When does buying life insurance at the age of 74 make sense? We are thinking in terms of protecting our estate, but aren’t sure if we need to do that. We do have a trust.
Hi Evelyn, that’s a great question. The vast majority of people do not need life insurance unless they have an income, which means many retirees should pass on this product. Getting rid of life insurance, or letting a term policy expire, is a great way to free up some cash in retirement.
It should be noted, though, that there are a few exceptions: If your spouse is dependent on a pension or annuity that will cease or decrease payments upon your death, you may want life insurance to pick up the slack. The same goes for Social Security payments that will be reduced — life insurance can step in at that point. The other scenario in which life insurance may be necessary is if you want to use it as part of an estate planning strategy, as you indicated. If you plan to pass on a large amount of money, you can use a life insurance policy to pay for estate taxes. You can also set a life insurance policy to pay into a trust as a way of passing on an inheritance.
Here’s the issue, though: Purchasing life insurance at age 74 will be extremely expensive, even if you are in good health and you’re looking at a term policy. The high premiums may not be worth it – you may be better off investing that money elsewhere. If you’re planning to go this route, I would work with a good fee-based financial advisor who focuses on estate planning to make sure you’re taking the correct approach. You can find one at NAPFA.org.
According to new data out of the Employee Benefit Research Institution’s annual Retirement Confidence Survey, Americans have as much doubt in their ability to retire as ever before. Only 13 percent say they’re “very confident” they will be able to retire, while 28 percent are not confident at all — a figure, EBRI says, is the highest they’ve seen in the 23 years they’ve been doing the survey. However, related research by New York Life reveals that there is hope for better savings habits, and it relies on a new kind of automation: auto-sweeping.
Auto-sweeping is the corollary to auto-enrollment: it’s the act of going back and enrolling employees into the company’s 401(k) plan, even if they’re not new hires, and even if they’ve opted out of participating in the plan in the past.
“Auto-sweeping is something relatively uncommon that’s becoming more common, just as auto-enrollment was uncommon 10 years ago,” said Dave Castellani, CEO of New York Life Retirement Plan Services. Of New York Life’s 500 plan sponsors, 68 percent use auto-enrollment, while only 10 percent are using auto-sweep. Yet, Castellani is convinced it will quickly catch on. The numbers suggest he might be right.
New York Life found that 80 percent of people who were swept back into their company’s plan stayed in; for those who drop out and are swept in again a year later, 70 percent remain in. These figures support EBRI’s research, which found that nine out of ten employees not saving for retirement would in fact do so if their employer were to auto-enroll them.
“What’s interesting to me is number of participants who thank the plan sponsor for doing this,” Castellani said. “Two things happen: they realize the actual payroll deduction is not that punitive, and they see the match. You see a very rapid effect of compound growth.”
These findings come on the heels of new research on auto-escalation – in which plan participants choose to have an automatic, annual increase in the percentage of their pay put towards retirement — that found that people are significantly more likely to increase their contributions if the increase happens automatically. Specifically, T. Rowe Price found that only eight percent of participants who are offered a choice will go for the annual increase, while 65 percent of participants in an auto-increase program will leave that increase in place.
If auto-escalation and auto-sweeping bring new meaning to “set it and forget it,” will they also help move the needle on retirement confidence and give EBRI happier numbers to report in years to come? Castellani says this will largely depend on the age at which employees are auto-swept. “If I’ve never ever participated in an IRA program and I’m 52 years old, that’s a problem,” he said. “However, if I’m 22 years old, and I finally get auto-swept in at 26, now there’s a lot of time for accumulation. Over a long time, the retirement confidence is going to go up. Not a dramatic short-term turnaround, but within more years, there will be more confidence.”
One-quarter of Americans over the age of 65 and half over the age of 85 have some sort of cognitive impairment, which can be a big problem when they have to make financial decisions. So how do you know when your own parents might need help? I went on the TODAY show to talk about how — and when — to take over your parents’ checkbook. Take a look:
According to a new survey from Fidelity, parents and adult children are having a hard time talking about their finances and setting expectations about caregiving. Among the most concerning statistics from the findings: 97% of parents and adult children disagree over whether the children will take care of their parents in the event of illness. I went on the TODAY show this morning and, along with psychiatrist Gail Saltz, talked about how to have these important conversations. To see our tips, check out the video clip below.
My son works in India on a two year contract. If he continues with this company, he will not be eligible to contribute to U.S. Social Security. He has some kind of plan with the company like an IRA, and wants to open up a Roth IRA here. In
your opinion, what’s best: a bank Roth; a mutual fund Roth; or a brokerage firm Roth?
Patricia, this is a good question. First of all, in order for someone to contribute to an IRA (Traditional or Roth) they have to have qualifying income. If your son has all of his income excluded from federal taxes, he likely won’t be able to contribute. If not, he should be able to open an IRA and contribute with the same restrictions as if he lived in the US. What I would do is have him contact a few brokerage firms, like Fidelity, Vanguard or Charles Schwab. Ask about whether he is eligible to contribute. He can open a Roth IRA at any of these financial institutions – as well as local banks – and he’ll probably have a wide range of access to many investment options, including mutual funds, CDs, stocks and bonds. He should compare by looking at the specific options that are available – and how they are rated – and the fees charged for the account. This is where he is likely to see the most variance.
In times of financial trouble, do you ever look at your 401(k) and think, “ah, maybe if I just withdrew a little bit now, it could help me out?” If so, you’re not alone. However, as I told Hoda and Meredith Viera this morning, it’s not such a great idea to take a hardship withdrawal or to cash out before you hit retirement age. To find out why, check out our discussion in the video clip below.
“I’ve heard that the average person needs 80% of their current income level for retirement. What goes into that figure? Does that 80% include paying on a mortgage? Leaving a financial legacy to others? If neither of these two cases are valid, would that % come down?”
Believe me, I know – it’s confusing. These averages – whether you hear 70%, 80% or 85% – are generally considered what is needed to maintain your current standard of living. That means provided you save X amount, you’ll be able to continue living as you are right now, minus going to work every morning. Sounds pretty good, no? If you golf on Saturdays today, you’ll still be able to golf on Saturdays. But if you don’t travel currently, don’t expect to be a jet setter in retirement.
That said, I have to tell you that I don’t like these rules of thumb. They’re a good guide, but the best way to plan for retirement is to run the numbers based on your specific needs. And the best place I’ve found to do that is the Ballpark E$timator at choosetosave.org. You’ll input specifics about your individual situation – expected Social Security income, any additional cash flow from pensions or part-time work, your planned retirement age – and the calculator will crunch the numbers and give you a good idea of your savings target. Then you can work on reaching it, by putting away money toward that goal each and every month. The best part? You’ll find it’s easier to do that when you have a tangible savings target in mind.
On yesterday’s edition of Money 911, we heard from several folks who were wondering how they could contribute to a retirement savings account without the help of an employer’s 401(k). To see what your options are if you’re self-employed, and how much you should be putting away each month, check out the video clip below.
This weekend, I went on the TODAY show to talk all about retirement: why it’s best to automate 401(k) contributions, why you should put your retirement needs above your children’s college costs, and why it’s best to wait as long as possible to take Social Security. To see the segment — plus my answers to some viewer questions — check out the video clip below:
Navigating finances in a second marriage can be tricky, but with a prenup and a solid plan to manage money (a yours, mine and ours system, for example), it can be done — or at least, that’s what I told a viewer who called into Money 911! To hear our discussion, plus tips on annuities and finding affordable health insurance, check out the video clip below.