Safe Money - 2-15-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craig Schillig here and this is
Safe Money. I'm here every Saturday to talk with our
listeners about financial strategies we use to manage and protect
assets safely. I've been in an insurance agent for over
twenty four years. During that time, I've learned a few
insurance strategies, like using annuities as safe money harbors, or

(00:23):
using cash value life insurance to supplement retirement income. Just
a reminder, you can call our office at five six
three three three two two two zero zero if you'd
like to enroll into one of my virtual Medicare community meetings.
I do those via zoom and I give two every month,

(00:48):
or you can email me at Craig at Craigshillig dot
com and that's my name, cr Aig at cr Aig
scchi lllig dot com. Today I want to talk with

(01:08):
you guys about survivors survivorship cash value life insurance. Why
do we want to talk about survivorship cash value life insurance. Well,
February is Ensure your Love month, so let's talk about
survivorship cash value life insurance. Survivorship life insurance provides permanent

(01:31):
death benefit protection for two paying a death benefit after
the last insured person dies. It can be a cost
effective component of a sound financial plan. Now that's the definition.
Let me use some layman's term speak. So this is
on two people, husband and wife. I position this as

(01:55):
another retirement bucket that you guys can access. You can
access the cash values free and clear, tax free. It's
just another option you guys have for one of those
buckets of money that I talk to you guys about
all the time. So let's talk about a good fit

(02:16):
for two. Survivorship life can be a good fit for
married couples, business partners, or other pairs of individuals with
a financial or family tie. Let's talk about affordability. So
sense of survivorship policy only pays the death benefit after

(02:39):
the second death. It usually costs less than the two
comparable individual policies. Now that's one per to it. Another
one is qualification. Survivorship policies are subject to medical underwriting.
But since the death benefit is not paid until this
second death, qualifying for coverage may actually be easier than

(03:04):
qualifying for individual coverage, especially if one person is substantially
older or in poorer health than the other one. Because
understand this contract they're underwriting for two people, so they'll
take the good with the bad, which usually in some
cases can cancel each other out. It's kind of helpful.

(03:28):
Some additional advantages for you. You can accumulate cash value
and access it at any time during your lifetime for
supplemental income. I've had clients use it for vacation, unexpected expenses,
any other purpose. And remember I'm using this to position
as deferred retirement income. You can customize your policy with

(03:53):
add ons for additional costs to enhance protection, add flexibility,
or help with unexpected situations such as an extended illness
or disability if you were in an accident. Stuff with
that nature. You can use it to support business needs

(04:14):
by using coverage to retain and attract key employees, or
by using your policy's cash value to expand your business
or enhance its cash flow. There's advantages also for beneficiaries.
You can leave a legacy and transfer well tax efficiently
through the policy's death benefit, which passes to your name

(04:35):
beneficiary income tax free. You can provide immediate liquidity to
help beneficiaries pay as state taxes and final expenses, or
to help a business partner buy out a business interest.
You can create a source of ongoing funding for the
care of a special needs family member or for continued

(05:00):
support of your favorite charity. Survivorship life insurance provides permanent
death benefit benefit protection for two individuals pain and death
benefit after the last insured dies. It can be a
cost effective component of a sound financial plan. Why would

(05:21):
you consider survivorship life insurance? Accessing the cash value will
reduce policy death benefit and values, may result in additional
fees and or charges, and may require additional premium payments
to maintain coverage. Remember what I position this for is
retirement supplemental income. So let's talk about some of the

(05:46):
survivorship products out there. There's many different ones out there.
They have different combinations of standard features and optional benefits
to serve a variety of needs and preferences. Financial professional
can help you evaluate your overall situation and select a
survivorship life product based on your specific goals and what's

(06:11):
most important to you. Such ass is providing a death
benefit for this viv after one of the insurance dies,
supporting a variety of estate planning strategies, or paying that
is state tax, accumulating cash value that can be accessed
for a variety of reasons, free and clear tax free.

(06:35):
Most policies also have a no lapse guarantee for a
certain number of years, so there's some competing financial goals
out there. Many successful people spend a lifetime accumulating assets
and building wealth. At some point they turn their attention
to living the retirement dream or the one they plan for,

(07:01):
leaving a financial legacy to the people they love and
the causes that they care about. However, balancing these two
can be a challenge. They want to enjoy a secure
retirement without worrying about preserving assets for their children or grandchildren.
A survivorship whole life policy may help manage these competing goals.

(07:24):
If leaving a financial legacy is important to you, there
are steps you can take to help ensure that what
you leave behind will pass your loved ones in an
orderly and efficient manner. A sound wealth transfer strategy should
focus on two important goals, distributing your assets according to
your wishes and minimizing the expenses, reduction in value, and

(07:49):
delays in settling your estate. It's also important to consider
the types of assets you will leave in how they
will impact your wealth transfer goals. For example, the value
of assets such as real estate and securities varies based
on certain market conditions. Annuities, retirement accounts, and other financial

(08:15):
assets may have deferred taxable earnings and will pass to
errors with an income tax liability that reduces their overall value.
If we're talking about business interests, real estate, or personal
property that may not be easily divided among certain family members,

(08:38):
your legacy for the future is state planning with life insurance.
Life insurance offers significant advantages to make it an effective
way to transfer wealth to your family. Remember, everybody likes cash,
especially when it's non taxable. These include financial leverage, cash value.

(09:00):
Life insurance can provide a significant death benefit in relation
to the premiums that you paid for them. Remember, the
death proceeds are very tax efficient. Death proceeds will be
paid income tax free to your beneficiaries. There's liquidity there.

(09:23):
The death benefit can provide cash to pay taxes and
other expenses that may be due at death. The value
is predictable your policies. Death benefit will never decrease based
on changes in the financial markets, and it's easy to distribute.
The proceeds are paid to your beneficiaries based on which

(09:47):
your wishes which may help make equitable bequests to family members.
This can be important if you own assets such as
a business, vacation home, or family heirloom that you want
to leave to specific family members. It's not a probate asset.

(10:07):
The policy's death benefit, paid directly to the beneficiaries, avoids
the expenses and delays of probate and will not be
part of any public record. This can help you retire
with confidence. Many couples entering retirement today are concerned about
spending more than expected during retirement. They might simply live

(10:31):
longer than they thought they would or incur substantial medical
or long term care expenses. As a result, they may
not be able to leave a financial legacy for their family.
So let's consider the following example. A couple has accumulated
three million in retirement savings and other assets. They expect

(10:55):
to need two million to live comfortably in retirement and
to leave one million dollars to their children. However, if
things do not go as planned, they may need to
spend the assets that they have earmarked for their family. Alternatively,
this couple could use a portion of their savings to
purchase a survivorship cash value life insurance policy. The policy

(11:21):
could guarantee that one million dollars would transfer income tax
free via the death benefit would be paid to their
children after they have both died. This may free up
additional funds that they could spend in retirement. In addition,
their policy would accumulate guarantee cash value, which they could

(11:44):
access later in retirement if their other assets have then
been depleted. Survivorship cash value life insurance provides a guaranteed
death benefit and cash value. Typically, vivorship policy is going
to have lower premiums than in single life coverage. Second

(12:05):
to die life insurance generally offers lower premiums than a
policy that would only be ensuring one person for the
same amount. Most survivorship cash value policies pay dividends. The
ones that do our policies are participating in eligible to
earn annual dividends. You may use any dividends you receive

(12:26):
to pay some or all your out of pocket premiums,
or to increase both your cash value and life insurance
benefit protection. Please understand, dividends aren't guaranteed, but most mutual
companies strive for and usually achieve, paying dividends every year.

(12:48):
Cash value is not subject to market conditions. Policy cash
values will never decline due to market conditions and may
offer an alternative source of funds during market downturns. There's
also tax advantages to this. In addition to pay and
income tax reedeath benefit, the policy's cash value accumulates tax

(13:12):
deferred and you may be able to access it on
a tax advantaged basis. There's also built in creditor protections.
In many states, personally owned life insurance cash values are
fully or partially exempt from the claims of creditors. You

(13:33):
should consult with your legal counsel to determine whether the
laws in your state exempt personal and or business assets
from the claims of creditors. Overall, survivorship cash value life
insurance policy can be an attractive retirement, accumulation and legacy
planning product. Additional benefits of survivorship cash value insurance other

(13:59):
uses for these policies. You can use them for state
tax planning, and they can be used to help pay
for those of state taxes. Ownership of the policy can
be structured so that the death proceeds will not be
subject to a state taxes. If we're talking about charitable giving,

(14:20):
they may help you leave a substantial contribution to a
charitable organization you support. If we're talking about special needs planning,
parents are caregivers of someone with a disability or special
needs can use the policy's death benefit to help ensure
that expenses related to the care of the person will

(14:41):
continue to be paid after they have deceased. Proceeds can
be structured in a way that helps maintain eligibility for
government programs, and you can consult an attorney or tax
advisor on how to set this up. Let's talk about
guaranteeing your legacy overall. A survivorship cash value life insurance

(15:03):
policy may help you live a more secure and comfortable
retirement by providing a guaranteed death benefit for your family,
which may allow you to spend more of your other
assets during retirement. This also will allow you to accumulate
additional cash value, which can be used as a source
of supplemental retirement income. So there's a lot of different

(15:30):
survivorship cash value portfolios out there. Some policies will be
factored based on the premiums going to age one hundred
and twenty one. Some policies will allow you just to
pay premiums for ten years or twenty years. Some you
may even only paid age one hundred. It depends on

(15:51):
the company and the product. There's also significant guaranteed cash
value accumulation for tax advantage wealth transfer. There's also opportunities
to build additional cash value and death benefit through non
guaranteed dividends, and most policies come with writers, including paid

(16:13):
up editions, overload protection, and some estate planning writers depending
on the company. I've talked about the importance of diversifying
your retirement income sources. You work hard to live a
comfortable life and want to continue your lifestyle during retirement. However,

(16:35):
a common rule of thumb is to have eighty percent
of your pre retirement income available each year in retirement
to maintain your lifestyle. While saving adequately for retirement is crucial,
it's equally important to build a diversified portfolio that allows
you to efficiently access funds so that you won't outlive

(16:57):
your assets. A special considering how many challenges you may
face the retirement, let's talk about some of those challenges.
Benefit shortfalls, living longer, inflation so benefit shortfalls, with traditional

(17:17):
pension plans going away, and healthcare costs rising, You'll need
to create your own source of income to sufficiently cover
your future needs. Some studies predict that a sixty five
year old couple may need to save up to three
hundred and fifty one thousand dollars to cover their health

(17:39):
insurance costs in retirement. What about living longer? Retirees today
are healthier and living longer than previous generations, which means
they need their retirement income to last longer than initially expected.
For a married couples both age sixty five, there's a

(18:02):
fifty percent chance that one spouse will live to age ninety.
So let's talk about inflation and taxes. Inflation erodes you're
purchasing power over time, so your retirement income will need
to keep pace with rising costs. For example, if we

(18:22):
talk about a two thousand dollars monthly expense today, that
would cost you five hundred and eighty dollars in thirty years,
assuming an annual inflation rate of two point eight to
three percent. Additionally, potential future tax changes could impact your

(18:45):
retirement income. Nothing's as certain as death and taxes. The
only problem is we sometimes don't know what the future
tax rates will be. Let's talk about market volatility. While
an upmarket can help help you keep pace with inflation.
A down market can significantly impact and deteriorate a portfolio

(19:11):
when it's needed. Most the S and P five hundred
index experiences a down market approximately three out of every
ten years. Please remember that because we've been on an
uphill slide for a while now. Market volatility illustrates the
risks involved and the importance of strategic planning to mitigate

(19:33):
such risks and market downturns. You've heard me talk about
sequence or returns before retirement is a long game. In
order to plan for a long term retirement, investors estimate
the average compound annual growth rate that's called the Kagar

(19:53):
CGR of their portfolio over years and even decades to
understand sequence of the retur Let's review the following hypothetical
market comparison. By using other sources of retirement income in
negative return years, we have improved our overall portfolio performance
as measured by Keeger CGR. Therefore, it's prudent to have

(20:17):
other sources of retirement income available to enhance portfolio performance. Again,
that's our other bucket of money. Even though we used
a five point eighty eight percent as our annual inflation
distribution amount. In our example, this has proven to be
aggressive when considered within the industry US four percent distribution rule.

(20:43):
The four percent rule is a retirement withdrawal strategy that
presumes retires can safely withdraw a four percent of their
savings during their first year of retirement, with future withdrawals
compounding at four percent for inflation each year for a
thirty year period. Whether the four percent rule will or

(21:05):
won't work depends on specific market performance, and prior history
is not indicative of future results. It may be more
prudent for retirees to align annual draws with the remaining
portfolio of value, adapting to market fluctuations once again, have

(21:30):
another bucket of money. Can cash value life insurance reduce
sequence of return risk? Absolutely yes. Leveraging the cash value
in your life insurance policy following a down market can
help protect and strengthen your overall financial portfolio by allowing

(21:50):
time for your investments accounts to recover. When you pay
your premium, abortion goes towards funding the policies value that
cash value earns interest over time, tax deferred at either
a fixed or variable rate, depending on the type of
policy contract you have. Once you've accumulated enough cash value,

(22:14):
you can begin to access that money in various ways.
We can take withdrawals. You can withdraw up to your
basis without any income tax consequences, provided your policy is
not treated as a MECH modifieding down the contract, you
can always borrow against the cash values. Remember cash value

(22:35):
life insurance is an asset. You can take out loans
for anything you'd like. Most policies will let you do
that up to ninety percent. Now you don't have to,
but you should repay the loan with interest. But you
don't have to. The insurerb'll just deduct that outstanding loan
amount against the death benefit. Income taxes may apply. If

(22:58):
the policy, again is a modifi endowment contract known as
a MECH, you could surrender the policy. This will end
the coverage, and depending on the type of policy, you
may have to pay surrender fee to the insurance company
and or some income on the interest ory everything's paid. Also,

(23:20):
you may will be taxed on any gain achieved in
the policy, because most cast value policies do nothing but
go up in value every day. So that's enough about
survivorship for today. But please keep this in mind. This
is a great way for you to ensure your love

(23:45):
for February during Ensure your Love Month, Now, don't forget.
I give monthly virtual meetings regarding Medicare. I give two
meetings every month. I give one from United Healthcare. In
that meeting, I cover Medicare Part C known as Medicare

(24:07):
Advantage Plans. The other meeting is sponsored by well Mark.
During that meeting, I talk about supplements and standalone Part
D plan. You can call my office at five six
three three three two two two zero zero for the
zoom meeting codes and additional dates and times. I'll give

(24:29):
you some of my dates now. My next two meetings
will be this week February eighteenth and twentieth. Again. Tuesday,
I do well Mark, Thursday, I do United Healthcare. My
next coming dates will be March eighteenth and March twentieth.
I'll do April fifteenth and April seventeenth, and for the

(24:55):
May dates will be May tenth and May twelfth. Besides
calling my office, you can also email me. That's Craig
at Craigshillig dot com and I'll spell it for you.
It's my first name, Craig c R A I G
at C r A I G S C H I

(25:20):
L L I G dot com. Send me a note
and I'd be happy to send you the zoom link
meeting codes. This is Craig Shillig with safe money.