appointment and when you have the policy in hand, have them check it over and see what they say. HTH, and good luck to you going forward.