Matt Ahrens

As someone who is a 34 year financial advisor I feel I can relate to your situation.  Prior to becoming an advisor I wholesaled to a wide range of advisors and bought into the "Bank on Yourself" idea and purchased a whole life insurance policy for my wife.  After paying the premium for five years I gave up and surrendered the policy, it just doesn't make sense for us.  If you take what I am investing in that policy and compound it out over our lifetime then I am much better off with the investment.  We had a broker sell one of our physician clients on a whole life insurance policy for her and her husband, and they were paying $1,500 a month.  He sold it as a "Roth for the Rich" and said it was better than investing in the 403(b) at the hospital.  If she died her family would have received the million dollars in life insurance, but the insurance company keeps the cash value.  After we surrendered the policy and set her up with a term life insurance policy then her family would receive the million dollars in life insurance AND the money in the 403(b).  People don't get rich off life insurance while they're living, and I saw too many life insurance policies that were not set up correctly where the owner had to pay back the loan or the entire loan would become taxable.  There are policies designed specific for this type of investing, but you won't get it through a typical broker.  If you fall into the very small percentage of people where this makes sense (and I would say even if your income is there then you're still too young) then you'll want to work with a high end broker.  

We work with many physicians and large families, but our philosophy is to not let the tax tail wag the investment dog.  There is a lot of tax planning that can be accomplished prior to buying whole life insurance.  All I would ask is that you get a second opinion.  If you build a net worth that you have an estate problem then that's an awesome problem to have.  With this much time prior to accessing your retirement money then I'd focus on lowering fees and when appropriate diversifying investments to private equity, hedge funds, etc.  The point is to build enough wealth to be self-insured and not pay for life insurance at all.

Good luck to you,

Matt Ahrens, CIMA®

Nope there is no limit.  There is only a limit on how much you can contribute on an annual basis.  That would be $5,500 ($6,500 if you're over 50), and that is subject to income limits.  If you're single and make more than $63,000 in 2018 then you start to lose some of the tax benefit on a Traditional IRA.  For married filing jointly that phaseout starts at $101,000.

Good luck to you,

Matt

Great question, and I am assuming the funds are non-qualified or the investment was made with taxable dollars instead of IRA funds.  First you should know that many insurance companies allow for a lifetime stretch of non-qualified assets, but you are required to take the first distribution within the first year of the deceased's date of death.  The life insurance company can calculate a "life expectancy distribution" and that would need to be done each year to fulfill your obligation of withdrawing funds every year.  If you're past the first year then all funds should be withdrawn within the first five years as you indicated in your question.  This series of similar payments would satisfy the IRS 72-t rule to avoid an early distribution penalty on withdrawals, but if you have concerns then you may consult with your CPA.

I am not entirely sure how someone came up with five year payments of $39,500 when the current lump sum would be $12,500.  That would be quite an impressive gain each year so you may want someone to review that number for you.

If this is indeed a non-qualified annuity then remember the earnings are coming out first and are taxable at your income tax rate.  Once you have taken out all of the earnings and are receiving cost basis back then you could surrender the contract (there should be no surrender charges since it is a death benefit claim) and take the remaining funds out without creating a tax liability.

Feel free to reach out if you would like us to look closer at your situation or hop on a call with you.

Good luck,

Matt 

Good question, and congrats on having access to pensions.  The railroads have done a great job of taking care of their employees in retirement.  As someone else previously mentioned, as long as you have access to Social Security you might as well take it.  Most likely this will be at age 70 when it is the highest payout for you and your spouse.  Social Security does have one benefit that most pensions do not, and that is annual cost of living adjustments.  This adjustments (along with having access to other retirement accounts) help you keep up with inflation.  In addition, if something unfortunate happens and one of you passes away early how does that impact you pension income?

Specifically to your question of $1 million I would say that is a misnomer.  We generally use the 4% rule, but even in this period of low interest that has been unstable.  Since you already have 80% covered, let's say your 20% is $2,000 a month.  At a 4% annual withdrawal rate you would need $600,000 to cover $2,000 in monthly expenses.  So your pensions definitely help you reduce your retirement number, but there are other scenarios that you might want to consider in your planning.

Good luck to you, and please let me know if I can be of further help.

Matt