Challenges At Retirement – A Three Part Series

One Man’s Plan (Part 3)

By Mike Flynn:

At my age, income becomes much more important than net worth when measuring financial resources. For this reason, my stock portfolio is diversified and seeks dividend yield as opposed to growth and an immediate annuity is something that I will be adding within the next year. At my age 74 and my wife’s age 70 an immediate annuity can guarantee us an income equal to approximately 8% of the premium until the second of us dies. Approximately 65% of each payment we receive will be tax free until we recover our cost basis. We will only use a portion of our assets to purchase this annuity since we cannot access the principle once the income stream starts. And, if we die in the early years our heirs might have done better if we had gone into a more traditional investment. But it is a great element for our total portfolio, adding a base guaranteed income that we cannot outlive 

Finally, to satisfy my desire to leave something for our kids and loved ones when the second of us dies, my wife and I purchased a Second-to-die Life insurance policy eleven years ago. This type of policy is traditionally used to provide for estate liquidity to pay for taxes imposed at the death of the second spouse. Will it be needed for that purpose? Who knows? The federal estate tax has been reducing annually and is scheduled to be non-existent in the year 2010, but then return to its previous 55% schedule in the year 2011. It is likely that congress will make some adjustments to this approach before the end of 2010. The exclusion amount will probably be increased and the percent taxed decreased.

But, whatever happens will not change our commitment to maintain this policy in force. The Internal Rate of Return on the death benefit is excellent, regardless of when the second death occurs and it fits in with our tongue-in-cheek “Estate Plan” to spend the very last dime of every liquid asset we have on the exact date of the second of us to die. We will have lived to the fullest and still have left a legacy of parents who loved their kids and cared for those left behind.

With health insurance to cover all possible long term care needs; an immediate annuity and conservative, income producing investments and a Second-to-die life insurance policy, I feel great about my years ahead and how I will be remembered when the last major event takes place.

Michael M. Flynn

Leave A Reply